Decision making should take cost of production into account

Do you know what it costs to produce that bushel of canola, or wheat or lentils or soybeans, for that matter?

It seems like pretty basic stuff, but I am always surprised when I ask this question to growers and get either a far off gaze or a weak stab with a ballpark number quickly plucked from a recent conversation on coffee row.

I got this reaction recently when I asked the question to a moderately large operator I was visiting to review his fertility plans for the year. I was surprised because this particular grower is aggressive and appeared to be at the top of his game.

I know that he rents quite a bit of his land and am pretty sure he is moderately leveraged with new equipment and buildings. Obviously he has had to supply complete financials to his lenders.

His wife, who was sitting at the table with us, had a better idea of their costs because she did the data entry in their accounting program. However, she wasn’t sure because she had never drilled into the numbers for the answer.

At this point, I suggested that they calculate these numbers using one of the many calculators that are available on the web. I also left them with an Excel spreadsheet that I use. We then set up an appointment for a future visit.

I use this example to highlight one of the biggest shortfalls I en-counter when trying to practice agronomy.

Probably more than one of you are now asking, “what does this have to do with agronomy?”

Agronomy is made up of three disciplines, including soil and plant sciences as they apply to soil management and crop production.

However, agronomy also in-cludes economics.

Sometimes agronomists forget about this component when making recommendations. It is easy to concentrate on the best that technology has to offer, but it is more difficult to make recommendations based on what is best for the long-term health of the farming enterprise.

I have stressed with farmers that the basis of a strong production plan is to go back to the basics and start with a retrospective of last year’s production. Go right down to the crop and the cost to produce a bushel of that crop.

This information, plus a cost of production plan for next year, will allow farmers to make cropping decisions and land rental agreements and provide a specific target on what they need to achieve when they sell the remainder of this year’s production.

Getting down to the basics provides the best chance to maximize the chances of selling commodities for a profit when markets are volatile. Once these numbers are known, it’s simple to work out the yield-price combination that will be needed to turn a profit.

For example, let’s say a farmer’s calculations show that the total cost of production to grow a top canola variety is $360 per acre. If the farmer grows a 40 bushel canola crop, he will need to sell it for $9 per bushel to break even. However, if he only harvests a 30 bu. crop, the farmer will need to sell it for more than $12 per bu. to turn a profit.

The fact is your operation can’t provide you and your family with a targeted income if it doesn’t know its true costs and what it needs from its various crops.

And yes, the cost of production should include paying yourself. How often have you heard, “pay yourself first?” If you don’t know what your costs are, how can you pay yourself?

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