Want a Way to Measure Your Farm's Performance? Try These Benchmarking Methods
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Your farm's success is deeply personal, and only you can determine what goals you'd like to achieve. You might consider a healthy crop stand, increasing yield, or higher profits as operational wins, particularly if factors like the weather or demand worked against you that year. But if you’re like most producers, you also may be interested in benchmarking the performance and profitability of your farm against external sources.
While you may be able to gauge your farm's growth by looking at data in your farm management software to see how your operation’s yield results and profits compare from one year to the next, do you know how to gauge your operational performance relative to your peers or industry benchmarks?
We're here to help you get started! Not only does benchmarking give you insights to help you make better strategic decisions for the future of your operation, it also can provide you with critical data that may help you get any necessary loans for expansion.
Here’s what you need to know about benchmarking your operation so you have a complete picture around the success of your farm.
How can benchmarking help my farm?
Think of farm benchmarking like a report card for your farm. Teachers provide report cards and grades regularly to gauge how students are performing. And they often meet with students and their parents to discuss what the student did well over the past semester or quarter, what he or she needs to work on moving forward, growth opportunities and goals to achieve.
Similarly, farm benchmarking is a way to measure the performance and financial health of your farm operation. Production benchmarking looks at indicators on the farm like corn or bean yields and cost of inputs. Financial benchmarking looks at overall profitability and financial risks of your operation. No matter what type of operation you have or its size, you should analyze both production and financial markers to accurately gauge farm success.
You may compare your farm’s financial situation to your operation’s past performance, or you may measure your farm’s production and financial successes compared to the operations of your peers.
To take a holistic look at both the production and financial health of your farm, consider indicators like your assets and liabilities, yields, and overall profitability. What’s going well? Where could you improve? How can you shift operations going forward to expand opportunities and grow profits?
Unlike a fiscal year where you’re sitting down annually to review financial data and taxes, benchmarking can take place anytime during the farm life cycle, from pre-planting to harvest.
Two types of benchmarking to measure farm success
To analyze the health of your farm operation, you’ll need to conduct both an internal and an external review of your business. The first type of benchmarking gives you insights into your individual operation; the second uses data to determine how you stack up in your industry compared to similar farm operations.
Internal benchmarking
Do you have profit and loss statements, assets and liabilities and income and expenditure records going back 20 years? All of that paperwork is critical in determining the financial health of your farm, and numbers will vary based on the size, scope, and scale of your operation. Maybe 2020 wasn’t a banner year on your farm in terms of income and expenditures. But when you go back and compare 2020 to, say, 2017 and 2018, you see modest percentage increases in terms of income and overall yield. This may indicate that you’ve been more strategic about where you’ve spent money since 2007.
Farm management software can automatically and easily combine your planting and yield data with estimated revenue and costs so you can see clearly in real time what’s working on an acre-by-acre basis — and what’s not. That internal benchmarking gives you an accurate, data-driven accounting of how your operation has performed historically.
External benchmarking
While internal benchmarking gives you an idea of where your individual operation stands, an external benchmark shifts the focus to how you measure up to your peers who have similar operations in your county, region, or state.
Let’s say you’re a Midwestern producer with 500 acres of corn. What are your farm peers doing operationally that lines up with your own farm? What are other farmers with a similar corn acreage doing differently to boost their yields per acre? Understanding the operational differences of your farming peers will help you discover new ideas and uncover areas where you could make adjustments.
Benchmarking against peer farm groups
External benchmarking may seem like a more painstaking task than an internal review. Fortunately, you can source your data from peer benchmarking groups that may offer more location-specific databases than a national program.
To get a good sense of how your farm compares, look for peer benchmarking organizations or associations. Extension-related farm management associations, like the University of Minnesota’s Southwest Minnesota Farm Business Management Association, help to strengthen all aspects of your farm management skills, including financial management and record keeping.
FINBIN, a USDA and University of Minnesota collaboration, is one of the largest sources of farm financial and production benchmarking. FINBIN uses data from farm management education programs and associations to help you compare your farm’s financial ratios to those of your peers and allows you to generate benchmark reports at the whole farm, livestock, and crop levels. That way you can see how your operation stacks up to similar producers in your industry and state in terms of everything from whole-farm debt and income to field-by-field profitability. Private peer benchmarking companies and lenders may also offer fee-based benchmarking services.
