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Panel Session: Field Records, Mapping Strategies, and Integration of Financial & Physical Farm Data -- Signigicance for Direct Seed SystemsCost
of Production/Financial Analysis, Variable Rate Nathan Riggers, Grower, Nezperce, ID How can information technology help growers evaluate the potential of direct seeding and improve the performance of existing direct seed systems? Using information technology to evaluate and improve the performance of direct seed systems involves two tasks. One is the collection/input of data into your information system. Examples might include enterprise allocations when paying your fertilizer & chemical bills or yield data from a combine yield monitor. The second task involves taking the data and generating useful information to help you make better management decisions. This may be in the form of cost of production histories, financial performance measurements, or yield maps showing yield variability within a single field. The effort and cost to build these information systems can hopefully be recouped through better decisions. Being able to quantify whether a direct seed system is having a positive or negative impact on profitability is very valuable to farmers who are in the midst of a conversion. Likewise, having the yield potentials or pest problems within a field identified and mapped may not only save you money but increase yield and therefore revenue. As farms grow in size and rotations grow more diverse with direct seeding, the task of collecting, managing, and analyzing financial and production information from farms, fields, acres, and sub-acres becomes overwhelming for pencil/paper systems. This is why computerized information management systems are being developed and implemented in agriculture. While financial management software has been on the scene since the mid 1980s, GIS software, palm size computers, and GPS systems are relatively new to agriculture. Now the integration of financial information systems and production information systems is occurring which will ultimately allow farmers to document, measure, and analyze every aspect of their operation. I have been asked to offer some examples of how our farm collects, builds, and uses financial and production information to improve profitability and decision making. The financial information presented analyzes our operation in the "before and after" periods of a mixed conventional/direct seed system versus our total conversion to direct seeding that occurred in 1998-99. The production information section illustrates how we are attempting to use new technologies to improve our direct seed system in terms of fertility and pest management. Financial Information Systems (FIS) The purpose of a
FIS
Since most of the tangible economic benefit of direct seeding occurs in the area of reduced fixed costs and indirect variable costs, it is imperative that the FIS used in any farm analysis accurately and completely accounts for all fixed and variable costs. This means it is necessary to be able to generate accrual basis financial records in addition to the cash basis method common in farming. Relying on accounting systems built solely upon cash basis receipts and expenditures is adequate for tax return information but not the measurement of financial performance, financial position, or cost of production. Two rules of Generally Accepted Accounting Principles need to be adhered to when deciding how to treat revenue and expenses. Revenue Recognition Principle Revenue is reported in the financial statements in the accounting period in which it is earned, not in the accounting period when the cash is received. For example, advanced AMTA payments or crop sales deferred into the next year distort actual revenue and profit if not accounted for properly. Matching Concept Expenses incurred must be matched into the same accounting period as the revenues those expenses generate. Expensing fall purchased fertilizer, chemicals, and seed before the fiscal year ends incorrectly matches those expenses with revenues generated from the previous crop. Other concepts often ignored in farm accounting systems:
Cost of Production Analysis The following cost analysis for the production of winter wheat is taken from the actual accounting records of our farm operation over a six-year period. The account-grouping format complies with the suggestions of the Farm Financial Standards Task Force, which was formed to standardize the financial reporting methods across U.S agriculture. Periods Analyzed:
This table is organized
into four periods. The base period of 1996-98 lists the sub totals for
per acre and per bushel costs of winter wheat. The 1999, 2000, and 2001
periods also show the sub-totals as well as the % change in each account
compared to the base period. For example, in the 1999 crop year, per acre
chemical costs decreased 11% compared to 1996-98. Cost Trends: Significant decrease in per acre and per bushel production cost occurs in 1999 with the complete conversion to direct seeding and the resultant expansion made possible by direct seeding.
Per acre production costs increase in 2000 and 2001, but per bushel costs continue to decline due to higher yield.
