Benchmarking Analysis: What is it and why farmers should be using it

Farming can sometimes feel isolated. So it’s natural to wonder what the rest of your peers are doing. Are they more profitable? Are they using a different crop rotation? How did they handle that dry spell a few weeks ago? Are they getting better prices for their crop? 

While you can gauge some of these answers from conversations at the feed store or the local coffee shop, there’s a better way to measure your farm against similar ones in your region. And that tool is called benchmarking. 

What is benchmarking analysis? 

Think of benchmarking analysis like a ruler. It’s a financial analysis that allows you to measure your own farm’s numbers (net farm income, per-acre costs, debt-to-asset, income ratio, etc) against those of your peers. By combining data from similar farms (by size, type, age, region, etc), you can gain a better idea of how your farm is actually doing, according to real averages. 

At FBFM, our benchmarking analysis includes four main reports:

• Fair Market Value Balance sheet and ratios

• Family living analysis

• Livestock analysis (if applicable)

• Economic management analysis

With over 5,000 members, FBFM has built a robust base of data to draw from for these analyses. Having this large of a base also helps us ensure we compare your farm to an appropriate peer group. For example, we wouldn’t compare a central Illinois farm with good black dirt to a southern Illinois farm with less fertile soils. 

Plus, all farmers’ numbers are verified by a staff of 70+ FBFM consultants, so we can ensure every average we calculate is as accurate as possible — based on what’s truly happening on the ground. 

“Oh great,” you might be thinking. “Another financial analysis to keep track of.” But adding benchmarking to your toolbox could be a critical boon to your profitability, both in the near and long term. 

How benchmarking helps farmers in the short run 

Benchmarking helps farmers understand how their operation is working, whether they’re behind the pack in their region, and what changes they can make to improve profitability. 

For example, if your cost-per-acre is in the top twenty five percent of all similar-sized corn operations in your region, this could be an opportunity to lower your expenses this season. 

From what we’ve seen, growers in the bottom third of cost-per-acre compared to their peers tend to be the ones doing the best financially. If you want to move the needle with your own expenses, try looking at the big five: seed, fertilizer, chemical, cash rent, and power/equipment. 

In a vacuum, it might seem like your farm is doing okay. But when you start putting your expense numbers side by side with other farms, it’s often that a red flag appears that you should pay attention to sooner rather than later. 

Why farmers need benchmarking in the long term

Looking at your benchmarking analysis can help you make year-to-year changes that help improve profitability that season. 

But it’s also a valuable tool to look even further ahead — or backwards. 

Benchmarking allows you to check out how your farm is trending: over the last five years, how have your numbers changed, and how do these ups or downs compare to similar farms? And, maybe even more importantly, what are your projections for the future, based on current numbers? How do those projections line up against your peers?

These insights can be extremely powerful. They could be the kick in the pants you need to finally go hire some additional marketing help, or maybe take a look at a different crop rotation. 

Maybe a benchmarking analysis helps you see how far from the average your input payments are. You can then take those numbers to your supplier and ask what you could do differently to lower costs — and maintain yields — next season. 

How FBFM benchmarking empowers your operation 

The best-performing producers are routinely the ones who keep their cost-per-acre figure in that bottom third of their peer group.

But there’s another important characteristic of the most profitable farmers. They’re the ones who know their numbers, are curious how they stack up against similar operations, and utilize analysis tools that help them make comparisons and understand their trends. Benchmarking is the missing puzzle piece that empowers that evaluation. 

At FBFM, we’re not just committed to giving you the raw benchmarks and insights to give you a better understanding of your operation. We’re also an independent third-party that helps you turn that benchmarking analysis into concrete action steps. Using benchmarking as our anchor, we help you make decisions about how to improve your farm based on real data. 

This benchmarking process has helped more than 5,000 members across the state improve operations, reduce expenses, and increase profitability. If you’re interested in adding this financial tool to your arsenal, get in touch.