You are here

A little less euphoria

Does this experience sound familiar? Leonard Larson farms near Cambridge, Iowa, where he sees these changes in his production costs:

  • Fall-applied anhydrous ammonia will cost up to $550 a ton. It was $445 a ton last fall.
  • A year ago diesel fuel cost $2.16 a gallon. His recently paid $2.58.
  • Seed corn will be $260 a bag for triple-stacked, up from $215 for the 2007 crop.

"I think a lot of people will be surprised as to what the sticker shock is going to be for putting in corn next year," Larson says. "I agree that all we're going to be doing is handling more dollars for the same net."

Some landowners in high quality farm ground areas near Larson have also raised rents from $140 an acre to $240 an acre in just one year.
Larson participates in the Marketing talk group of Agriculture Online. He recently met other members in person in Des Moines, Iowa. The sticker shock of corn costs is why he and several others doubt that corn acres will go up next year.

With all of these pressures on costs, getting a good price for your crops grows more important. So does the need to track costs as accurately as possible.

Just as the Marketing discussion group was pondering sales strategies, another meeting aimed at fine-tuning cost accounting was taking place in Moline, Illinois. It was sponsored by FBS Systems, which, along with Red Wing and AgriSolutions, is one of the main survivors in a farm computing industry that once included 300 businesses. Today, off-the-shelf QuickBooks is widely used. But for larger, expanding farms and ranches, such easy-to-use and inexpensive software is not enough.

More powerful software capable of giving you frequent accrual reports (as well as cash for tax purposes) is a key tool for getting to managerial accounting. Managerial accounting means, in essence, using a better understanding of your finances that comes from accrual accounting to run your business more efficiently. [The accrual method, the most widely used in business, recognizes income when goods are sold and an expense when the obligation is incurred. The cash method, widely used in agriculture, is like a checkbook, recognizing an expense when it's paid and income when money is received. Accrual gives you a truer picture of your profitability.]

I'm not selling software. For smaller farms with one or two crops and one owner, a $5,000 purchase of specialized accrual accounting software may be a waste of money.

Last month you may have read about Ron Swanson, an Iowa farmer who just stepped down as president of the Farm Financial Standards Council president. At a little under 1,000 acres, his farm may be barely big enough to benefit from managerial accounting. But Swanson says knowing his true production costs earlier in the season has helped him make better marketing decisions and has improved overall management.

At the FBS session in Moline, a panel of consultants emphasized that software and accounting methods are only a tool. By themselves, they won't answer your questions about the way ahead.

Ev Chambers of Kalmia Consulting in Tomah, Wisconsin, put it this way: "If you are two steps past a shoe box, don't expect to jump to Eclipse" (one version of FBS software).

But do expect to pay for help.

"I am not looking for additional consulting clients," he says, "but get the help you need in the way that works for you."

As you'll read in the October issue of Successful Farming magazine, the jump to managerial accounting takes years. It can also help save far more than its costs. Now is the time to start learning more about it, before sticker shock overtakes profits.

Does this experience sound familiar? Leonard Larson farms near Cambridge, Iowa, where he sees these changes in his production costs:

Read more about

Crop Talk

Most Recent Poll

Will you plant more corn or soybeans next year?