Managing Yield Goals and Production Costs

Growers aim to achieve the highest potential yield at the lowest cost for maximum profitability. To help maximize profits, some growers may consider cutting back or completely cutting out some inputs altogether. These decisions should be calculated and thought through completely. Setting realistic goals based on informed and calculated decisions helps to realize maximum profit potential.

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Figure 1

Figure 1. Field with harvested corn and equipment.

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For growers, the goal is to achieve maximum profitability through the maximization of yield potential and cost control. This goal appears simple, but is complex in practice. Finding the economic sweet spot is an ongoing challenge for growers since crop production can not be completely controlled by the grower, and market prices are subject to change during the several months after a crop is in the ground and before it is harvested.1

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Setting Yield Goals

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Realistic yield goals can help growers achieve the greatest difference between the value of the crop and the cost of producing the crop. There are a few different approaches to use when determining your yield goals:

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Using historical records. This is a good tactic when a field has been used for over five years, if soil maps are out of date, or if no maps are available.

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Maximum yield approach. This approach is based only on inputs and management skills. Little, if any, consideration is given to soil potential and variations. This approach can be risky as it doesn’t consider the costs of inputs needed to reach that goal.

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Soil productivity approach. This approach focuses on soil productivity potential, available water, subsoil moisture, and management skills.2

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Some helpful tips when setting goals:

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  • Recognize that exceptionally good years are the exception and not the rule.
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  • Do not count abnormally low yields that resulted from weather-related conditions.
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  • Yield goals should be set for each field individually.
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  • Set goals 5 to 10 percent above the average yield of the past five years.
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  • Look into how technology may be integrated on the farm to help set and achieve yield goals.
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Consider Your Inputs

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Inputs are resources used on the farm including chemicals, equipment, seed, and energy. Most farm inputs are purchased, making production costs susceptible to non-farm economic conditions. When prices are low, growers should attempt to maximize production in order to reduce the per unit cost of production, with the goal of covering variable costs and as much of the fixed costs as possible.1

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Table 1 outlines estimated cotton production costs in the Lower Coastal Bend of Texas from 2013-2015, and Table 2 outlines estimated dryland corn production in the Upper Coastal Bend of Texas from 2013-2015. Both tables demonstrate the variations that can occur from year to year. These charts are examples and the numbers can vary greatly from location to location. For more information about estimating production costs for your specific farm, you can access Texas A&M’s 2016 Crop Profitability Analyzer at the following website: http://agecoext.tamu.edu/resources/decisionaids/ or contact your local extension agent.

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Table 1. Estimated cotton production costs per acre for the Lower Coastal Bend of Texas, 2013-2015.
DrylandIrrigated
2013201420152015
Yield Goal (lbs/acre)8008008001250
Custom Work$189.25$184.10$212.10$331.25
Fertilizer63.0360.7754.1167.64
Herbicide25.1024.5732.1232.12
Insecticide34.2329.1410.3610.36
Seed79.7675.3780.3685.01
Miscellaneous17.1014.3816.8816.88
Labor5.575.5510.8510.34
Other Chemicals2.156.9116.2816.28
Diesel Fuel14.2214.2220.6922.01
Repairs / Maintenance11.7411.7129.8955.40
Machinery Depreciation22.8813.3440.2570.44
Equipment Investment-9.5626.7868.59
Mgmt. Fee, Land, Interest99.7998.04108.38124.01
Irrigation---50.25
Total Costs per Acre$564.78$547.65$659.06$960.59
Breakeven Price$0.50/lb$0.49/lb$0.64/lb$0.65/lb
Source: Texas A&M University AgriLife Extension. Department of Agricultural Economics. http://agecoext.tamu.edu/.
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Table 2. Estimated dryland corn production costs per acre for the Upper Coastal Bend of Texas, 2013-2015, yield goal of 100 bu/acre.
201320142015
Custom Grain Haul$17.10$17.10$17.10
Fertilizer99.2195.5586.25
Herbicide30.4031.7630.87
Insecticide0.650.650.88
Seed70.1870.1874.14
Miscellaneous6.4021.0023.50
Labor9.159.1416.58
Other Chemicals0.870.96-
Diesel Fuel19.1619.1430.62
Repairs / Maintenance10.439.2641.14
Machinery Depreciation33.0118.1945.25
Equipment Investment-16.6032.64
Mgmt. Fee, Land, Interest87.53104.13114.00
Total Costs per Acre$384.10$413.58$512.97
Breakeven Price$3.84/bu$4.14/bu$5.13/bu
Source: Texas A&M AgriLife Extension. Department of Agricultural Economics. http://agecoext.tamu.edu/.
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One advantage of estimating production costs is that most farm inputs are known prior to the beginning of the season. This allows farmers to plan ahead. Having a clear idea of input price can help growers purchase inputs in advance at reduced prices in areas like the cost of land, fertilizer, and seed. Growers can also save money on equipment costs by using existing equipment instead of purchasing new equipment during years that may be tight.

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In order to try to help maximize profits, some growers may consider cutting back on or completely cutting out some inputs altogether. This needs to be well thought out and exercised with great caution. These decisions should be calculated, thought through completely, and not emotional. For example, use extreme caution when cutting back on inputs like fertilizers. Soil fertility must be properly maintained to support healthy root development, good stands, and reduce erosion, which help lead to high yield potential. Cutting back too much on fertilizer inputs not only reduces the chance of having a good yield year in the coming season, but also in future years. Reductions in weed control should be carefully considered. For example, if a herbicide application costs $5/acre, but delivers 2 bu/acre improvement in yield potential, you may not want to cut back on what might end up being a positive return on investment.3

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Setting yield goals and balancing them with farm input costs can be challenging. However, by taking the time to set realistic goals based on calculated decisions and planning ahead, maximum profit potential becomes more realistic.