The Cost of Doing Business
How many times have we heard that “times are tough” and “you can’t make any money in farming right now?” Both of those statements may or may not be true, depending on how well you know your operation. If we were to ask you what your cost per bushel was last year would you be able to tell me? How many bushels did you have to raise per acre last year to break even? This is more than just telling me your fertilizer costs or what you paid for seed; we are talking about the cost of your entire operation.
The cost of operation starts at the farm level. Especially if you don’t pay the same rent on every acre you farm. So let’s say that your rent on one farm is $400/acre at $3.50 corn, you need to grow roughly 114-bushel corn to recoup that cost. Rent may be the biggest expense but it is not even close to the only expense. You also have to take into account the following:
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- What is the cost of running your machinery?
- Fertilizer, chemical, and seed
- How much does it cost to dry and store your grain?
- What will your taxes be?
- Crop insurance
- Vehicle costs
- Labor costs
All of these factor into your cost of production and can quickly add up. Before you know it, you could be at a $700/acre cost of production. Well, at $3.50/bushel corn, you need to raise 200 bushels/ acre corn to break even. At $3/ bushel corn you need to raise 233 bushels/ acre corn. Are you fertilizing for 233 yielding corn?
If you know your breakeven point, you know how much you have to grow and can fertilize accordingly. If you’re only putting on an 11-52-60, you are not fertilizing enough for 233-bushel corn; you are actually mining down the nutrients in your field. I’ve heard a lot of people say they need to cut their fertilizer costs this year, but they don’t know what their cost per bushel is. Typically, fertilizer and chemical make up a very small portion of total costs, yet provide the most return. If you need to grow 233-bushel corn to break-even but aren’t even fertilizing for 200-bushel corn, you are setting yourself up for greater problems down the road.
We highly recommend sitting down on a rainy day and figuring out your cost of production to help you make some of these hard decisions. Another option is to seek the help of someone else, such as an accountant or even precision ag program like our ProVantage. We have had this discussion a lot with growers and are helping them make better management decisions. Iowa State University Extension also offers multiple spreadsheets to help determine your costs. Access them on their Ag Decision Maker website.
Times are tough, but by knowing the break-even point of your fields, you can make the decision-making process a little bit easier for yourself.
Have some questions? Give our agronomists a call.