Brenda Tjaden Lepp says some of the best marketing advice in this era of declining grain prices is on the cost side of the ledger.
“You better have a pretty good handle on your costs,” said the chief analyst of FarmLink Marketing Solutions.
Many growers rely on outdated numbers or only factor in variable costs.
“That is not our approach at FarmLink. We put every cost into (the calculation), even depreciation.”
Some farmers feel depreciation should not be included in cost of production because it is not a cash cost.
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“Some day it is a cash cost because that equipment is going to have to be replaced, and you better start accounting for it now,” said Tjaden Lepp during an interview at CropSphere 2015.
Growers need to ensure the margin they are making on a crop covers the depreciation on the equipment used to plant and harvest the crop.
A proper accounting of costs can make a huge difference in evaluating what crops to grow in 2015.
“It is alarming how different the actual costs come in at,” she said.
For instance, a potential client said the break-even price for growing flax on his farm was $9.50 per bushel. He was wondering if he should lock in a new crop flax price of $10.
Tjaden Lepp said every single FarmLink client had a break-even price that was much higher than that, with the average being around $12 per bu.
She thinks part of the problem is that farmers are using outdated information when making their calculations.
“That’s the trap that a lot of people fall into,” said Tjaden Lepp.
“They assume their cost of production is one thing, and then time goes on and there is inflation or there is structural change on the farm and those costs are changing quite dramatically.”
sean.pratt@producer.com
