Farming the Efficient Frontier

A paradigm shift is occurring in the U.S. row crop sector. Adopting efficiency-driven strategies is key.

picture of young soy plants

Rabobank sees a paradigm shift occurring in the U.S. row crop sector, based on our internal forecasts, which calls for an extended period of low average returns. This shift results from the need to adopt efficiency-driven, rather than volume-driven, strategies that can maximize profitability in an environment of structurally lower commodity prices, and high seed and agrochemical input costs. Following are the three components of such strategies:

  1. Capital efficiency (optimal input and capital usage)
  2. Planting discipline (planting acreage up to, but not exceeding, the point where marginal revenues equal marginal costs, thereby maximizing profits)
  3. Price realization (coordination of merchandizing and hedging activities to maximize price per bushel harvested)
When combined, these three components form the conceptual founding of efficient farming, whereby profit is maximized for a given portfolio of farm assets (including both crops and livestock). Although this note and the supporting analysis are primarily intended for U.S. row crop farmers, the conclusions may be applied to other growing regions.