Focus on Gross Income

October 12, 2018 05:26 AM
 
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Another year of record national yields equals yet another year of record challenges. Large carryovers, inventory logistics, storage, weather, tariffs and interest rates are just a few of the hurdles we must negotiate as we work on marketing the balance of the 2018 crop. Even though national average yields are strong, variability from one producer to another can be a big number.

Because final yields are a key driver in marketing decisions, it’s now time to assemble the rest of your 2018 marketing plan as you wrap up harvest and close the bin doors on the 2018 crop. Whether your yields were outstanding, average or fell short of expectations, pricing/merchandising your grain is the next step toward maximizing income opportunities.

By now you should have your cost of production dialed in to an exact cost per bushel, or at least you will have once 100% of your crop is harvested. From here you should establish a per-bushel margin target. For example, if your cost of production in soybeans is $9 per bushel, you might set a margin target at 50¢ per bushel. Then you’d be looking for a net price of $9.50 per bushel. The point here is that it’s critical to cover breakeven, but even more important to set a target. You need a price target.

Run the Numbers. You probably know your production costs and yields on a per-bushel basis. Now is the time to evaluate all of your crop income on a per-bushel basis.

There are several factors that need to be included in your gross income price calculation besides just the cash market price alone.

For example, on soybeans you need to add in the additional tariff aid. Other income such as premiums, insurance indemnities and enhanced basis/spot bid opportunities are a few additional examples. All these extra dollars must be included to accurately represent your gross income per bushel.

It’s easy to overlook these other income streams and only compare your cash market price to production cost. Even worse, you might be waiting for an unachievable price by overlooking some of the side income that realistically should be added to the market price. Those combined numbers oftentimes will put you in the black.

Conversely, pay attention to the potential income reducers, such as storage costs, logistics, interest, widening basis and grain quality.

Price can be a way to grade yourself on your grain marketing ability. But total gross income is what really matters in the end.

 

Listen to Chris Barron further explain what makes this year different and how to plan for next year.

 

Net Price Calculator

Net Price Calculator

Use this tool to strategically think through your gross income. There is much more to gross income than cash price alone. Work through these numbers to rethink what an appropriate margin target looks like for each crop you produce. Want a copy of this tool? Email me at cbarron@agviewsolutions.com.

 

Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a financial consultant for Ag View Solutions and appears regularly as a guest on Farm Journal Media radio and TV affiliates.

 
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