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Get a handle on cost of production

Farmers suggest fertilizer isn’t the only input price inching higher.

Naomi Blohm

September 2, 2021

3 Min Read
calculator, tractor and red pencil
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Harvest is just a few short weeks away, and yet the conversations are already beginning regarding how many acres of grain will be planted in the United States in the spring of 2022. As of this writing, ending stocks are tight in nine agricultural commodities with a USDA report update just one week away.

As you are gearing up for harvest, make time to start thinking about your cost of production for next spring. New crop 2022 prices are attractive, with some producers opting to begin locking in a few cash sales.

Yet other producers are unsure of what they will plant as inputs costs begin to soar. Higher energy prices, higher fertilizer prices, higher bills to have machinery repaired and even higher land rents are coming into play. Some producers are suggesting that with fertilizer prices at nine year highs, they may opt to plant more soybeans or wheat instead of corn.

How can you get ahead of the curve? It starts with truly knowing your cost of production. By taking the time to take a detailed and honest look at the numbers, it allows confidence in grain marketing. Confidence because by knowing your true cost of production, it mentally and emotionally makes it easier to pull the trigger on cash sales “when you know you ought to,” and helps to eliminate indecision and hesitation that is heard when producers say, “well, let’s just give it one more day and see if the price comes back up.”

If you are new to creating a spreadsheet regarding cost of production, I recommend the excellent online guidance that both Iowa State University and Kansas State University offer. Your local extension agent would be a wonderful resource, as well. On these spreadsheets, the details and guidelines of what you need to include in cost of production are laid out for you. Specifically, the details regarding expenses; fertilizers, herbicides, seed costs, machinery repairs, property tax and upkeep, term debt payments, fuel costs, miscellaneous crop costs, crop insurance, labor, custom field operations, interest, cash rent and don’t forget family living expenses.

This is the most important step that you can take for your farm this in the short term in regards to marketing your crop. Due to the high risk and slim profit margins of farm businesses in the past few years, it is particularly important that producers understand the costs and potential revenue each marketing year might provide. And while you farm because of your love of the land, love of livestock, getting to work with your hands or the enjoyment of being your own boss, you are a business. And businesses are in business to be profitable.

Reach Naomi Blohm: 800-334-9779, Twitter: @naomiblohm and [email protected]

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The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

                                                                 

About the Author(s)

Naomi Blohm

senior market adviser, Total Farm Marketing by Stewart Peterson

Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.

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