Sep 22, 2014

Have 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.

## Margin Management Nitrogen Cost Calculator

Apr 01, 2011

Managing margins can be difficult unless you have the proper tools to understand how expenses impact your cost of production. One effective way to analyze information is to have it broken down into cost per bushel. Having tools available at your fingertips that instantly break down costs per bushel instead of just price per unit or price per acre helps you see more clearly the actual cost.
For example, nitrogen is usually discussed and thought of in terms of price per ton. I've gotten many calls this spring from farmers wondering if they should lock in some nitrogen for next fall's application. When I asked about price we always have the discussion around price per ton. Basically the range on a price per ton runs from \$700 - \$850 a ton for 2011 fall application in many areas. So what does that price per ton really mean as you try to analyze the value of nitrogen at that price? There are several questions that need to be clearly understood and thought through in order to determine the value of this proposed purchase. What rate is most appropriate, what are your yield goals, what are your margin goals , what’s  the price of corn, what’s the price per acre for the N, and what’s the price per bushel for the N.
My challenge to everyone is to think of nitrogen in terms of price per bushel instead of price per Ton. The easiest and most effective way is to create or utilize a spreadsheet tool which can instantly provide this analysis based on your specific situation.
By focusing on cost per bushel instead of cost per ton it becomes much easier to concentrate on a price margin. By breaking down these raw product costs into meaningful usable numbers it will help you to develop a clearer picture of your specific production costs.
Here is an N margin calculator that I designed for our farm. By entering information into items 1 through 6 you can have an instant report on your costs adjusted for each yield level. As you make adjustments to any of the six variables you can instantly see the impact on your cost per bushel.

 Margin Management   --  N Calculator -- Example Enter 1 N Rate 200 Per/Ac. 2 N Price/ton \$750.00 Per/Ac. 3 Yield Goal 200 Per/Ac. 4 Price Goal \$5.60 Per/ Bu. 5 Margin Goal \$1.30 Per/ Bu. Margin Cost increase as yields declines 6 N Stabilizer/ac \$10.00 Per/Ac.
By utilizing this tool it's possible to create any scenario which allows you to evaluate the results instantly. As you can see, I highlighted the yield at 200 and at 160. In this particular situation there was an increase in cost of \$.12 with a lower yield level. \$.12 may not seem like much of a change, however, if you adjust the margin objective it's more likely you will capture that expense from an increased marketing target. Think of it this way, for every 100,000 bushel of corn production that \$.12 provides an additional \$12,000 of income to the bottom line. With accurate information, the proper perspective and a little extra focus here and there managing margins can pay big dividends.
If you would like a copy of this calculator send me a request and I’ll get you a copy.

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