A reallocation of capital has occurred after the adoption of direct seeding. The per acre cost savings achieved in 1999 in the areas of custom application, fuel, repairs, overhead, and interest have been reallocated in 2000 & 2001 from these relatively "unproductive uses" to areas that directly impact yield and risk management. Namely, fertilizer, crop protection, and crop insurance. Financial Analysis In addition
to lowering per unit cost of production, another potential benefit of
direct seeding is the ability to "do more with less". The ability
to generate more revenue with the same machinery as before, eliminate
unneeded machinery and labor, or leverage machinery and labor across more
acres are common themes in grower presentations at the Direct Seed Conference.
Two financial ratios are very useful in measuring and quantifying these
types of gains. The following financial analysis is taken from our farm
using the same accounting periods as the cost of production analysis above.
Asset
Turnover Ratio = Gross Revenue
* Projected for 2001 The Operating Profit Margin Ratio measures profitability in terms of return per dollar of gross revenue. It is expressed as: Operating
Profit Margin Ratio = Net Farm Income + Farm Interest Expense
*Projected for 2001 The improved utilization of our farm's assets with direct seeding has resulted in a 100% increase to our Asset Turnover Ratio. This improvement is permanent in the sense that a fundamental change has occurred regarding the ability of our operation to generate revenue with a finite amount of capital (assets). As illustrated by the duPont Financial Analysis System on the next page, asset turnover and profit margin are two of the primary levers of change in Return on Equity; the final measure of an owner's investment performance. The two-fold increase of the Asset Turnover Ratio has resulted in a corresponding improvement in our Return on Assets and subsequent Return on Equity. If Operating Profit Margin does not change substantially for the worse in future years, then the positive financial impact made by direct seeding will be tremendous as this higher ROE compounds itself year after year into higher net worth. The duPont Analysis System
Production Information Systems (PIS) The purpose of a
PIS
2. Measure, analyze,
and improve the performance of the production system.
There are two primary reasons why our operation is pursuing a computerized production information system. First of all, trends in agriculture point towards increasing demands by end users and consumers for detailed "field to plate" information about the ingredients present in the food they purchase. Concerns over food safety, GMO labeling, and identity preservation are slowly driving the industry towards a system of "traceability" through which the ingredients in a food can be traced back through all processing and distribution channels to the very field where the ingredient was grown with all crop input and application information readily available to anyone in the food value chain. At some point, it is likely that all agronomic information pertaining to the production of a specific crop in a specific field will need to documented and archived if not for the market then for regulatory bodies. The second reason is the potential for information management via precision farming tools to decrease production cost and/or increase yield through more targeted use of crop inputs. These systems first proved their worth in the higher value crops such as orchards and row crop farms but are now being implemented in grain operations. Tools
Parallel Swathing/Tracking The best precision farming investment direct seed growers can initially make is a parallel swathing system for herbicide applications. Parallel Swathing/Tracking utilizes a differential GPS signal to "guide" the tractor driver along straight parallel swaths. This device will eliminate the need for foam markers. More importantly, it has reduced our overlap by 3% conservatively. Simply multiply 3% savings in your self-applied herbicide costs and it becomes apparent that this parallel swathing can pay for itself in a short period of time. Moreover, operator fatigue is greatly reduced from having to hunt for foam when spraying stubble. Finally, this system enables night spraying which provides a valuable tool in direct seeding when the days are too windy to spray. Geo Referenced Soil Testing & Zoned Fertility Management Yield mapping at harvest confirms what all farmers know to some degree and that is the amount of yield variability within a typical field. What yield mapping was able to show us were the surprising range of variability and the locations of various yield potentials in each field. Figure 1 shows a yield map of a 130 acre field of Hard Red Winter Wheat. While the average yield was 92.3 bushels per acre the map shows areas with a yield range below 40 and above 100 bushels per acre. The legend labeled Wheat (Hrd Rd Wtr) (Medium) indicates that the darkest areas comprise yield of less than 40 bushels per acre while the lightest area comprises yield greater than 100 bushels per acre. The boxed histogram directly below the legend quantifies the amount of acres in each yield range. This field is typical of the yield maps for all of the ground we farm with similar yield