Hybrid Return on Investment

University of Nebraska – Lincoln Author

09/01/2020 Added

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Dr. Matt Stockton uses the UNL-TAPS program to highlight the importance of hybrid selection decisions and its impact on profitability.
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[00:00:09.440]My name is Matt Stockton,
[00:00:10.710]I'm a agricultural economist with the West Central Research
[00:00:14.470]extension and education center in North Platte.
[00:00:18.010]My specialty is in farm management.
[00:00:19.940]I also work very closely with the TAPS program.
[00:00:23.990]Today, I wanna talk about something that I,
[00:00:27.490]we found to be very important, as we were working with TAPS.
[00:00:31.880]The name of my talk is "Buying the Wrong Seed
[00:00:34.040]May Cost You More Than You Think."
[00:00:36.130]That's something you're gonna have to decide
[00:00:37.600]after you watch the presentation today.
[00:00:40.810]Let's talk a little bit about precision management,
[00:00:42.677]and what is precision management.
[00:00:44.610]Precision management is making the right decision,
[00:00:47.350]at the right time, using the right tools
[00:00:50.250]for the circumstance.
[00:00:52.210]That's precision management.
[00:00:53.530]'Cause that's exactly what precision farming's all about.
[00:00:56.950]Using the right seed in the right place, at the right time,
[00:00:59.860]with the right fertilizer, everything's gotta vary,
[00:01:01.820]so that's what precision management is, it's using,
[00:01:04.940]making the right decision at the right time
[00:01:06.610]using the right tool for the circumstance.
[00:01:08.730]We've been talking a lot today about technology
[00:01:10.760]and that's the focus of the conference,
[00:01:12.760]and it's wonderful, technology's a great thing,
[00:01:15.430]it's a great assistant, helping us to make profit.
[00:01:18.690]But the point is it's not the reason that we use
[00:01:23.210]technology is to use technology,
[00:01:25.620]we use technology so that we can increase profitability.
[00:01:28.800]And so technology itself doesn't really provide extra yield,
[00:01:32.110]or more success, or guarantee it, it's a way of
[00:01:35.360]if we use it properly to get there.
[00:01:38.070]Let me give you an example.
[00:01:39.520]Two farmers have identical farms.
[00:01:41.390]They have, everything's identical,
[00:01:43.430]their cost, their, everything they do, they go out
[00:01:47.000]and they use the same tractors, they got the same
[00:01:49.160]amount of fuel, the land value's the same,
[00:01:51.740]everything is exactly the same.
[00:01:53.430]The only difference is farmer A uses seed
[00:01:57.970]that costs $21 less than farmer B.
[00:02:02.710]So that's the only difference between these two farms
[00:02:04.970]and farmers, basically there's $21 less than B.
[00:02:09.650]Now, at the end of the season, when they harvest
[00:02:12.550]the crop, farmer B finds he gets seven bushels more
[00:02:16.740]than farmer A.
[00:02:18.490]So the question I have is, who makes the most profit?
[00:02:21.850]Who did the best?
[00:02:24.030]And if you can't answer the question, you're not alone.
[00:02:27.450]You can't answer the question without more information.
[00:02:30.160]You don't have enough information to figure out really
[00:02:32.520]what's going on.
[00:02:33.990]So what we do know is we know the difference in the cost.
[00:02:36.630]So we know that $21 per acre was the difference in the cost
[00:02:40.860]of the seed, we also know that the yields were different
[00:02:43.780]by seven bushels.
[00:02:45.310]The question is, does the benefit exceed the cost?
[00:02:49.760]Or does the cost exceed the benefit?
[00:02:51.450]And the only way to know that is we gotta know
[00:02:53.680]what the value of the bushels are.
[00:02:55.700]So if the bushels were $4 a bushel, that was the value
[00:03:00.880]of those bushels, those seven bushels would be worth $28.
[00:03:06.210]Well, $28 is more than $21, so farmer B would have made
[00:03:11.230]a good choice by planting that more expensive seed.
[00:03:14.790]Now, if they were $3 valued corn, then neither farmer
[00:03:19.900]would have been better off.
[00:03:22.360]Both varieties worked just the same.
[00:03:24.760]In other words, he paid more, but he got more bushels,
[00:03:26.930]but he got less for it, so the cost of the extra value
[00:03:31.210]of the seed was eaten, the extra value of the production
[00:03:35.010]was eaten up by the cost of the seed.
[00:03:37.900]So, if though, prices were less than $3 a bushel,
[00:03:44.350]and a very unique thing happening, then farmer A
[00:03:47.030]who paid less for the seed got a better deal
[00:03:49.090]because the, farmer B who spent the extra money on the seed
[00:03:54.370]didn't get his return on investment, his seed didn't quite
[00:03:58.160]pay for the extra cost of buying that seed,
[00:04:01.510]or putting it in.
[00:04:03.040]So that's an example of precision management.
