Make sure your 2021 break-evens include these costs

TAGS: Management
Make sure your 2021 break-evens include these costs
Four areas that are often left out of breakeven costs.

One of the most important tasks to complete during winter on the farm is preparing financial projections and using those numbers to make marketing plans for the upcoming year and beyond.

This is something many farmers are used to doing every winter before the next crop year. Sometimes it can become sort of a routine or exercise if all we do is put the numbers together, but don’t update them. Without updates to projected numbers, the spreadsheets become much less useful for decision-making.

The best way to make sure that the work you do to create financial projections in the wintertime is to make sure that whatever tool or document you use, it serves as a living, breathing document as you update it regularly throughout the growing season.

What it includes

This makes it possible to use in calculating your break-even costs and then use that to set marketing plans and targets. But here’s a problem farmers often run into when using a break-even to make marketing decisions: their break-even costs might not necessarily include everything they need to.

Sometimes, when break-evens are calculated, there are some categories that are left out. It’s important to take a close look at how you’re calculating your break-even. Including all costs is key.

Check these four

Here are four areas that our advisors sometimes find aren’t figured into farm business break-evens.

  1. Machinery replacement costs. Do you currently include replacement costs for your equipment line in your break-even? Make sure to figure that in or use tools that provide a way to include machinery replacement costs. This needs to be figured in because each year that you use your machinery, it becomes less valuable.
  2. Family living costs. This is a critical category to make sure is part of your break-even. You might have a good handle on what this cost will be based on prior years. Or maybe you will need to begin including it as an estimate that you can revise as the year progresses. It can even help to have a number to budget from for your family finances.
  3. Asset replacement costs. This means finding ways to account for the replacement cost of other non-machinery assets on your farm, such as buildings and bins. The cost to replace these assets needs to be spread out over the time period you’ll be using them, and included in your break-even.
  4. Debt servicing. The cost to service any debt that your farm currently has needs to be incorporated into your break-even, to create a more accurate overall picture.

Make sure to use tools that include these costs in figuring your 2021 crop year break-evens. Our market advisors use tools that help farmers figure their true break-even costs and then help to update and use the break-even throughout the crop year as marketing decisions need to be made. You can get a free trial of our solutions or talk with a market advisor as you plan and prepare for 2021.

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