How low can you go?
Knowing whether or not the present commodity prices are too low for your farming operation is key to avoiding grain marketing mistakes.
The first question you need to answer is: What Are My Production Costs?
With variable rate seed and fertilizer programs as well as ever changing farm programs; these production costs can change greatly from field to field. Some fields may cost $50 per acre for fertilizer while others cost $150 greatly altering the breakeven price for that field. Fertilizing and planting technologies have made the production costs vary greatly from field to field. Tilled vs no-till fields will also greatly change the breakeven commodity price on your farming operation. Do you know what that tillage pass is costing you in fuel, labor, depreciation, maintenance, etc.? It won't be the same as another field that doesn't require tillage.
The formula is simple right?
Production costs = (planted acres * (planted population / 80,000 x cost per unit of seed)) + (planted acres x (average pounds of fertilizer per acre for each type / 2,000 x cost per ton of each fertilizer)) + (planted acres x (average chemical ounces per acre for each chemical type x price per ounce)) + (planted acres x average overhead costs per acre) + (planted acres x all the other stuff broken down per acres x the price of that other stuff)
This needs to be done on every field on the farm to make the big grain marketing decision. Each field has to validate is production costs in order to stay in production.
Clearly this can become very complicated and confusing. That's why we created Cash Cow Farmer where all these complicated formulas and conversions are done in the backend of the website and your productions costs are easily calculated for you.
Here are some other resources for farmers to get production costs:
- FINBIN - Farm financial database
- Center for Farm Financial Management
What if commodity prices are below my costs of production?
- #1 Rule of Marketing: Don't sell below the cost of production!
- Be patient
- Decrease costs by knowing which fields raise your average cost of production
- Make a marketing plan
- See a consultant
- Utilize tools such as Cash Cow Farmer to improve your marketing decisions and manage your farming operation efficiently
In Summary:
The best and most profitable farmers manage their farming operation like Warren Buffett manages his investments. Each field is looked over carefully to determine what the best plan of action to take on that field will be. Occasionally there are a few losses but the majority of losses can be avoided when taking the time to analyze your operation like Buffett.