[00:04:06.870]Now let's take it a little bit further, and let's talk about
[00:04:08.790]TABS, let's talk about the 2018 (mumbling),
[00:04:11.950]there are 20 farms in TAPS, so this is an opportunity
[00:04:14.680]where these guys had six basic decisions to make
[00:04:18.610]during the year, only four of those decisions
[00:04:22.190]really affect productivity, the seed variety selection,
[00:04:25.950]the population per acre of seeds, the water they put on,
[00:04:31.470]and the fertilizer that they put on,
[00:04:34.650]which could be varied based on what they wanted to do.
[00:04:37.900]But basically it amounts to three decisions,
[00:04:40.340]what corn did you plant and how did you plant it
[00:04:43.630]would be one decision.
[00:04:44.800]The other two would be your fertilizer and your water.
[00:04:47.840]We're not gonna talk about the other two decisions,
[00:04:49.610]we're not gonna worry about that right this minute.
[00:04:52.090]So let's talk about what it cost per acre to plant,
[00:04:56.735]and the differences among.
[00:04:58.350]I don't know if you can see this clearly,
[00:05:01.150]but hopefully you can, there is a lot of variation
[00:05:05.030]in the cost per acre of what it costs to plant corn.
[00:05:08.930]I mean, there's population differences affect that somewhat,
[00:05:11.710]but these, all these different numbers, B1, B2,
[00:05:14.387]B3, B4, these are all different varieties.
[00:05:16.647]A1, A1, these are all the same variety.
[00:05:19.640]And so we can see that there's a lot of difference.
[00:05:22.840]For example, this $94.95, I have zero here,
[00:05:27.420]so in other words, if I had planted,
[00:05:33.530]let's use A1 variety as the baseline variety.
[00:05:36.970]So A1 is the baseline, we're saying, okay,
[00:05:39.700]so I'm not gonna change seeds, so I'm not gonna cost me
[00:05:42.960]anything to change seed, but B1, this farmer, farm two,
[00:05:46.520]if he changed seeds, he would pay $22.53 more
[00:05:51.180]to buy the seed.
[00:05:52.970]If he planted it and everything, the way
[00:05:56.291]we have anticipated.
[00:05:58.670]Okay, so the same thing with each farmer goes through,
[00:06:01.180]and here's their cost, but then here's what it would
[00:06:05.040]save them or cost them if they did it.
[00:06:07.100]For example, this farmer here, would have had to pay
[00:06:09.257]$25.50 more per acre to plant his, plant variety A
[00:06:16.310]versus the variety he planted.
[00:06:18.410]And down here though we got a guy that's got $32.28
[00:06:22.520]that he would have saved had he planted our,
[00:06:24.620]the baseline variety A, versus the B11 variety.
[00:06:29.110]So this would be what it costs them,
[00:06:31.610]or the cost savings that they had.
[00:06:33.490]Now, the next thing we need to know is if you compare costs
[00:06:37.260]that doesn't tell you which one's better.
[00:06:38.920]Oh, I saved $20 on seed,
[00:06:41.640]so, you did?
[00:06:43.140]Did that make you more profitable?
[00:06:44.730]Well you don't know that.
[00:06:45.760]Again, remember we had to find out the things
[00:06:48.190]that we needed to know, which was the value
[00:06:50.290]of the crop, and the cost, and then the difference
[00:06:53.980]in productivity, and right now we don't know
[00:06:56.450]the difference in productivity, nor do we assume a value,
[00:06:59.580]but for the next part of this example,
[00:07:01.390]we're gonna use $3.20 as a value,
[00:07:04.400]'cause that's about what it was worth at the end
[00:07:06.240]of the year during the 2018 season.
[00:07:08.940]So let's take this now and put a value to this.
[00:07:12.270]What we're gonna do before we do that though
[00:07:14.360]is to try to understand what I've done here,
[00:07:16.710]I hope it's not too complicated.
[00:07:19.620]We took farms one, 12, 13, 17 and 18,
[00:07:24.300]and used it to create a statistical model to predict yields
[00:07:28.630]for all farms under all conditions.
[00:07:31.790]In other words, different watering conditions,
[00:07:33.500]different fertilizer conditions, all those things
[00:07:35.440]were taken into account.
[00:07:36.750]So in other words, this row right here,
[00:07:40.372]if they had planted the variety A, this is the yield
[00:07:43.420]we'd expect them to get.
[00:07:44.860]Now to see how good of a forecast this is,
[00:07:47.180]this is the actual yield, and this is the forecasted yield.
[00:07:50.720]This is the actual yield, the forecasted yield,
[00:07:52.840]actual yield, for variety A, and notice that they're pretty
[00:07:55.760]close, I mean they're only off by 3.3, .5,
[00:08:00.480]this is a negative, negative.
[00:08:02.580]This is two bushels, a little bit more,
[00:08:04.960]this is a very minute amount.
[00:08:08.280]This is about 2.5 bushels.
