Cut Costs of Agricultural Production: Understanding how to Increase Profit
Success in an AG business means accomplishing two things: generating a high gross profit and minimizing the difference between gross profit and net profit. Gross profit is how much money an operation makes. Net profit is how much money an individual or a company makes. Theoretically, an operation can make a fortune while the owner(s) of the company makes nothing. The greater the sum of the gross profit that goes into company costs, the less money an agricultural business owner makes.
Every successful business owner and AG company board understands that the most basic and fundamental principle of business is gross versus net profit. Prior to the owner or owners seeing any profit, the costs of operating the business must come out of the gross profit. The money left over after paying operating costs is net profit, what the owner(s) take home. Net profit is business income minus business costs.
There are only two means of increasing net profit. The first is to keep costs constant while increasing gross profit. While the most attractive solution to increase net profit, increasing gross profit while keeping costs constant is not often possible. With respect to an agricultural production operation, there are two variables that dictate gross income: the size of the operation — the production potential of an operation — and market rates, the going price of livestock and or crops.
That is to say, in order to increase gross profit, an operation must increase production or the market must turn in its favor. A far more viable option for increasing net profits is reducing operating costs. However, cutting costs is not a simple process either.
Cutting Costs of Agricultural Production
An agriculture production operation has — not counting the costs of purchasing new equipment — three primary costs: wages and salaries; parts and labor; and fuel. Salaries and wages are generally dictated by the local economy and the labor market in a given area. An operation that refuses to pay a fair market wage is resigned to using less qualified laborers and operators.
Parts and labor for maintenance and repair is another cost that is generally dictated by the local market. Inexpensive parts are typically cheaply made parts and inexpensive mechanics are typically inexperienced or unqualified. Cutting costs for parts and labor — while better in the short term — generally means paying a higher price over the life of a machine.
That leaves fuel costs. Like low-wage labor and operators, inexpensive parts, and low-rate mechanics, bargain-priced fuel is generally a reflection of its quality. Cheap fuel is generally an indication of a high-sulfur fuel. High-sulfur fuels are hard on equipment and machinery. Sulfur corrodes the internal components of an engine and — once converted into sulfur dioxide during combustion — high-sulfur fuels oxidize the manifolds and exhaust system of an engine.
And the fact is, even saving ten cents a gallon results in insignificant savings over the course of a year. If a machine uses 20 gallons a day, the savings is $2. If the machine operates 6 days a week, that is a savings of $24 per month. That is under $300 if the machine runs 6 days per week year around.
Fortunately, there are ways to dramatically cut fuel costs.
Cutting Fuel Costs of Agricultural Production
When most ranchers, farmers, or AG business owners think about cutting fuel costs, the first thought that comes to mind is cutting the cost of machinery. While cutting the fuel costs of AG production machinery is an important component of increasing net profit, trucks are actually the biggest fuel drain.
Not a pocket knife, fencing pliers, a horse, a saddle or tack; not a shovel or hand jack nor a come along; not a tractor or trailer or a livestock chute, there is no tool or piece of equipment more valuable to a ranch, farm, or AG business than a pickup truck. Trucks are responsible for everything from pulling a trailer, hauling hay, moving supplies, and functioning as shelter to shuttling an AG business operator back and forth from town to run errands. An AG operation without a truck is like an office without a computer.
Unlike other pieces of AG machinery, a truck gets used every day of every week of every year. Most of the time from sun up until sundown. While tractors and other pieces of AG machinery are used heavily during brief intervals during the year, a truck never rests. A good truck is simply irreplaceable.
But pickups are expensive, particularly refueling them. Even on a typical ranch, it is not uncommon to refill a pickup two or three times a week. Every refill is a deduction from gross profit that never makes it into the net profit of a rancher, farmer, or AG business operator.
Fortunately for people interested in reducing the overhead cost of fuel so more gross profit makes it to a farmers bottom line — net profit — there are solutions for excessive fuel costs:
- Diesel — rather than gasoline — AG trucks. Gasoline and gasoline engines, both, are inefficient. Gasoline is a low energy density fuel in relation to diesel. That means, per gallon, diesel moves a truck farther down the road than a comparable gasoline engine, between 20% and 35% farther. Additionally, diesel trucks last roughly twice as long as a gasoline-powered pickup. While diesel trucks cost more to maintain, the maintenance costs are offset by the fact that gasoline trucks must be replaced twice as often.
- Small engine transportation. While nothing on a farm or ranch can replace a truck, there are jobs — many jobs — that do not require a full-size pickup to complete. Irrigating and repairing a fence, for example, are just as easily accomplished on a four-wheeler or UTV. And, using smaller vehicles for everyday tasks saves a shockingly large amount of fuel.
