Knowing cost of production is vital for farmers

By Greg Kalinoski- Northland College- Farm Business Management

Do you know what it costs to produce the crops or livestock raised on your farm?

Whether you raise corn, livestock or specialty crops, accurate budgets are crucial in gauging the potential profitability of your operation.

Producers can easily put together the direct production costs with the aid of local average cost of production guides or university budgeting material, but you still need to know the costs for your own operation. Remember fixed costs must be accounted for and dollars allocated to run your farm business. Other items such as equipment, land payments, family living draws and any income taxes must be accounted for and budgeted on an annual basis. All these item need to be factored in as they become part of your “cost of production’’!

Knowing your production costs along with an estimated selling price should give you a figure on your margin for each crop. There are numerous budgeting, cost of production spreadsheets and other financial software programs available to work with your own numbers and even run a few “what if ’’ scenarios.

Thus far in 2012, commodity prices for the new crop are positive in terms of margin and producers have had opportunities to lock in profitable prices for a portion of their crop.

As we move into summer it becomes an excellent time to update cash flows and review your own cost of production. Knowing your break even costs becomes a great tool for marketing and may give you the opportunity to capture pricing opportunities as the market turns favorable.

In summary, knowing your cost of production and selling at a profit is important to make sound business decisions during the course of the year. If you would like to learn more about this and other farm business management topics, please contact an instructor at 1-800-959-6282 or www.fbm.mnscu.edu .

Tags: updates, agriculture, farm