According to the USDA reports for the past few years, the eight major crops planted in the U.S. are corn, soybeans, wheat, cotton, sorghum, rice, barley, and oats. The crops planted vary by geographical area and are influenced by a variety of factors, including market accessibility, climate, soil type, just to name a few. For the 2018–2019 crop year, the USDA projects the following returns over variable costs for five of these crops:
- Soybeans $279 / acre
- Corn $242 / acre
- Cotton $125 / acre
- Wheat $87 / acre
- Sorghum $74 / acre
So, everybody should maximize the soybean acres in 2018, right? Probably not! Perhaps none of the crops listed above is the most profitable crop that you can grow and include as part of your farm business plan. Sometimes, the most profitable crops can be specialty crops, organic crops, and seed crops. Some of these options may be dependent on your geographical location and proximity to the manufacturer’s delivery point.
What Crops Will Yield the Highest Profits?
However, before you can determine what are or can be your most profitable crops, there are two questions to consider and answer:
- How can I capture profitability by crop?
- How can I measure profitability by crop?
Implementing accurate managerial accounting formats into your farm financials can provide you with the proper reporting to capture the direct expenses, indirect expenses, and the general, administrative, and finance costs associated with various crop alternatives. These factors should be reflected by each individual year’s production cycle.
Does your farm business management software provide you with the necessary tools to accurately report individual crop and production cycle by crop profitability? Perhaps you are using spreadsheets or other alternatives to provide you with this critical farm accounting information. Whatever method you use, make sure you’re getting this valuable information.
Another factor to consider when measuring profitability by crop are the potential differences in the capital investment required for various crop alternatives. If a crop provides an above average cash profit (revenue less expense) but requires an investment in or lease of special equipment to plant and harvest, this must be taken into consideration in determining overall cash flow and profitability for that crop. One financial analytical measure is the asset turnover ratio (ATO). The ATO measures the assets’ efficiency in generating revenue (revenue dollars / asset dollars). The higher the ratio, the more efficiently the assets generate revenue.
To maximize farm profits by growing the most profitable crops available to your farming operation, we encourage you to think beyond your present farming practices. Regardless of the crops you now grow or may consider growing, implement agriculture accounting practices that enable you to measure and monitor your business’ progress. If you don’t presently have that capability or farm business management software that will assist you in that process, research your alternatives, choose a method, and move forward to become a more effective business manager or owner.
AgriSolutions’ Ag Mangager® software provides detailed managerial accounting, allowing you to measure and track the profitability of individual crops so you can make better informed decisions for your farm business. Click the link below for a free demo.