Data Analytics Are Key to Better Decision Making

Key Takeaways:
  • Data analytics pinpoint exactly where your farm makes or loses money, allowing you to focus on the most profitable areas.
  • Embracing technology and business principles helps you manage costs, boost productivity and avoid unneeded debt.
  • Modern farming success hinges on strategic decision-making driven by clear metrics, strong financial know-how and actionable insights.

 

Running a farm is about more than understanding agronomy, botany and animal science. A farm is fundamentally a business, and the use of business strategies and state-of-the-art tools is critical to enabling today’s farmers to improve cash flow and boost profitability.

But that’s a tall order for some farm owners because farming is also a lifestyle and a family legacy. Moreover, even in the best of times, farming is a stressful endeavor. The costs of inputs like seed, water, fertilizer and chemicals continue to rise faster than inflation. The cost of buying and maintaining equipment is astronomical. Because of these costs too often farmers attempt to solve their problems by going further into debt. Which doesn’t solve anything. It just adds debt to the other problems keeping the farmer up at night.

It’s easy to fall into a situation where you’re on the hook for all of this and you’re struggling to make payments, and you don’t know what to do to fix it.

Relax. There is something you can do.

How Analytics Can Help

Gone are the days when a farmer could do the calculations “in my head” as to how much it cost to raise a crop, how much money was made from that crop and what was left over for profit. Guaranteeing adequate cash flow to keep farming operations going, as well as ensuring profitability or at least a break-even year, today requires more sophisticated use of data analytics.

For instance, the cost of inputs is a given. You have to pay for seed, fertilizer, water and chemicals. But how does the soil you are planting affect your yield? Not all acres are created equal. Some dirt is simply more productive than other dirt.

By analyzing the productivity of the land a crop is planted on, a farmer can more accurately predict yield. If you plant 10,000 acres of corn, perhaps one-quarter of those acres will produce a relatively low yield, and another one-third will produce an unusually high yield, while the remainder will be average. What can you do to boost the yield on the weak one-quarter? Why does the strong one-third overproduce? Perhaps changing the crop rotation frequency can help. Or changing the amount or type of fertilizer used on each acre.

Digital business tools exist today that a farmer can use on a cell phone that will analyze these types of metrics and help improve productivity. Moreover, certain farm vehicles and equipment are equipped to sync with those analytic tools and automatically change the inputs of seed, fertilizer and chemicals on each acre according to the analytics.

This ain’t your grandpa’s farm anymore.

And that may make you nostalgic. It’s natural to want to run a farm the way your dad did, or grandpa did. But the world and farm markets are different from what they were in 1970 or 1980. Just as your dad and grandpa did back then, you need to utilize all the business tools you have at your disposal to ensure the strength and profitability of your farm.

Leveraging What You Do Well

For many farmers, judging the kind of year they’ve had is a game of “bushel war.” They focus on how many bushels of corn or wheat or soybeans they produced, without analyzing the profitability of those crops or the cost of the inputs required to grow them.

One farmer was stunned to learn that he had lost more money on his soybean crop than he’d made on his corn crop the previous year. Only 1/3 of his acres were in soybeans while 2/3rds was planted to corn, but soybeans were not as lucrative a crop as corn given his input costs. He’d been doing this for years and didn’t realize this was why he struggled financially.

Business analytics have changed the world we live in and have impacted nearly every industry. Even grocery stores use it. They know how much toothpaste you buy and how often you buy it, which helps them understand what they need to keep in stock.

Analytics give rise to eye-opening experiences that empower you because they help you realize what you are good at and what you are bad at. No one can do it all, and without analytic data you may have no idea where your weaknesses lie and how much they are dragging down your bottom line.

Analytics help you keep that bottom line stable and, hopefully, grow your business over time.

Role of Education

Colleges in the Midwest do a great job of educating young farmers, but they could do a lot more to support future farmers by including strong business and financial management coursework in their degree requirements. Many – if not most – agriculture students grew up on farms or worked on them during high school. They know how to put in crops and harvest them. But they don’t know how to run a business, and it’s not enough to rely on off-the-shelf bookkeeping programs to manage an agricultural business. Understanding data analytics – such as how markets work, learning about the relationships among assets, liabilities and debt, learning why it is critical to maintain a strong cash flow, understanding how to manage a workforce, and more – is critical to successfully running a farm.

Increasingly, young farmers are going to college not to major in agriculture – which is something they may already know – but to major in business or even accounting. They are coming out of college better equipped to manage a successful, profitable farm, with an understanding of how to use data analytics to help make the best business decisions.

Better Decision Making

It’s important to remember that good analytic data on your farm operation isn’t just a new set of numbers for you to look at. It’s information that helps you make better business decisions.

You may be wondering today what you’re going to do about some of your farm equipment. Prices of farm equipment have doubled in the past 10 years, driving many farmers further into debt as they borrow to replace the old equipment. But is buying new the best decision? If you invest in repairing your existing equipment, how long will it last and what’s the break-even point when compared to buying new?

Big-ticket items like equipment are where many people try to cut costs, but that’s sometimes not the place they should be looking. Maybe you don’t need as strong a chemical program for your crops as you’ve been using. By cutting the cost of chemicals, you may sacrifice a few bushels per acre, but depending on the crop, which may not be a big financial hit. And it will enable you to buy that new equipment, which will help improve your yields and profitability next year.

Other important decisions that can be driven by analytic data include crop rotation, which crops to grow and even whether to buy or lease land for a crop expansion. Analytic data shows clearly what factors you can control, and allows you to run what-if scenarios that you can discuss with your trusted advisors to obtain guidance on the best decisions to make. After all, you’re not in this alone.

The bottom line is that if you don’t make any changes, you can’t expect the market to fix your mistakes. Make the changes you have to make, make them wisely with the help of solid analytic data, and make sure you can make money from the results.

Questions?

Having the tools to make good decisions will impact how you feel about what you do, as well as your success. It will put you in control of your farm and your finances and help you feel more successful.

If you would like to discuss how to use analytics to improve your farm management, contact an Adams Brown agriculture advisor.