Farm Progress is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Serving: United States
hands, papers, pencil, tablet demaerre/Getty Images
FIGURING BREAKEVEN: It takes some digging to come up with an accurate breakeven cost.

Top 3 grain marketing questions this year

An accurate breakeven figure depends on making sure you include all costs.

By Jeremiah Halley and Kyle Olson

"What do I store, what do I sell and when do I sell it?" are top three grain marketing questions this year.

The answer lies in knowing the cost of production for each commodity and then putting a marketing plan together based on the breakeven and when cash obligations need to be met.

In 2017, the statewide average cost of production on rented ground for farms enrolled in the North Dakota Farm Management Education program were as follows:

• Soybeans — $8.46 bushels per acre or $307.99 per acre

• Spring wheat — $5.94 bushels per acre or $256.49 per acre

• Corn — $3.23 bushels per acre or $448.74 per acre

They don’t include a charge for the producers’ own labor and management.

Each farmer has a different breakeven figure than their neighbor across the road or across the state.

North Dakota Farm and Ranch Business Management program instructors help farmers break costs down into two areas for each commodity — direct costs and overhead costs.

Direct costs consist of the following: Seed, fertilizer, chemical, crop insurance, fuel and oil, land rent, repairs, custom hire, interest on operating notes, and other miscellaneous costs.

Fixed costs consist of the following: Machinery and building depreciation, utilities, interest on term debt, general farm insurance, and other miscellaneous costs.

You need to add in any prepaid expenses that were brought into the year. One example that we see fairly often is prepaid seed. If a farmer bought $20,000 of corn seed in November 2017 and paid another $30,000 in April 2018, the total corn seed cost would be $50,000.

Adding together the total direct and overhead expenses and dividing by the acres and then the yield per acre will provide the cost of production per bushel.

At this point, one thing that should be added is a cost of production number that will cover the term debt payments. The calculation is very similar, and it will provide the answer to the question, “will I be able to make my payments?"

You can substitute the term debt payments that will be covered from the 2018 crop for machinery and building depreciation and term interest payments. It is simply a swap of economic cost for a cash cost.

Next you can review your storage situation, search local cash bids and delivery time frames, and begin planning when to make sales.

It’s important also consider all costs associated with storing grain for longer periods of time. These include interest costs, quality deterioration and utility costs associated with aeration systems.

Farm Business Management programs are located across North Dakota at several community colleges, vocational centers and high schools. Visit ndfarmmanagement.com to find an instructor in their area for assistance in figuring out cost of production.

Halley and Olson are NDFRBM instructors in Langdon with Lake Region State College and Bismarck State College, respectively.

Hide comments
account-default-image

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish