Don't Bloody Your Budget

April 13, 2015 12:00 PM
Don't Bloody Your Budget

Corn and soybean production expenses vary widely from farm to farm, indicating producers need to more carefully manage costs or risk bleeding profitability from their operations.

Power Hour Noon Logo“What we’ve been seeing on corn—let’s say 180 bushel yield—we’ve seen a range from about $3 to about $5.25 on that separation on cost of production,” explains Chris Barron, an Iowa farmer and founder of Ag View Solutions, on the “AgDay” Agribusiness Update. “On soybeans, we’ve seen a range from about $7.50 to a little over $13, and that’s using 60-bushel beans. So there are operations that are going to grow 40-bushel beans or less, and there are operations that are going to grow 80-bushel beans or more.”

It’s true that range can be blamed in part on regional differences, but farmers must know their on-farm numbers inside and out to achieve profitability. That’s true regardless of this year’s crop mix.

“From the benchmarking perspective, you’ve really got to know your own numbers and really dial in and say, ‘OK, my cost of production’s $4.50. What do I do about it?’ Make sure you’ve got a plan in place to figure out how you’re going to capture enough, and in some cases, we may not be able to,” Barron points out. “You’ve really just got to take into account where your costs are and make sure you’ve got all the expenses factored in.”

Although producers know how to create a marketing strategy around those numbers, they tend to forget the plan as issues crop up throughout the season.

“If our cost is $4 per bushel for corn, let’s say for example, then if you had an opportunity to sell corn when it was at $4.20, where would you start?” Barron says. “Then you segment your sales and you scale in. But it’s inevitable, occasionally I’ll see a producer that’ll have a target in, and right before it hits they’ll call and pull it back off. That’s the opposite of discipline. You have to step in there and say, ‘OK, this is the price, this is my margin that I’ve calculated that works for my business.’ It’s really hard to go broke if you make a profit.”

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