[00:08:10.610]So, that's how far off the model is.
[00:08:13.360]So for our intents and purposes, and our analysis,
[00:08:16.050]we're gonna just say, you know what?
[00:08:17.760]It's close enough we're just gonna go with it,
[00:08:20.000]'cause there seems to be a lot of variation more
[00:08:22.450]than two or three bushels in these other ones,
[00:08:24.340]so we're gonna go with it.
[00:08:25.700]And we're gonna make that comparison.
[00:08:27.410]So this farmer here, which would be farm number two,
[00:08:30.800]he got 255.3 bushels with variety B, whatever he used,
[00:08:35.990]and this is what he would have got had he planted
[00:08:39.380]the A variety, with the fertilizer and everything
[00:08:42.860]that he did included, so that it was the way it was.
[00:08:46.100]That's why these yields are different, 'cause there's
[00:08:48.200]different fertilizer rates, and different water rates.
[00:08:51.290]Okay, so this 262 versus 278, 246, most of them go up,
[00:08:58.280]however, in farm number seven, he had 288.3 bushels.
[00:09:03.080]Well if he planted our variety, he used the same
[00:09:05.060]fertilizer and all of the stuff that he used
[00:09:06.770]on his variety, he would have got actually eight bushels
[00:09:09.980]less, about 106.1 bushels, if you really wanna know,
[00:09:12.413]it's right here.
[00:09:13.480]6.1 bushels less if he would have went with our variety.
[00:09:18.180]Well that's interesting.
[00:09:19.350]Okay, now remember, farmer seven is also the one
[00:09:21.650]that paid more for his seed.
[00:09:23.780]All right, so now let's take this and translate this
[00:09:25.790]into revenue, let's take the bushels that they would
[00:09:28.320]have gained, or lost, and multiply it by that $3.20.
[00:09:34.130]And that's what this column right here is all about.
[00:09:36.730]Now I left out the farms that planted the same variety
[00:09:39.122]'cause it would have had no change.
[00:09:41.210]So this basically, farm two, if he had planted this
[00:09:47.090]A variety, he would have got $105.64 worth more of corn
[00:09:52.360]produced, and it would have cost him $22.53 more.
[00:09:57.880]So he would have had a total gain of $83.11.
[00:10:01.810]As you can see the one with the most gain, though,
[00:10:03.860]was farm A, where he would have paid $7 less than
[00:10:09.590]he would have for the seed that he bought,
[00:10:11.800]and he would have made $166.58 more in corn,
[00:10:15.750]if he had planted the variety.
[00:10:16.960]That's quite a difference.
[00:10:18.050]In other words, about the same cost, a little bit savings,
[00:10:23.110]$7 savings, but man, he sure would have made
[00:10:25.700]a lot more corn and made a lot more money, $173.58 more
[00:10:29.850]had he planted the A variety, that's with the fertilizer
[00:10:32.470]and everything accounted for.
[00:10:35.600]So, the thing is now farm seven,
[00:10:38.080]that's a little interesting, this is kind of interesting
[00:10:40.210]because we have $23.09 for our cost savings, okay?
[00:10:45.330]That's how much you would have made in savings and costs
[00:10:47.320]for the seed, 'cause the seed would have cost less,
[00:10:49.630]but he would have lost $19.63 in revenue
[00:10:53.910]because of less corn produced.
[00:10:55.330]Well, if this number was smaller than this number,
[00:10:58.070]this would be negative, but it's not,
[00:11:00.490]it's just, they're close, it's only $3.46 difference.
[00:11:03.840]So that means, he only made $3.46 less than he would
[00:11:08.590]had he changed his variety, which remember we got
[00:11:10.430]a couple bushels of fudge room in there,
[00:11:12.550]so this really probably is, we could just say
[00:11:16.310]probably didn't make a difference in the variety.
[00:11:18.880]Okay, so you can see the variety makes a huge difference.
[00:11:23.760]Makes a giant difference in profitability
[00:11:26.590]of what's produced.
[00:11:28.030]So, when you select a variety it seems like
[00:11:30.870]that's a really important decision, and should be
[00:11:33.290]thought out as best and done as best as possible.
[00:11:37.480]This is something that precision management
[00:11:41.230]is something that we need to work on.
[00:11:43.690]We need to find ways to figure out exactly
[00:11:46.520]what that corn's gonna do in your field.
[00:11:48.790]So that you can select the right variety based on
[00:11:51.380]the value of its price, and the value of the corn,
[00:11:55.160]and that way you know that you can maximize
[00:11:57.210]your profitability, and that's just one way
[00:11:59.860]that precision management can help you on your farm
[00:12:03.160]and your farming decisions.
[00:12:05.080]I wish you a good afternoon, thank you very much
[00:12:08.900]for your time today, and I do appreciate the fact
[00:12:13.530]that you came to this conference,
[00:12:15.630]and thank you for being here.

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