5% Rule Increases Net Profit

By Patrick R. Shepard

During their winter planning, Delta and other Midsouth growers should consider using the 5% Rule.  Several years ago SouthernAg Consulting, headquartered in Mississippi, took a step back and asked the really hard questions, reevaluating just about everything that these independent crop consultants do.

“Nothing is sacred, we questioned everything,” explains Mitt Wardlaw, a partner of the consultant business.  “Oftentimes during the first two or three years our group works with a grower we can generally recognize and grab some  low hanging fruit, making quick, practical, methodical  changes which can quickly impact production and profits.  But in subsequent years, we sometimes see yields start to plateau again, requiring deeper evaluation. We are determined to continue to break those glass ceilings for yield and net profit.  But what’s it going to take to break that glass ceiling?  The best way to get started is by making targeted changes and fine tuning ALL management decisions necessary to jump-start progressive increases again.”

Wardlaw refers to the result of this intensive re-evaluation the 5% Rule.  That is, by staying focused on adjusting crop inputs and management practices, and or timing of management inputs, growers have the potential to increase yield, and/or reduce cost and/or increase selling price, all of which can increase net profit.

“The 5% Rule is often used in the business world, so why can’t we apply it to row crop agriculture, too?” he says.  “If we can add incremental advances in a few key areas, what kind of impact would it make in net profit? 

“We use the 5% Rule to illustrate the impacts of small changes in the right direction can have on the bottom line.  That is, what kind of impact on profitability can be had by increasing yield by 5%, increasing selling price by 5% and maybe reducing cost by 5%? All of these have accumulative effects. It’s pretty eye opening when you start doing the math on all that.  That is the time we start reevaluating what we are currently doing and what changes are necessary to accomplish those results.”

SouthernAg Consulting, which services growers in the Mississippi Delta and surrounding states in the Midsouth, tailors the 5% Rule to each grower’s operation, taking into account the farm’s cropping rotations, management practices, soil and water resources, and the grower’s goals.  “Sometimes we can accomplish our goals by adjusting and fine-tuning production practices and crop production inputs use and timing,” Wardlaw adds.  “For example, one area where we might be able to increase profitability is in our soil testing and soil fertility program.   Other than seed, fertility in many cases can potentially be the biggest line item in a budget. 

“Unfortunately, oftentimes our industry doesn’t have a good understanding and grasp of whether fertilizer applications are making money or not.  We can spend $60, $80 or even $100 per acre on our mixed fertilizer and/or lime program, and growers are often not sure if it’s giving them a return.  We choose to look at these inputs and management decisions with a different slant.” 

A much better approach is to look at soil testing/soil fertility inputs as an investment.  In any other industry, before a capital investment is made a lot of in-depth, specific research is performed. “In the business world, any time you make an investment, you want and expect the best possible return,”
Wardlaw says. 

“In row crop production, we must start looking at well-planned and directed inputs as an investment—not a cost.”

SouthernAg Consulting is starting to utilize analytics from the large amounts of on-farm data that they have and will collect to help them make better management decisions on their fertilizer and lime recommendations.  “We don’t just rely on conventional soil fertility recommendations that attempt to predict responses to fertilizer based on soil test levels,” Wardlaw says.  “Since each field has its own unique limiting factors, we cannot treat them all the same.  For example, we have seen cases in which two identical fertilizer applications perform differently on fields with similar characteristics and soil test levels. 

“We look at the field’s performance and profitability from a critical nutrient level standpoint to determine and maintain the most profitable soil test levels to maintain maximize profits.  This way of thinking allows us to understand the uniqueness of each field and identify the limiting factors that could be affecting in regard to soil fertility.  We are finding that our experience is allowing us to make significant adjustments in application timing and not just adjust material selection and application rates.”

Wardlaw says his consultant business challenges the conventional idea of the standard fertility recommendation fits every situation, every field.  “We are focused on maintaining our soil fertility at the level that maximizes profits and only apply fertilizer at rates that maintain the nutrient level at that precise place,” he explains.  “Sometimes this may involve adjusting rates or adjusting rates and application timing.”

Another area that this consultant business is upgrading is variety/hybrid selection.  “We are now using cutting-edge analytics to improve the variety selection and placement decision,” Wardlaw says.  “We are in a unique position in that we get to evaluate a lot of hybrid/varieties in a lot of different situations across a lot of acres, environments, management and soils.  Hybrid/varieties have unique characteristics that allow them to perform best under particular environments, including soil types, fertility levels, drainage, irrigation and dry land management.  We want to better understand where these varieties/hybrids have the best fit for the biggest return on that particular grower’s investment.”