Slice and Dice Your Profit Picture

December 20, 2016 10:48 AM
 
Slice and Dice Your Profit Picture

With low commodity prices, many farmers are worried about controlling costs for the upcoming year. First, it’s important to have an accurate look at your own costs. This includes land, seed, chemicals, equipment, insurance, labor, etc. Don’t forget to include your needed profit with your cost-of-production numbers.

With a little help from an ag-based GIS program or a spreadsheet, you can separate cost of production on a field-by-field basis. Couple that with your average yields for each field, and you’ll get a picture of average income potential for each field. You will want to know your average profit for your whole farm, but also:

  • Average profit by field.
  • Average profit by landowner or manager. You might put up with less profitable farms because there are more acres in question, but you will want to know what you are sacrificing to farm those other acres.  
  • ​Average profit by soil type. As farms become available for rent or purchase it helps to know what your average profit is on various soil types. Your farming practices, seed selection, etc., might yield better than those of other farmers on certain soil types and vice versa, of course. Knowing what your cropping practices and expertise can yield on certain topographies and soil is invaluable when deciding whether to take new ground in times of low prices.

Knowing average profit by differing zones within the field can also be helpful when making decisions on whether to participate in government programs such as CRP and the Pollinator Habitat Initiative. Farmers should weigh average profit against what the program is paying. Remember because of differing costs of production, your lowest-yielding field or zone might not be the one with the lowest profit. 

After assessing profit on various levels, don’t make changes that could markedly affect expected yields. If sidedressing nitrogen has consistently raised your overall yields, it can’t go on the chopping block without potentially changing your profit assumptions.

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Comments

 
Spell Check

Fanie Brink
Bothaville, WY
12/21/2016 01:42 AM
 

  Profit can never be part of production costs! A profit or a loss is what is left after income (price x quantity produced) is also into account. Especially because farmers are price takers and not price makers and prices are determined by the market forces of supply and demand. Production costs are the reward to the 4 basic inputs namely, land, capital, labour and management. The reward to the entrepreneur is either a profit or a loss. I am from South Africa!

 
 

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