The most effective farm organizations use data to organize their production plans and make financially-driven decisions. There are common variables to consider when making these decisions that often include land costs, seed variety, fertilizers, and chemicals.
Does your data help you make decisions based on the profitability of those variables? How much does your variety choice impact your bottom line? What if you had your financial data organized to answer these questions?
In this case study, we examine how a Granular customer was able to answer these questions about their decision to farm early maturing potato varieties to speed up their cash flow. We took a look at how they used performance data to evaluate how this decision affected their per-acre profit on each potato variety.
The potato farm we worked with, let’s call them King Farms, had 4,000 acres of contracted potatoes that would not be paid until delivered this coming December. To speed up their cash flow, they chose to plant two early maturing varieties, setting aside 640 acres, and splitting the land allocation in the following way:
King Farms wanted to know if selling these early maturing varieties was a profitable decision, and which variety had better performance. The CEO assumed Atlantic potatoes were not as profitable as Pike, but did not have the data to know for sure. Rather than relying on instinct, he wanted to see if Granular could help him determine the financial contribution of how each variety impacted their bottom line since he had captured all task and financial data within Granular.
Using Granular’s Profit Analyzer software, King Farms looked at their operational data to quantify the per-acre profit performance based on the potato variety. This is possible because Profit Analyzer traces tasks, revenue, and variable costs down to the acre.
With a few clicks, King Farms was able to visualize the contribution (revenue less variable costs of land and inputs) of each potato variety, which can vary by as much as $2,100 per acre as you can see in this chart:
Let’s now take a look at the contribution of the two early-maturing varieties, Pike and Atlantic, to answer our main question around how profitable the early cash flow decision was. We also compared those early varieties, using the entire season’s varieties as a benchmark. The measure used is the contribution, which is revenue less variable expenses at the variety level.
Although yield drives revenue, it isn’t always possible to know if your profit is because of yield or cost mid-season, but with Granular, King Farms was able to conclude in-season using the data which informed this analysis.
In this case, revenue was a larger driver than costs, but the key metric is contribution margin. Atlantic outperformed Pike contributing $2,333 per acre to Pike’s $1,565 per acre, representing a difference of 63% contribution to the bottom line vs. 52%. This contribution margin considers allocated variable costs, broken out in the chart below, giving King Farms a true picture of their profitability. You can also see how the early maturing varieties are benchmarked against all potatoes in the enterprise.
VARIABLE COST BREAKDOWN BY VARIETY
What we found was that Atlantic outperformed Pike at $768/acre which is a hefty 11% difference in King Farms’ bottom line when considering the contribution margins of each variety. If he had planted Atlantic on all 640 acres, King Farms could have made significantly more, almost $400,000 in profit.
There are a multitude of factors that come into play when attempting to make plans for which crop varieties to plant. Farm conditions, such as topographic land features, biotic factors, and climate are top of mind. However, now that King Farms has this data, they can plan for next year with the best information at the ready. Granular’s Farm Management Software empowers growers by surfacing and quantifying the benefits of important farm decisions.