Bigger will not always guarantee more profits
Jul 5, 2001 12:00 PM, Ron Smith
This issue recognizes the 2001 Farm Press Peanut Profitability Award winners. Notice, as you read the accompanying articles, that each winner produced exceptionally good yields last year, in what for many was a tough year to grow anything, much less a crop as demanding as peanuts.
Also note that yields include entire farms, not just a small field or a “honey hole” where all the stops are removed and the only restriction is the depth of the pocketbook.
We've done everything we could to make this award about profitability, not just high yield. Efficiency means more than quantity, although good yields are part of the equation.
Which reminds me of two young men from Dallas who recently decided to start their own produce business. Roy had a small pickup truck and Slim was the brains of the operation. Slim figured city folk would appreciate farm-fresh produce, so he contacted some of his country cousins and made arrangements to drive to west Texas to buy a load of peanuts.
He and Roy took off one day last fall and, as luck would have it, reached the cousins' farm just at peanut harvest time. They bought a truckload of freshly harvested, perfectly dried, in-shell peanuts for 25 cents a pound.
They got back to Dallas and set up on a busy intersection near one of the city's many mega-malls. They made signs. “Farm Fresh Peenuts.” (Slim's spelling was a bit suspect. but he was a produce businessman, not an English teacher.) Underneath the lettering, in big, bold letters, they put the price: 25 cents a pound.
They sold out in no time.
Slim and Roy were overjoyed at their success and began contemplating weekly trips to west Texas and considered expanding into grapefruit, watermelons, zucchini, chickens and anything else they could pile in the truck.
Slim counted their money. It seemed like a lot.
Then he started deducting expenses: Gasoline to get to west Texas — $75. Paper and markers for signs — $4.17. Lunch — $25.
Profits still looked pretty good. Overhead was minimal. The truck got good gas mileage and paper was cheap.
Then, as an afterthought, he figured out much they paid for the product, 25 cents per pound.
As he put his sharpest pencil to the figures he finally decided that he and Roy were about $104.17 in the hole. He couldn't believe it. The peanuts had sold so well.
He looked at the numbers again. He looked at the empty truck. He got a gleam in his eye.
“Roy,” he said, “I just figured out the key to making a profit in the produce business. We gotta get a bigger truck.”
Folks have tried that and often had no more success than did Slim and Roy. Sometimes getting bigger pays off with that elusive economy of scale. Larger farms may get better deals by buying material in bulk. They may upgrade to more efficient equipment. They may take advantage of marketing systems not available to smaller operations.
They also may stretch management ability to the point that things get left out and critical chores don't get done on time.
It's a complex equation, figuring how big to get, how high to set yield targets and still manage the increased costs.
We've found, from the most efficient farmers we talk to each year, the formula for profit always includes good yields and reasonable expenses. Good farmers tell me they don't cut out necessary production materials or essential practices. But they also say they justify each one. If it doesn't show a profit, it's best to leave it out.
We believe successful farmers, whether peanut, cotton, produce, grain or livestock, always take a hard look at expenses and set production targets accordingly.
Sometimes they need a bigger truck. Often, they have to get along with the one they've got and pay more attention to the cost of doing business.
e-mail: ron_smith@intertec.com
