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RSS By: Chris Barron

Chris BarronHave a margins question? Through this blog, you will gain insight into improving your bottom line, as a margins expert answers questions and provides farm business advice.


Know your farms cost of production, on-the-fly

Jan 14, 2011


                     Know your farms cost of production, on-the-fly
Environmental conditions are constantly changing! Prices and input costs are volatile and the changes are extremely rapid. Sometimes you only have hours or even minutes to make critical decisions. It's important to have a process in place to adjust to these changes in a timely manner, as well as having the capacity to measure your results.
Just as pilots make a flight plan, agricultural producers need to do the same. For example, pilots communicate with the tower on takeoff, make course corrections in flight, and adjust for crosswinds along with many other variables. Before the plane even leaves the ground the pilot has a specific set of procedures and structured plans of action for most any situation. Think of the benefits a farming operation would have with these types of structured procedures.
This type of planning can start out fairly simple. I’d like to suggest four specific concepts or actions that may be able to help you in your operation when it's time to make a course correction.
The first action to consider is to be deliberate. If you are deliberate in your decisions you will have a pre-determined plan for each specific or potential challenge you face. Have plan B already in your mind or in writing so when conditions change you already know what you will do.
The second action is to be decisive. If you are decisive you are exercising discipline. For example, if you make the statement, "I'm going to sell 5000 bushel of corn once it reaches $5.40," but say corn reaches that price and you change your mind, it's critical that you understand why. Ask yourself, why am I not willing to sell now? I was content with $5.40 before. Is it because of greed or is it because of a change in the market situation? Its okay to change your mind but it's critical to understand why. Being decisive means being disciplined.
The next action is to be accurate. There are thousands of tools to use in this arena of business management. I’ve found that spreadsheets are an extremely powerful tool. If you have the ability to structure the numbers you can remove much of the emotion. As we move forward over the coming weeks I’ll provide many examples and options for tracking profitability with spreadsheets and other tools.
The final action is to be immediate. Don't wait around too long to make a course correction. Don't be afraid to make constant adjustments to your original plan and incremental improvements. Timing is critical and is generally the one variable that can provide the biggest payout.
Develop your flight plan and do what's necessary to stay on course.
If you are interested in some options for management tools feel free to send me questions.
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COMMENTS (1 Comments) - MN
This is a good post. I would add that you always have to keep an eye on the basics/fundamentals related to production as well. Keeping good tabs on these parts of the equation can make the 4 very important points above a bit less critical - give you some room for additional error (because nobody get's it perfect!).

Couple of questions to keep in the back of your mind...
-Am i making good use of all of my hired labor?
-Are there opportunities for me to improve the terms/rates on my borrowed money?
-Am I up on the new technologies (planter row controls, etc)
-Do I have the right equipment to meet my objectives, epically if I have modified strategy (crop/livestock ratios?
7:47 PM Jan 14th

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