variation in both the 2000 and 2001 crop years. Generally the higher yielding zones comprise about 40% of the acres while the lowest yielding zones comprise about 20% of the acres. With these yield maps, we can identify three distinct yield potentials in all of our fields. High zones being deep soil with high organic matter and high yield potential-perhaps 80 bu/acre and above. Low zones with extremely low yield potential that even in good years yield only 50 bu/acre and less. And the third zone being everything in between. It is reasonable to conclude that soil with a maximum yield potential of 50 bu/acre should not be fertilized the same as soil with 100 bu/acre yield potential. Yet that is what PNW grain farmers have done for 50 years because we didn't have the technology to do otherwise. If yield mapping by itself is insufficient to base a fertility change upon then consider that last spring we also soil tested this field ahead of the top dress fertilizer application with the high yield zone sampled independently of the low yield zone. Sample locations were geo-referenced (logged with the Trimble GPS unit and Compaq palm computer) enabling us to return to these exact sample locations in subsequent years (Figure 2). The high yield zone showed available nitrogen at 111 lbs/acre and OM = 5.5% while the low yield zone showed 150 lbs/acre available N and OM = 4.0%. This confirmed that we could alter the top dress fertilizer application in these low yield zones. This zone sampling was repeated on 600 additional acres with similar results. As a result, we used the yield maps as a key to change fertilizer rate via the Flexicoil Air Cart and 50' broadcast boom while top dressing the winter wheat in April of 2001. The lack of an application map capability makes exact cost savings a guess, but we estimate that we saved $5.00/acre on 10% of 1000 acres equaling $500.00. Our approach this spring will be different though. If soil test results again show adequate to surplus nitrogen in the low yield zones, the fertilizer not applied there could be applied to the high yield zones. With 1500 acres of winter wheat, we would have 20% or 300 acres that the rate could be reduced or shut off. 30 lbs/acre of actual N not applied on 300 acres would give us 9000 lbs of actual N that could be added to the acres of high yield zone (40% = 600 acres). At 2.7 lbs N to grow one bushel of soft white wheat, 9000 lbs of N would potentially give us 3333 more bushels of white wheat that we would not have otherwise harvested. A $3.00/bushel market value yields a potential $10000.00 return on 1500 acres. Even if we assume only a 50% rate of success, the return is an impressive $5000. If we do nothing but simply leave that fertilizer in the truck, we still save 9000 lbs of N at $.21/lbs or cost savings of nearly $2000. Strategies such as this can quickly pay for the tools necessary to farm better. Weed Mapping GPS mapping systems are very useful for mapping and archiving pest problems in fields. There are numerous approaches with the most prevalent being the flagging function on yield monitor/mapping systems on combines. During harvest, the combine operator can mark weed problems that he sees from the cab. Maps can then be generated identifying problem areas for future treatment. We employ an additional strategy of using the Trimble GPS interfaced to the Compaq computer during field spraying. In both 2000 and 2001 we flagged Canada thistle patches in over 500 acres of spring canola while we were spraying Assure II for grassy weed control. HGIS software on the Compaq logged the GPS locations of any thistles that we tagged. We then returned to the canola fields 7-10 days later and used the thistle map on the Compaq screen display to navigate the spray tractor to each thistle patch which was then treated with 5.0 oz/acre of Stinger herbicide. Because a 5.0 oz rate of Stinger approaches $20.00/acre, spot treatment is the only economical means of controlling Canada thistle in canola. The potential uses for geo-referenced pest mapping is limited only by one's time and effort devoted to pest control. Whether from the combine, ATV, or spray tractor, pest mapping can easily pay dividends and shorten the time needed to recoup the cost of precision farming tools. On Farm Research With geo-referenced application maps and yield mapping systems, the opportunity exists to conduct useful large scale on farm research. For example, in the variable rate fertilizer application discussion above, applicator width plots can be inserted anywhere in the field and logged with GPS. These plots could be 0X, 1X, or 2X rates of topdress fertilizer. Because each treatment location is logged with GPS, the application map can be compared to the yield map after harvest and conclusions drawn regarding the effect of changing fertilizer rates. The same could be done with herbicide and seed rate, or with different seed varieties. Large scale treatments do not necessarily need to be harvested separately as significant yield differences will be seen in the yield map. It should be said that experiments of this kind are almost necessitated with variable rate application in order to verify whether or not crop input rate changes are having the intended result.
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