Economic and Marketing Information
FOR INDIANA  FARMERS
Prepared by the Agricultural Staff of Purdue University, Lafayette, Indiana  
January  31,   1966
Cutting  Costs  and   Increasing   Profits
In  The   Crop   Enterprise
by John E. Kadlec, Paul R. Robbins, and Roger K. Hubele, Agricultural Economics
A study of the crop enterprise on about 67 central
Indiana farms over a three-year period (1961, 1962. and
1963) showed wide farm-to-farm variation in the cost
of producing $100 worth of crops (Figure 1). In general,
the study showed that crop enterprise profits could be
increased by increasing size; increasing the percentage
of land in row crops; using optimum amounts of fertilizer, seed, and chemicals; and by reducing machinery
and  labor  costs  per acre.
Size and Cost
Size was measured at the number of acres in various
crops.
Average cost per $100 crop production on various
size operations was estimated for three management
levels: average, superior, and low (Figure 2). Average
management level for the farms studied is probably above
average for this  area.
With average-level management, the average cost per
§100 crop production decreased from $109 on 80 acres
to $83 on 240 acres. As size increased to 640 acres the
average cost decreased slowly to $72.
Under superior management the average cost of production on an 80 acre farm was only $59 and reached
a minimum of about $47 on a 240 acre farm. Average
cost remained relatively constant from 240 to 640 acres.
With below average management, cost per $100 output
was over $150 on an 80 acre farm and remained about
$100 through the 640 acre size.
The differences in costs of production associated with
increasing farm size are important but even more important is the increase in net returns gained from the
combination of lower costs and greater volume. For the
average manager, as size increased from 160 to 320 to
640 acres, returns to management after all costs increased respectively from $1,379 to $5,655 to $15,579
i Table 1).
Why  Costs  Decreased  as  Size  Increased
Part of the decrease in cost per acre associated with
increased size was due to spreading labor and machinery
over more acres.
However, average cost per $100 output also decreased
when the amounts of labor and machinery per acre were
kept constant. Hence there are other economies of size
in addition to those resulting from decreased labor costs
and machinery investment.
Other economies of size could result from pricing.
As the size of the farm operation increases, the resources
may be bought in lots that allow a lower per unit cost
or the large farm operator may be in a better bargaining  position  for  the  resources  he  buys.
Also, economies accompanying large-size farm operations may be due to the higher-quality resources. For instance, higher quality labor may be attracted to larger
farms. Economies accompanying larger sizes may also
come from larger fields which eliminate some of the
wasted resources used in turning corners in small fields.
Why Costs  Varied:  Average to Superior
The technical practices used were the most important
factors affecting the cost of crop production on given
size farms. These practices (timeliness of planting and
harvesting, weed control, etc. I accounted for $18.40 of
the $36.00 cost difference between 240 acre superior
and average farms. The superior farms also had a higher
percentage of their land in row crops, greater expenditures  per  acre  for  seed,  chemicals  and   fertilizer,  and
Table   1.   Returns   to   management   with   various
size Farms under average management level.
Total
Gross
Management
Acres
costs1
returns
returns
80
$ 7,127
$ 6,525
$—602
160
11,847
13,226
1,379
240
16,618
20,078
3,460
320
21,408
27,063
5,655
400
26,202
34,166
7,964
480
30,982
41,375
10,393
560
35,743
48,677
12,934
640
40,500
56,079
15,579
1 All crop enterprise costs including labor and interest on inventory.   Farm   overhead   costs   are   not   included.