Controlling input costs — one of the best returns on investment

The importance of controlling your costs

One of my favorite stories involves a lady and a farmer. The farmer sold milk right off the farm for about $4.00 a gallon. The lady would, each week, load up her four or so kids, drive forty five minute each way, and pick up three gallons of milk in return. Eventually, the farmer had a drop location only ten minutes from the lady’s house. Yet, she continued to come out to the farm. Finally, he asked her why? “The milk is $1.50 more in town! I can’t afford that.”

You may laugh at such reductionist thinking (or, you may fit such thinking!). This lady was spending two or so hours and $45 in gas and mileage to save $4.50 by driving out to the farm. She was penny wise and pound foolish. But many farmers are the same.

Each year we should spend some time looking at our various costs and seeing where we can do better. Here are a few we and some fellow farmers have found this winter and spring and how they are impacting our bottom line.

Fertility

A vegetable grower friend of mine in the Carolinas uses a large amount of compost each year in his operation. For a number of years, the only source he had found was $52 a cubic yard at 150 miles away. So, fertility was a big line item in his budget and cut pretty deeply into his potential profits. While searching for wood chips, one of his kids came across $10 a yard compost at 20 miles away! It was equal or better quality to what he had already been getting to boot, an important consideration. The switch is going to result in a much accelerated path to profitability for his expanding vegetable operation at the cost of just an hour or so of research.

Mulch and other miscellaneous inputs

The first few years we were on our land, when I needed mulch, I would drive over to a local sawmill and get a scoop for about $30. It didn’t last very long with 200 chickens. But I didn’t really know any better at the time how to do better.

Then, a farmer friend mentioned another local sawmill sold much larger loads at a far more attractive price point. For $150, I could get a triaxle load of sawdust — roughly 20x what my truck could carry — delivered right to our farm. That was an immediate $450 savings. Also, the savings was really far greater — I didn’t have to drive over and lose an hour or more at the other sawmill, nor use my truck and its fuel either. Also, the triaxle load was dumped wherever we pointed. The truck? We had to unload by hand tools. The real savings is probably closer to $900 dollars when time, mileage, and manual labor are all taken into consideration (which they should be!).

If our property permitted access, we could save even more and get a semi truck load for just $600, another 10–15 fold increase in amount for just a fourfold increase in cost. This raises another good point — while larger purchases offer dramatically bring down the price, if your property or setup doesn’t allow you to handle such volumes, you won’t be able to take advantage of them.

Remember, Scale Matters

It is also important to consider how scale impacts costs and how to do good math to ensure you are making a good decision. So, say you raise six hogs a year. If you can get all six just ten minutes away for $75 each, is that a better deal than getting six an hour a way for $55 each? What about if you are getting twelve? Twenty? Scale changes which one is the best value/lowest cost, quality and other factors being equal.

So make sure you pencil things out (or in my case, spreadsheet them out). Include not just base costs, like the cost of the compost, animal stock, or feed, but other costs as well — time, mileage, need to use a stock trailer or other such equipment.

Also note, make sure that if you go with the more expensive option, it is actually worth it. I once overheard a farmer talking about how he spent an entire day picking up small sets (about 5–6) of pigs to raise. Instead of sourcing more locally, he would drive halfway across the state. I asked him why? “I just prefer this breed.” Months later he was also grumbling about how unprofitable his operation was. Well, when you double or triple your base cost — in this case pigs — from $50 to $150 dollars when you include all the extra time, labor, and the higher cost of these “special” pigs, it makes it really hard to get back on track bottom line wise. I really doubt consumers could tell a difference in his finished product compared to other local farms to boot. What they did see was the difference in price.

Place to search for alternative sources

Here are some ways to go about hunting down alternative options for various inputs. First, start with other growers, farmers, and suppliers. Where do they get hay, straw, mulch, fertility, and whatever else and why? Also, non-farming neighbors with farming family members have helped us greatly. One friend’s father had hay to sell at ½ the price of the hay sold right around us. He wasn’t at all far — just ten or so miles, so across 20 or so bales, the savings was immense.

Next, Agufse, Facebook and other social media sites have made searching for suppliers a great deal easier. For instance, you can use Facebook marketplace and sales groups. Both allow you to set alert notifications for new postings that contain keywords for what you are looking for. It is a very convenient feature, since instead of having to spend hours searching the groups each week, you can “set it and forget it.” I found our new feed supplier when a FB alert led me to his post. Took all of two minutes of my time. Yet the switch will save me $800 dollars or more just this year.

Second, these social media platforms have groups whose members can provide leads for hunting down new resources. They are a great place to ask who is ordering what from where and why and at what price. Perhaps you need silage tarps or high tunnel plastic or who knows what else. The information and experiences of other growers can help you make better choices based on just on cost but also quality.

Third, Craiglist and other sales sites. From used t-posts and metal to all sorts of other supplies, the farm and garden category can provide big cash savings.

How is this impacting our farm?

First, this year was a reminder that spending down time, especially off season, evaluating and comparing inputs and suppliers is time well spent. As I mentioned above, this Spring, I caught a break and found a new animal feed supplier that dropped our cost per ton by 35%. They are also a fraction of the distance from our previous supplier — about ten miles versus over a hundred and have a much smaller minimum order. This means the feed we give our animals will be fresher and the amount we have to handle and store far lower, reducing handling costs, storage costs, and loss.

Then, for piglets, I found just a few miles away an option that was the same price as my previous supplier at 1/10 the distance. Also, the pigs come already castrated for the males, saving us the cost of either doing it ourselves or taking them to the vet. Both changes will make our already profitable pastured pork an even more viable enterprise for our farm moving forward. The known savings are allowing us to put in some additional fencing and other infrastructure to position ourselves to expand further in the future. T

Such small changes and improvements can mean the difference between a farm’s life and death. As I noted in other posts, most US farms operate with a negative net income, often by a few thousands dollars.

Good sourcing can move you from red to black without requiring any additional sales or work — indeed, the above changes for us are saving us money and work at the same time. All it takes is using your down time well to reevaluate and look for new possible options!

What changes are you making to your operation to improve profitability this year?

Originally published at agfuse.com.