What Makes a Top Third Farm

June 22, 2017

There are just two items that make the difference between a top third farm and an average farm. This University of Illinois study was on a small set in McLean County. This was done to limit the influences of weather and a few other factors. Gary Schnitkey says he wanted to know why some farms made more than others. Turns out, the answer is pretty simple say the ag economist, “What we found were distinct cost differences between the two groups. This was a $45 per acre difference between the average group and the high return group. The $45 came primarily in two items; machinery depreciation and interest cost.”

The more profitable farms tended to have lower machinery and non-land interest cost. The two are related.

If you buy more machinery, you have more depreciation and likely more interest costs. Other differences included storage costs, with high profit farms storing less at elevators and their cost of hired labor was lower, too. Over all, these farms usually had lower costs, but these are the cost groups that stood out.

A couple of notes. The most profitable farms expanded acreage at a faster pace than those in the average group. They also had higher average yields for soybeans and did a better job of marketing soybean.