Managing for Lean Times
When Travis and Dana Dagman moved home in 2011 to take over the family farm near Enderlin, North Dakota, crop prices were high and profit margins were wide.
“When we first started out, it was hard to set up a profit-and-loss projection that didn’t look profitable,” says Travis. “It was easy to make money then. At today’s low prices, it’s gotten to be a challenge to make a profit-and-loss projection work out on the positive side.”
As beginning farmers with limited available capital at their start-up, the Dagmans fortunately avoided incurring heavy debt for purchasing land and new equipment. Now, with today’s marginal to nonexistent profit margins, they don’t have big debt payments to service.
Like other farmers, they do have high operating costs to manage while producing their crops of spring wheat, winter wheat, barley, soybeans, and corn. “Limiting our production expenses is a critical way we’ve tried to make our profit projections come out on the positive side,” says Travis.
Following are the management tactics the Dagmans are using to trim down expenses or to increase economic efficiencies on their 2,500-acre farm:
- Limit custom hiring of services. “We’ve tried to eliminate a lot of hiring of custom services and custom use of machinery,” says Travis. “For instance, by buying a sprayer, we’ve been able to apply herbicide ourselves.
We don’t have to pay $7 or $8 an acre for custom spraying. By investing in good, used equipment to do the work, we get equity back for the money we spend.” The same goes for fertilizer applications. When split-applying nitrogen to corn, for example, Dana does the work with a John Deere 4440 tractor pulling a narrow-track fertilizer spreader. “The old tractor is nimble, and it’s easy to drive inside the corn rows,” Travis says.
- Shop for reasonably priced chemical. By applying their own herbicide, the Dagmans are able to shop around for effective products more reasonably priced than name-brand chemicals. Price differences can amount to a savings of as much as $5 an acre or more.
- Be cautious of add-on products. “It seems like some company is always coming along selling an add-on product that it claims will add 2 to 5 bushels per acre in yield, for instance,” says Travis. “There’s a slew of these products out there, and it’s easy to get caught up in their claims. They may cost $10 an acre, but their effectiveness is not necessarily proven.” Before buying a product unfamiliar to them, the Dagmans do their own research. “I won’t buy any new product unless I can find a respected university study that has proven its effectiveness,” says Travis.
- Make conservative nitrogen applications. The Dagmans shoot for a modest yield goal when purchasing and applying N. In corn, for instance, they aim for a 160-bushel average yield, which reflects their realistic appraisal of yield potential based on soil type, historic annual precipitation, and other growing conditions on their farm. By split-applying modest amounts of N, they hope to get the most effective use of N. “We hope to reduce our potential fertilizer losses due to weather conditions,” says Travis. “If we happen to get a lot of rain, the excess rain can push the N down below the roots or lead to the loss of the N through runoff and evaporation.”
- Provide their own labor. Aside from capable part-time help when needed from a retired individual, the Dagmans provide all their own labor. Travis works full time on the farm in spring, summer, and fall. Dana flexes in and out of farm tasks while she also cares full time for their three sons. “The farm is our bread and butter,” says Travis. “When everybody pitches in, it goes a long way in making things more efficient and helping to save some money.”
- Expand grain storage. By expanding their grain-storage facilities, the Dagmans have increased profit potential by marketing crops at times of the year when prices tend to be strongest.
“The extra storage also helps to cut down on our harvest workload,” says Travis. “When everyone is combining, the truck lines are long at the elevators. If we hauled all of our crops to town and waited in line, we’d probably need another truck and another driver.”
- Control family living costs. A cost-savings benefit to the young Dagmans is their opportunity to live rent-free in the farm home of Travis’ parents, who have moved away from the farm.
“Not having a house payment is helpful, and we do look after the house and the yard, which my parents appreciate,” says Travis.
“Dana and I are on the same page when it comes to spending money. We’ve saved money, for instance, by spending very little on recreation. We have no boat, no motorcycle, no lake home, and when we do take a vacation, it’s a modest one. The savings lets us direct more of our money into the farming operation,” he says.
The Dagmans draw relaxation and enjoyment from their joint participation in farm-advocacy groups such as Farm Bureau and the North Dakota Soybean Council.
Despite the lean times facing all farmers, they’re glad they exchanged high-paying jobs and city life for their present life on the farm.
“It appealed to us to raise our kids on a farm and in a small town,” says Travis. “We both wanted to get involved in work that was more fulfilling. We’re working together at building our dream. Because of that, our farm life is bigger than just a job. That’s what makes it fun.”
Most Costs Fall Into Four Areas
While price and production are big players in profitability, cost-cutting strategies play a big role, too.
“Costs are a little more under our control than are price and weather,” says Travis’ father, Virgil Dagman, who is also a longtime farmer and instructor for North Dakota Farm Management (NDFM).
Shaving spending from one of the four major areas of production expense can save a significant amount.
“The four biggest groups of expenses account for 50% to 55% of total expenses,” says Virgil who analyzes financial records for NDFM participants. The four largest cost categories are land rent, seed, fertilizer, and chemical.
“Shaving 10% off one of these areas of costs would save more money than shaving costs off some other, lesser areas of expense,” says Virgil.
“What works for one farm may not work for another,” he adds. “Every farm is different; every situation is different.”