The secret to high-profit farms
Sheds and barns could be the answer to becoming a high-profit farm.
According to Dr. Kevin Dhuyvetter, professor at Kansas State University, the five most important characteristics of profitable farms are, “Costs, costs, costs, costs, and costs.” The major factor separating high-profit farms from low-profit farms is controlling costs long-term.
Farm equipment – with the exception of land and buildings – is the most significant financial investment farmers make – regardless of what is being farmed – as almost all farms have a tractor and several implements, which are critical to day-to-day farming operations.
A survey conducted by Kansas Farm Management Association showed that on average low-profit farms actually have higher gross incomes then mid-profit or high-profit farms. Those same low-profit farms had $89.80 USD ($118.94 AUD)/acre more costs than mid-profit farms, and $93.54 USD ($123.89 AUD)/acre more than high-profit farms. This can be explained by breaking down the cost associated with farm equipment.
There are two main costs associated with farm equipment: operating costs and ownership costs. Ownership cost is the fixed cost associated with owning a piece of equipment. Operating costs are the costs that incur when the equipment is used. These variable costs include fuel, depreciation, labour, lubrication, maintenance and repairs.
On average, high-profit farm equipment costs are $31.53 USD ($41.76 AUD)/acre less than low-profit farm equipment costs. The fixed ownership cost cannot be manipulated. However, the variable operating cost can be positively or negatively manipulated.
The operating variable can be positively manipulated through improving the depreciation of the farm equipment. By focusing on the preservation of their equipment, farmers can significantly decrease equipment depreciation, lowering their overall expenditure resulting in increased profit margins.
When discussing the long-term profitability comparison between high-profit and low-profit farms, the biggest difference is in machinery and overhead costs. By investing in weather protection for equipment, high-profit farms can increase the longevity of their machinery and lower their overhead costs.
Opting not to weather protect your equipment may lower your short-term expenditure. But as the studies show, this short-term thinking is characteristic of low-profit farms. When that rusted out piece of machinery prematurely breaks down, you lose a significant investment and significantly increase your ownership costs.
This is why investing in weather protecting equipment, through the use of a shed or barn, will decrease costs. As the depreciation variable will benefit significantly from this change.