How can carbon farming increase your profitability

Many farmers probably wonder if carbon farming can actually be profitable - and therefore might be hesitant to make the necessary changes. When you think about measuring success in carbon farming, it's not just about the yields - you also have to think about your overall profitability. With yield as the ultimate goal, budgets grow without the inherent restraint brought on by a profit-as-priority mindset. Over time, this sacrifices soil health, inevitably reducing profitability. Reducing these inputs with carbon farming could not only improve the soil but increase overall farm profitability by saving costs, which will lead to a better bottom line. 

Mike Bretz, an east central Iowa farmer in Carbon by Indigo explains how every year his costs used to include herbicide, insecticide, seeds, fungicide, etc. By implementing Indigo’s carbon farming practices, he has cut his farm expenses by 50% and is improving his soil for generations to come. A SARE (Sustainable Agriculture Research and Education Organization) case study on hundreds of growers also found that by planting cover crops as a carbon farming practice, increased profit is achieved by the third year. 

Received a recommendation of a cover crop blend for your operation here. 

An important step when deciding whether carbon farming is right for you is to do a budget analysis to evaluate the profit impacts of the practice changes involved. Whether its partial budget, financial analysis, or simply weighing your options with data, it’s a valuable exercise for producers to go through any time they think about a new management decision or equipment purchase.

• Partial Budgeting- a methodology in which a farm manager assesses whether a change in production practices will increase or decrease profit. It does not determine actual profitability - it only determines the change in profitability that would result from changing a given production practice. This simplifies the overall analysis of cost and revenues that would not change regardless of the decision. Create your own profitability analysis. 

How does a partial budget differ from a full profit and loss statement? 

• Profit & Loss Statement is a financial statement that summarizes the revenues, costs and expenses incurred during a specified period, usually a fiscal quarter or year. For analysis purposes in agriculture, it is typically divided out to the acre, or crop enterprise level.

Bryant Agriculture Enterprise in southwest Ohio switched over to carbon farming practices recently due to consumer demand and a personal challenge to reduce their carbon footprint. Two of the biggest problems they wanted to adjust were soil erosion and weed pressure, so they implemented no-till and cover crop practices that research finds provide some of the strongest solutions to erosion and weeds. 

If you look at the chart below, you can see that by reducing tillage cost and herbicide reduction and adding the cost of seeds and planting cover crops, they were able to make an additional profit of $25.00 per acre. 

By making these changes, they have not only seen a fiscal reward, but have gotten positive feedback from their grain buyers as well as the local community. This profitability is not even including the possibility of a carbon payment. With the current and predicted future demand for high quality credits, there is a very real possibility for those payments to be a large part of per acre profitability. 

Farmers who have been paid for their carbon credits have been able to see the benefits of their practice changes and how it can pay off. “It's not an insignificant portion of the revenue per acre of our operation”, says farmer Will Drucker, “and it's in line with our vision of what we want to see happen at the farm and how to work on the land”. Not only are farmers building healthier soils for future generations, they are lowering costs through carbon farming practices and earning carbon credits for additional income. 

• Carbon farming practices can result in greater long term profitability potential. This has been shown by independent research and current carbon farming growers. Use our tool to create your own partial budget analysis. 

• Successful implementation of these practices is key. Find the right team of trusted advisors to optimize these practices on your own ground. With the Carbon by Indigo program, access expert agronomic advice simply by chatting with us in your account.