Del.icio.us  Digg  facebook  MySpace  Twitter  Google  Bookmark Me  LinkedIn  StumbleUpon  Permalink

Three Ways to Maximize Input Purchases

Buying seed, fertilizer and fuel is a necessary evil for grain producers. But there are ways to lower those costs, other than bartering and negotiating for volume discounts. Here are three ideas from farmers:

Buy inputs and store on-farm
For real savings store fertilizer on the farm and take delivery when no one else wants it. On-farm storage allows you to buy during the summer if there are surplus supplies left over that dealers don't want to carry says Marty Turner, who farms with wife Megan near Beardstown, Ill. Two years ago Turner added a 28% liquid nitrogen facility to his operation's 30,000-gallon anhydrous storage tank and 40-by-60-foot covered dry fertilizer structure. Potash goes in one side and DAP is stored in the other.

Turner says it took just two years to see full payback on the anhydrous facility, which allows him to buy and store when prices are lowest. He shops round and typically buys in December. "The more acres you farm, the more justification it can work for you," he says. "But if your land is spread out and you do a lot of traveling, it doesn't fit."

A word of caution: fertilizer facilities require various permits and may be under scrutiny from government officials. Work with inspectors ahead of time to avoid expensive problems later on.

Pre-pay expenses
Booking inputs early has multiple advantages. First, most seed and chemical companies discount prices as an incentive. Even with the cost of interest figured in, these discounts usually provide savings.

Buying before Dec. 31 means you can deduct them from income in the tax year before they're used, a handy tax savings tool in years of high income that's available to farmers who use cash accounting for tax purposes. But recently there's been another advantage. Soaring prices for fertilizer paid huge dividends for those who bought early. And with seed shortages in some areas, buying in the fall increases the likelihood of getting the seed you want.

"The prepay discounts on seed work out to a return in excess of 20% when computed on an annual basis – guaranteed," says Mike Jordan, Beloit, Kansas. "I can't find any other legal investment with a return like that."

Make one fuel fit all
When Brian Willott was at the University of Missouri working for the Food and Agricultural Policy Research Institute he helped analyze a project for the military. The military brass stressed they wanted all equipment to run on a single fuel. Willott took that lesson with him as he and his partners launched a farming venture in western Bahia, Brazil, where fueling stations can be few and far between.

"You don't want planting to halt because the transfer pump to fill the sprayer runs on gasoline and you're out of gas," he says. "Agreed, a run for small parts might be faster and use less total fuel if an employee uses a gasoline powered motorcycle rather than a diesel powered pickup truck. But we improve overall efficiency and streamline input purchasing and management by moving to a 'one-fuel fits all' system."