Farm Profitability

As farm managers struggling through a particularly tough economy, we all strive for one thing.  Turning a profit.   In fact, the need for strong profitability has never been greater than it is currently.

Farm profitability varies widely by farm size, farm type, location and the specific commodities produced.   Farm size itself has a tremendous influence on both the farm wealth and profitability potential.  Keep in mind that the relationship of the size of a farm with other variables vary according to region, which would seem to indicate different profitability potential across different commodities specific to each region.

Regardless of region and farm size, it’s no mystery that globally, profit margins are falling.  Declining profit margins have a telling effect on commodity production, making production far less profitable as it’s spread out over time – and this, in turn, is making it a less appealing investment for farm operators.

The two key reasons for the current profit squeeze can be accounted for, due to :

1.  the falling prices received for outputs,
2.  and the rising costs of inputs

There are some strategies – pricing and cost-related – that can be employed to raise profits.  Here are some of them:

Strategies to Increase Farm Profitability:

Pricing Strategies:
- Add value to the commodity (process, etc).
- Alliances or integration with other producers and processors

Cost Strategies:
- Reduce unit / cost by increasing the scale of operations
- Reduce unit / cost by via technological advances in harvest methods, machines, and production.

One often overlooked means of increasing farm profitability is to find ways to stabilize income.  Here are some basic ways to do just that:

Strategies to Stabilize Income

1.  Find a way to diversify across several different agricultural products
2.  Likewise, diversify across different income sources.  Explore such income areas as agricultural commodities, processed agricultural products, non-agricultural businesses, and even off-farm income.