Costs — how farms spend money — are how high- and low-profit farms differentiate themselves in today’s farm economy.

According to a 2015 analysis of Minnesota crop farms that grossed over $1 million, the bottom 20% (profit) farms were still making purchases — $121,000 on average for machinery and $80,000 on average for land — even though their median net farm income was a negative $185,000. Meanwhile, high-profit farms, with median net farm income of $435,000, averaged $155,000 for machinery purchases and $108,000 to buy land.

The data shows that between the low 20% and high 20% profit farms, there’s about a dollar difference in cost of production per corn bushel.

“How do profitable guys do it? Part of it is rental rates, no doubt,” says University of Minnesota ag economist Dale Nordquist. “But overall, the high-profit group is adjusting more quickly to this low-price environment. What it comes down to is about 5% here, 5% there. They do 5% better at marketing, 5% better at cost control and 5% better in production. That’s management.”

Is there a step-by-step process to intelligently lower costs without hurting yields? While those steps differ by farm enterprise and management style, some standard rules apply for all farms, especially now as economists forecast another year of weak commodity prices.

What are they?

1. Know all of your costs. Grain farmers know their obvious variable costs and can pick those numbers from receipts and their accountant’s files. Then there are costs that some people hide — fixed costs — like family living or that high cash-rent farm “you just can’t live without.”

With tight margins those costs can eat you alive.

The big fixed cost in grain farming is land:

Last year John McNutt, an MBA with Iowa-based Latta Harris, CPA and Consultants, released aggregated 2015 cost data for 30,823 acres, or 17 Midwest grain farms. Among farms in the group, average costs to grow an acre of corn came to $770 per acre, or $3.68 per bushel — a decrease from $4.20 the year before. That’s everything — inputs, land, machinery, fuel, storage, insurance, interest and labor, based on an average yield of 209 bushels per acre.

Based on the fact the Latta Harris farmers use a professional CPA service, you can assume these are not average producers. Even so, the range is dizzying: Lowest cost producers came in at $2.06 per bushel, while the high came in at $4.97 per bushel.

A closer look at the data shows that land is often the deciding factor in that range. The low-cost producer had net land costs of just $57 per acre, while high-cost producers paid $273 per acre. It makes a difference if you rent or own land, and it makes a difference how much you pay to own or rent that land.

Admittedly, some cash rent rates are still stuck at higher levels from ag’s golden era. Competition makes it tough to get those costs down. But in some cases, you just need to walk away from high rent.

Not farming unprofitable acres could mean changes in another big fixed cost: equipment. Iowa State ag economist Kelvin Leibold says $100 an acre or less for machine costs is a good target. The 17 grain farms in McNutt’s survey from two years ago had total machine costs ranging from $65 to $211 per acre.

2. Learn if something is out of line. It’s one thing to know your costs; it’s another thing to know if those costs are leading your operation into dangerous waters.

Kummer participates in the Kentucky Farm Business Management program, designed to help farmers track and improve financial performance. As a member, Kummer provides anonymous data and gets benchmark comparisons based on farm size and enterprise.

“It helps you to see if your costs are in line, good or bad, or different from average,” he says. “That’s an indication of things you need to change.” Other benchmark programs, like Illinois Farm Business Farm Management, or FINBIN, can be used as well.

Farmers allowed costs to escalate during good times, and putting that genie back in the bottle is tough. Benchmarking can help you do just that. But Kummer has also used the KFBM program to make better growth decisions. He farmed 1,500 acres 10 years ago, eventually expanding to 3,800 acres today. Along the way, KFBM cost figures revealed where his operation was less efficient.

“I knew I needed to grow, and one of the biggest things that told me was my fixed costs — equipment and facilities,” he says. “We needed a new drying system, and I knew it would take more acres to pay for it. I could see that on paper. And I needed to move to a combine with GPS to do yield mapping, but I couldn’t afford that next step based on the acres I had, because the equipment costs were way above normal. In my KFBM analysis, compared to other Kentucky grain farms, I could see my numbers would be way above my competition.”

3. Take action on problem areas. After you determine if costs are below or above average, take action. What changes can you make?

“It’s not easy to do,” says Ohio State ag economist Barry Ward, “but family living expenses need to ratchet back to pre-2006 levels.” According to Illinois Farm Business Farm Management data, family expenses were $85 per acre in 2006, compared with $110 per acre in 2015.

Land and equipment changes may be tougher yet. Evaluate high cash-rent farms, based on county average costs and profitability.

Three years ago many farmers bought equipment for depreciation to avoid taxes and upgrade technology, and for many, that debt is still an anchor. Now is not the best time to make radical changes in your operation, but if you’re not shedding unneeded iron — and you may not want to in this soft market — consider delaying upgrades. Evaluate using less tillage to reduce machine use, labor and fuel cost. Adding custom work, leasing or sharing equipment with neighbors may help your numbers. Changing rotation may also help.

Variable costs may be the fastest, easiest way to trim costs. But be careful such cuts don’t lower production. Re-evaluate inputs, such as prophylactic fungicide applications and specialty fertility products. Skip phosphorus and potassium fertilizer if soil tests show there’s enough in the ground for the coming crop.

In a low-price environment, farmers must focus on maximum economic yield over maximum agronomic yield. Maximum agronomic corn yield is the top yield you can achieve if you’re just concerned about yield and not price of inputs. Maximum economic yield is the highest yield you can achieve before the next bushel of yield doesn’t cover the last unit of inputs, typically fertilizer, needed to reach that yield. In other words, it’s where you make the most return for gross revenue minus input costs.

“Hope is not a good management tool,” Kummer concludes. “You have to be proactive and seek advice from those who can help you. We have a trusted team of advisers, from other farmers to paid professionals, who help make good decisions. Know your margins and how you can affect them. It’s all about margin, making a profit on each unit.

“When prices are declining it’s not nearly as much fun, and that’s where we are now,” Kummer says. “Our cost structure is still higher than where it should be, based on crop prices. Farmers have to manage the situation at hand.”

After peaking in 2012 thanks to drought, corn prices have steadily fallen thanks to plentiful harvests.

Related: Building profits, part one: Start with your marketing plan

Related: Building profits, part three: Creating a flexible, real-time crop budget