Influences Of Cost Of Production
Recently I was addressing the Minnesota Agricultural Bankers Conference in St. Cloud. After a long night of the University students partying outside our hotel (there must be no classes on Friday), we settled down for one of the largest ag lender conferences ever.
Bob Craven, the director of the Center for Farm Financial Management, which has a wealth of good benchmark data, discussed the economics of farming.
He asked the audience what was the number one factor influencing the cost of production in crop operations. He listed land cost, rent, crop and other input cost, interest, opportunity cost of capital and yield per acre. Do you have the answer?
Bob indicated that it was yield per acre. This brings us to a point that needs to be considered when discussing yields. In discussion with Bob, the difference in land rent between average and marginal farm ground and good to excellent ground has been minimal. If one applies the same ingredients at similar cost the higher yield spreads those costs per unit.
Another factor is that with good to excellent soils, the risk is reduced in times of drought or too much rain. Thus, when acquiring land in 2006 or negotiating land rents in a period of margin compression, one might want to get the soil maps out for study before acquiring land. In these instances, the “better is better” philosophy beats “bigger is better” every time.
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Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.
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