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Business Matters: Recipe for Success

January 9, 2013
By: Chris Barron, Top Producer Columnist
ChrisBarron Business Matters
  
 
 

The new year could make 2012 look like a cakewalk with regard to volatility. We will likely see more volatility in 2013 than ever before, with a number of unknowns coming into play. These include the continuing drought, spring insurance prices, South American production, tight carryover supplies, spring planting conditions and demand. An issue with any one of these could easily cause limit moves in the markets.

"Calculating your situation
and developing a solid
marketing plan may be your
best recipe for success."


With all of these uncertainties, it can be difficult to initiate 2013 sales. Price levels several  months ago were in the $8 range for corn and $17 range for soybeans. Starting sales for 2013 at $2 less for corn and $5 less for soybeans is a psychological challenge.

Calculating your situation and  developing a solid marketing plan might be the best recipe. Know your costs and margin opportunities, as this will give you confidence when it’s time to sell. Let’s review the ingredients to make the best decisions for 2013.

Calculate Costs. The first ingredient for marketing success is an accurate cost of production. Keep in mind that cost of production is a moving target. Input costs and yields change during the year, which can dramatically change your production cost along the way. Be sure to continually monitor these changes in order to take advantage of margin opportunities. A $25 per acre increase in costs can raise your production expense by 18¢/bu.

Another important ingredient is setting a salary aside for yourself. "Return to management" or "family living costs" should be considered as part of the cost of doing business. For example, if your break-even is $4.50, be sure to add your desired profit to your production cost. Ask yourself: How much profit per acre is reasonable for my operation to be successful? If your profit goal is $200 per acre, this margin goal could increase your break-even by as much as $1.30/bu. depending on your overall costs and yield levels. Now, instead of starting to sell grain at levels above $4.50, your starting target is $5.80.

If your profit margin is built into the cost of production, you’ll be able to confidently make sales, which will also allow you to make larger sales when the timeis right. When you know your profit margin, you mightbe able to make a 30% sale instead of a 10% sale. Timing is everything, and market rallies typically last for a very short period. Knowing your specific numbers will allow you to make quick decisions and capitalize on the market.

Below is a tool that will help you analyze different scenarios as you determine your profit goals. Find the tool online and fill in the shaded boxes. Acreage, yield and production costs can also be manipulated to best determine your marketing goals.

Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a farm business consultant and the author of the AgWeb.com blog "Ask a Margins Expert." To submit questions and comments, e-mail Chris at cbarron@cb-farms.com.

Profit Calculator

 

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FEATURED IN: Top Producer - January 2013

 
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