WEST LAFAYETTE, Ind. — “Best in Class” isn’t just for 4-Hers anymore, said Purdue economists last week. Farmers should strive for excellence in running their operations in a tough economic show ring.

“Being ‘best in class’ is more than being a low-cost producer. A lot of farmers are focused on that. It’s also being customer-centric and an innovator,” said Jim Mintert, director of the Center for Commercial Agriculture at Purdue University, which hosted the webinar.

Elements of being a “best-in-class” producer include intense cost control, margin management, execution, using the best science, doing fewer things better and data management. Producers should know their cost components per bushel, not just per acre, said Mike Langemeier, associate director of the Center for Commercial Ag and economics professor.

“You’ve got to know your production costs. You can’t know if you’re making progress if you don’t know them,” Langemeier said.

Breakeven prices for corn in West Central Indiana were $2.50 in 2000, $7 in 2012, and $4.50 in 2014, according to Purdue research.

“In 2014 and 2015, farmers are probably not going to break even, judging by (expected) corn prices,” Langemeier said.

However, on a specific farm, a farmer’s breakeven price may be above or below the average. Knowing his own costs per bushel can help a farmer calculate his breakeven price, Mintert said.

“Is your breakeven $4 or $4.25? Reducing costs by 25 cents per bushel is very important,” he added.

Margins matter

In managing margins, producers need to look at contribution margins, as well as profit margins.

Contribution margins indicate the farm’s revenue over variable costs. In 2000-2005, margins were tight, and farmers should get ready for that economic scenario again, Mintert said.

Production costs for 2014 were broken down into five categories: land 35 percent, fertilizer 20 percent, other 18 percent, seed 14 percent; and machinery 8 percent.

Land cost in West Central Indiana per bushel of output in 2012 was almost $2.25; $1.50 in 2013, and above $1.50 in 2014.

“Cash rent will go back to $1 in the next 3-5 year period. Cast rent and land values don’t adjust overnight,” Mintert said. “We’re not expecting a lot of reductions in 2015, but we are setting the stage for future reductions.”

Langemeier added, “We are starting with land because it’s the biggest cost.”

Fertilizer, the second-highest production cost, will come down in price due to less demand and supply-side factors, like cheaper oil and energy, Langemeier said.

Using the optimum amount of fertilizer in the most efficient way is essential, Langemeier added.

With increased seed costs, producers need to compare varieties and look for the cheapest seed that will give similar yields.

Finally, to be best in class, compare costs with competitors/benchmarks in your state and country to see how efficient you are, Mintert said.

Execute, buy right

The economists urged producers to question everything, even standard operating principles, such as planting corn like everyone else or feeding swine the same way every year. Gather input from employees and family to get a team perspective, Mintert added.

“Those who do well are constantly asking questions to make improvements,” Langemeier said.

The Purdue professors said having a “procurement mentality” like those in business can benefit the farm. Compare prices from suppliers using a bid sheet.

Purchases set the cost structure, Mintert said. Consider repairing rather than replacing faulty capital items. “Let’s talk about the elephant in the room. Be cautious what you pay for land, with land values going down,” Langemeier said.

Use science

In using the best science available, make research-based decisions in fertilizer, weed control, seed technology and rates, fungicides, and crop scouting.

For fertilizer decisions, use a soil testing strategy. Also, localized data has been gathered and loaded onto an Iowa State University’s website at www.extension.iastate.edu

Mintert said using the “corn nitrogen rate calculator” on this website will provide the optimum fertilizer rate for a farm’s geographic location. He recommended using slightly less nitrogen than recommended if margins are tight.

“If margins are tight, beat the yield curve. Go further left than you want to be because you may not get additional yield for more fertilizer,” Mintert said.

For weed control, consider the cost per bushel rather than per acre.

“Weed cost per acre price may go up, but your yield may be up,” Mintert said.

On fungicides, the research has shown that the treatment is helpful but not always necessary, Langemeier said.

“Fungicides can be effective at reducing disease but only when the disease is present. That’s why you need an aggressive crop scout who knows what he’s looking for,” Langemeier said.

Mintert suggested farmers who do their own scouting enroll in a certified crop advisor program or attend a training workshop at Purdue in the summer.

“Whether you do it yourself or hire it out, whoever is in charge needs to have the technical expertise and stay up to date,” he added.

With the emergence of herbicide-resistant weeds, herbicide programs have become more complex. To compare the active ingredients in herbicides, Mintert recommended United Soybean Board’s website, www.takeactiononweeds.com

The extra effort in reducing costs is needed with lower crop prices, Langemeier said. “Everything we’re doing has to pay,” he said.

Do fewer things

“What do you do better than others? Some farmers might be spread too thin, and they may need to outsource what they don’t do so good, such as crop scouting or soil testing,” Mintert said.

He recommended that soil testers be independent sources of information, those who are not trying to sell a product or service.

Data management

Use data to make better decisions, but don’t try to make the data fit your own presuppositions or conclusions, Langemeier said. Also, take data over multiple years so that one weather event or unusual conditions do not unduly influence the results, he added.

The next webinar by the Center for Com-mercial Ag will be Feb. 16 on the farm pro-gram and March 2 on crop insurance. Go to www.AgEcon.purdue.edu/commercialag to enroll or to see past webinars.