Check with your local agronomist or cooperative extension for local farm management associations and databases that may be available in your area.
How to keep records for benchmarking
Your operation may have thousands of data points, from income and expenses to seed and input prices. But what data do you actually need for useful and accurate benchmark measurements?
As a first step, determine what data you’ll examine. Will you focus on evaluating your 1,000-acre soybean crop to decide whether or not you can afford to expand? Or will you look at all aspects of your operation to evaluate overall success and determine any areas that need improvement or resources that need reallocation? For instance, you may look at your harvest data and decide it makes more financial sense to hire out your harvesting to a seasonal employee rather than doing it yourself.
"Once you’ve carefully reviewed your data, you need an action plan. What can you improve to make your successful farm operation even more profitable?"
Once you identify the performance indicators for your operation, you’ll need to gather meaningful data, not only to establish your farm’s internal benchmarks, but also to compare it to external benchmarks. That data may include:
- Current assets
- Current liabilities
- Income
- Expenditures
- Profit and loss statements
Each producer also will need to identify the types of production benchmarks he or she wants to examine. These could include:
- Crop yields
- Seed-use efficiency
- Planting and harvest dates
- Inputs
If the idea of collecting all this data feels like a challenge, some digital farming tools can help you gather the information you need quickly and easily — and on one singular platform. Check that you have reliable, up-to-date virus protection software if you keep your farm's data on a computer.
Plan next steps based on your farm benchmarking
Once you complete an internal or external review of your farm, whether it’s strictly a financial benchmark, a production-focused examination, or both, you’ll want to take the following steps to put your learnings into practice.
1. Identify
What are the strengths of your farm operation? What areas could you improve going forward to help you grow your business? Maybe, after an internal benchmark, your data shows you’re putting too much of a particular input on a set of fields. Cutting back the amount or reallocating those inputs elsewhere may drive higher yields without increasing your costs.
2. Investigate
Once you have the data before you, it’s worth doing a little digging to uncover why some areas of your finances or production exceeded expectations while others stayed the same or underperformed. Historical records can tell you the why and how. For instance, maybe too much rain affected a particular corn stand over the past year. Or perhaps you need to reevaluate your NPK (nitrogen-phosphorus-potassium) ratio for your corn crop because the ratio you used wasn't the ideal mix to affect yield the way you’d hoped.
3. Implement
Once you’ve carefully reviewed your data, you need an action plan. What can you improve to make your successful farm operation even more profitable? What are you doing demonstrably well based on your analysis that you can take into account in the future? What do you need to address, or what improvements do you need to make immediately? If, for instance, your farm liabilities increased significantly over the past five years, it might be time to enlist the expertise of a financial adviser to determine whether you can decrease some of those nonessential liabilities and spending.
Benchmark today for better farm business health
Benchmarking is an important tool to determine the health of your business. And with so many variables on the farm — from weather and input costs to market prices and equipment — benchmarking can help you determine what to expect. By regularly analyzing internal production and financial benchmarks and by consulting with peer benchmarking groups, you can make more efficient and more profitable management decisions to grow your successful farm.
Whether you’re taking an internal or external look at your farm — or both — use our farm benchmarking template to compile the necessary financial information to determine how your operation compares to similar producers and quantify your own operation from a year-over-year standpoint. We’ve based our worksheet on widely used guidance and best practices from farm financial management cooperative extension experts.
Once you’ve completed the template, use it to identify areas of strength and growth opportunities in your business, and investigate how certain areas of your farm performed in relation to goals you previously set. Your data and analysis may then be used to ideate plans for growth!
The information provided herein is provided gratis, and solely as reference. The information is not intended to be, nor shall it be a farmer’s sole and exclusive source of information on the subject matter. Corteva Agriscience makes no warranty, or other representation, express or implied, as to the accuracy of any information contained herein, and cannot assume responsibility or liability for reliance on or use of this information by any farmer in making specific decisions on operational performance, which in all cases is the responsibility of the farmer.
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