- Multitask on every trip. As opposed to making several trips to the same location every day — to town for example, — make one trip and accomplish everything for the day so returning will not be required. Better yet, plan ahead several days in advance in order to further reduce trips. Two and three and four trips to the same location every day dramatically reduces the amount of gross profit that becomes net profit at the end of the year.
Global positioning satellite systems are becoming an invaluable part of agricultural operations, particularly farming. Farmers must remain aware of a wide variety of variables, everything from implement depth to steering direction. Spraying crops with fertilizer or herbicide, for example, requires taking into account a handful of processes on the spraying implement alone. A GPS system can automate many of these processes so rather than have to monitor them individually, a farmer can focus on a single instrument panel.
GPS systems have features including guidance and steering correction services that keep rows straight, flow and application controls that automatically adjust the number of chemicals applied, yield monitoring that indicates how much product remains in a tank, water management systems that ensures a proper mix and more.
GPS systems not only make the process of tilling soil, planting crops, and harvesting far less labor-intensive, they increase fuel efficiency which equates to net profit.
Field Operation Multitasking
Idle time is the biggest waste of fuel in the world of excavation. In the world of agricultural production, the biggest waste of fuel is single-shot field operations. Each field operation — the steps required to produce a crop yield — often requires a unique implement. For example, prior to planting a seed, soil often needs tilling. But, tilling is not a single step. Tilling soil means disking it, then ripping it, then closing it into rows, then leveling the tops of the rows. Tilling the soil alone can require up to four implements which means four different passes.
A single pass on a circle — one-quarter of a section — can require anywhere from 60 to 80 gallons of fuel depending on the size of the tractor and the implement it is pulling. If a circle requires four passes just during the tilling phase, a section will require anywhere from 240 gallons to 320 gallons per pass over the course of an entire section. If a farmer owns 10 sections, that is a total of between 2,400 and 3,200 gallons. At $4 per gallon, the total cost in fuel for a single pass over 10 sections is between $9,600 and $12,800. Again, that is for a single pass over 10 sections. Four passes would be $51,000 before a single seed was planted.
In other words, every field operation — every pass — is expensive. To save fuel, accomplish the most per pass as possible. Disk, rip, close, and level in a single pass if possible. Seed and fertilize in a single pass if possible. Apply herbicide and pesticide on the same pass if possible. Reduce the number of passes to the lowest possible number by combining field operations.
Rentar Fuel Catalyst
The majority of agricultural cost-cutting measures pertain to operational inefficiencies. However, there are also technologies that increase the energy output of diesel fuel. The Rentar Fuel Catalyst is an example of such technologies. The Rentar Fuel Catalyst increases the energy output of diesel fuel during combustion.
The components of fossil fuels that make them valuable — the components that ignite, combust, and burn — are hydrocarbons. Hydrocarbon types determine the type of fuel. For example, natural gas is made of small molecule and small molecule chain hydrocarbons. Small hydrocarbon molecules and chains have a low energy density. That is to say, on a volume scale, small hydrocarbon molecules produce less energy than large hydrocarbon molecules and chains.
Diesel is an example of a high energy fossil fuel, a fuel with large hydrocarbon molecules and hydrocarbon molecule chains. But, while high energy hydrocarbon molecules have greater potential than smaller fuel molecules, high energy density fuels are more difficult to ignite, combust and burn. In other words, high energy fuels are more stable than low-energy, volatile fuels like natural gas and gasoline.
The reason high-energy, big molecule chain fossil fuels are more difficult to combust is because the natural charges found in fuel molecules cause them to cluster together. Fuel clusters prevent the individual molecules from combusting because there is a lack of surface area for each molecule and surface area is a requisite of oxygenation. Without oxygen, a fuel molecule will not ignite.
That means the more stable a fuel, the less of it that burns completely. So, while diesel has a higher energy potential, in reality, a larger portion of the diesel sent through the combustion chamber of an engine goes unburned. Simply, because diesel fuel is a stable fuel, it has a lower combustion efficiency than low-energy, highly volatile fuels.
The purpose of the Rentar Fuel Catalyst is to depolarize the charge that causes large hydrocarbon molecules to cluster together. By breaking up the fuel clusters, the Rentar Fuel Catalyst increases the combustion efficiency of diesel.
The Rentar can reduce fuel consumption by between 3% and 8% on over-the-road vehicles. On machinery, the Rentar reduces fuel consumption to an even greater degree. On machines that burn extra-heavy fuel, boilers, and furnaces, for example, the Rentar increases saving by up to 30%.
There are thousands if not millions of ways to cut costs on a farm, but the vast majority is small and amount to insignificant savings. Cutting fuel, on the other hand, can add up to thousands of dollars worth of savings. And, there are two ways by which to make the most significant fuel cost cuts: consolidation and combustion efficiency.
Any farmer who wants to increase net profit — even if gross profit remains the same — can do so by streamlining both the farming process and the equipment used to plant, grow, and harvest crops.