Cost of Production

It used to be that knowing your cost of production was all about saving money. Things have changed. Cost of production is still critical. The change that has happened is that costs are much more critical when it comes to knowing when to sell. Knowing your costs of production is now more about how to make more money. If you are going to make money with growing any crop, a producer needs to understand what the costs are so profit margins are understood. With higher commodity prices, profitability of the farm is dictated more by the amount of bushels that are grown in a field then what the cost of the inputs are. It used to be that every penny spent had to be monitored when commodity prices were low because margins were so thin. Now, we look more at the return on investment that each input adds rather actual dollar amounts spent because the potential for profit is the key driver in our business. More bushels mean more dollars in a producer’s pocket. Since each bushel is profitable, knowing production costs will be a factor when selecting a price to sell at. Assuming that the costs of production are the same as last year is not a safe thing to do. We can see big variations in the cost of various inputs from year to year. For people that buy their fertilizer in the fall before the cropping season, we have seen at least $20 per acre increase from 2011 to 2012. Every year prices change on various inputs so the costs need to be looked at each year with each input. The prices for the commodities that we grow are variable. This year, we have seen the price of canola move from $9 per bushel to over $12 in a 6 month period. Knowing your farm’s cost of production allows a producer to meet cash flow needs as well as to hit a price that works for your specific farm. Knowing the cost that it takes to produce each bushel is critical to make the right decision as to what commodity to sell to meet your farms specific cash flow needs. Weather plays a critical part in determining input prices for every farm operation. With the higher commodity prices that we have now, the use of various farm inputs such as fungicides has become attractive to protect the yield that is out there in the fields. This means that the use of various inputs will be determined as we progress through the growing season. Each input of this nature needs a specific decision made at the time of application. The use of this type of input changes the cost of production in mid-stream. Knowing the potential differences that can come from these types of changes in the input side of an operation is essential to ensure profitability. Knowing production costs is essential to ensure profitability in any operation. Take time to figure out what these costs are and start marketing your crop now to make your costs of production profitable for your farm.