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Kub's Den

By Elaine Kub
DTN Contributing Analyst

"Precision agriculture" is a term that is more than just a buzzword, yet is less well-defined than any official field of study. The best definition I could find online put it this way, "managing crop production inputs on a site-specific basis to increase profits, reduce waste and maintain environmental quality."

That's pretty loose, as definitions go, and open to interpretation. Take the site-specific geographical portion out of the definition, and just about anything could be called a precision ag tool. A manufacturer could slap a "Precision Ag!" sticker on any grain auger or rock roller or scoop shovel, for that matter, and no one could really argue.

We could even go so far as to call marketing strategies part of "precision agriculture," as long as they were precise enough. In fact, that's exactly the case I'm going to make -- that farmers who value the ethos and philosophy of precision ag for their production decisions should also adopt that mindset when approaching their marketing decisions.

If we were talking about the field of microeconomics instead of the field of agronomy, the term would simply be called "Cost Allocation," the process of defining how input expenses accumulate on a PER UNIT basis. The precision agriculture philosophy suggests we should calculate an entire field's requirements by first knowing what each individual unit -- each individual seedling -- requires. Knowing that you want each individual corn seed to have 1.45 square feet of soil all to itself is more precise than saying you want 30,000 seeds per acre. Mathematically speaking, you could just dump all 30,000 seeds in a pile in the corner of the field and you would technically have 30,000 seeds per acre, but they would not be precisely distributed. Fortunately, technology exists to place seeds and other inputs precisely, allowing for better decision making and a more efficient use of resources.

The little things do add up, and ultimately, the dollar is the most interesting unit of measurement for all these decisions. Farming decisions can be either agronomic (grain production) or economic (grain marketing). Precise marketing decisions can use the same precision to assign cost allocation by unit, making sure decisions are justified and resources are efficiently used.

Let's tie agronomic and economic decisions together in a couple of examples. First: the classic precision ag investment of a planter with a vacuum seed-metering system, pulled by a tractor with an RTK auto-steering system. For the hundreds of thousands of dollars that such a rig would cost, what improvement in production can the farmer expect? More importantly, what improvement in ultimate revenue can he expect?

Researchers in southern Brazil last year released a fresh study* of randomized trials planted and grown in real-world conditions, that confirmed other university findings from the past decade about precision agriculture -- i.e. that more precise (less variable) seed placement improves plant health and ultimate grain yield. Use of precision planting technology reduced the within-row coefficient of variation by approximately 16 percentage points, and increased corn yield 12% to 17% (depending on the weather stress of a particular trial).

Well, a 15% yield improvement on 160 bushels per acre would be an extra 24 bpa. At $3.50 per bushel, those extra bushels would add an extra $84 of revenue per acre. A thousand acres of corn planted with a precision planter instead of a traditional planter, all other things being equal, would in theory provide an extra $84,000 of revenue to that corn farmer, going a pretty good ways toward paying for the equipment.

Or, because a 15% improvement in revenue from better yield is equivalent in dollar terms to a 15% improvement in revenue from better market prices, we could just say that using precision planting technology would be equivalent to getting an extra 50 cents per bushel. Allocating it back down to the most granular units, the individual plants, that's like getting an extra penny from every three corn plants in a field. Anyway, the lesson is that we should treat production decisions as seriously as we treat marketing decisions, and vice versa.

The little things add up, but the big things add up faster. Sweating over 250 pounds of nitrogen per acre versus 247.65 pounds of nitrogen per acre is perhaps possible with today's technology. However, when fertilizer accounts for only 15% of the total cost pool, and the land price or rent agreement accounts for 25 to 30% of the cost pool, then any adjustments you can make to that bigger line item will obviously affect profitability more efficiently. Negotiating rent prices or any other big-ticket input cost down by $10 per acre would be equivalent to getting an extra 535 individual corn plants producing grain on that acre, at equal yields and market prices.

As long as a farmer manages his projections and receipts on a per-unit basis, knowing his per-acre and sure, even his per-seedling costs and expected revenues, then he'll have the "precision" of information necessary to make optimal decisions ... and not just the agronomic decisions. The foundation of most grain marketing plans is knowing each farm's per-bushel breakeven cost, so that it can be compared to the present prices offered by the market. That's the most important Cost Allocation (a.k.a. Precision Marketing) task of all. I'm confident that many farmers could look at December corn futures near $4.00 per bushel and November soybean futures near $10.25 per bushel right now, and precisely pencil out a profitable 2017.

*Horbe, T. A. N., T. J. C. Amado, G. B. Reimche, R. A. Schwalbert, A. L. Santi, and C. Nienow. 2016. Optimization of Within-Row Plant Spacing Increases Nutritional Status and Corn Yield: A Comparative Study. Agron. J. 108:1962-1971.doi:10.2134/agronj2016.03.0156

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.

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02/15/17
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