Who Cares About Break Even Costs?

[Roy_Smith]

Jim: A simple statement from a marketing meeting somewhere-probably Iowa, "The market does not care what it costs you to produce a bushel". ...To illustrate, cost per bushel depends a lot on yield, which will not be known until harvest. By then it may to too late to get a break even price. 2013 crop corn is a good illustration. Machinery cost is impossible to get an exact number on. I farm with a 4440 bought in 1983. It is worth more today than when I bought it. What is the cost per bushel assigned to that tractor? it should be positive but I doubt that any economist would say that. How about land cost? I paid $700 per acre for my farm purchased in the early 1970's. My only direct cost is taxes and insurance. How does that compare to my neighbor who paid $10,000 for a similar farm in 2013?  As you know I have a method of making a marketing plan that uses the odds of prices at certain times of the year. That may involve sometimes result in selling at less than the theoretical cost per bushel based on someone else' calculations....Soyroy 

[Canuck_2]

A lot of good points.

CoP is a moving tsrget until harvest is complete and grain graded, even a good yield can bring discounts because quality suffers like our wheat did this past summer with fusarium downgrading lots to feed.

That said the only people who can ignore CoP are those who have no debt and a good land base.

I was going to answer yes I know my CoP but then knew I had not calculated it the last coule years and when I looked back at my electronic records I was surprised how long I had let it slip. You can do that when debt is paid but you can not do that when you are starting out.

I will make marketing decisions on my 'perceived' CoP because who wants to pass up a great price for some of production and who wants to sell for a loss IF the market will allow it.

I do try to market in increments throughout the year and like you hope to average out in the upper tier of prices.

On occassion it is good to get data from all sales in an area to check against your own average price to see how you do compared to 'the others'. Staying above the average will keep you in the game longer but you still have to keep your costs in line so unless you check those with others you still are flying blind.

So I guess I need to update my CoP this year and it really is not hard with a spreadsheet unlike when I started and you needed a pencil eraser and calculater. 

[scminnfarmer]

I was a ag lender for 15 years. I currently crop farm. COP is tricky. What do you include? Is family living expense included, etc? Many of times I have heard COP numbers from producers just using direct cost. What people tend to forget how you have to pay to live, etc. Cash flow rules. I do not do COP calculations other than on a quick and dirty spreadsheet I created at the bank. I do however use and update my Finpack Balance sheet and cash flow several times during the year

[Slim123]

Knowing your cost of production is one of the basic steps in business. It is like not  knowing what your checking account balance is. 

[pritchh]

agreed - primarily producers have land and plany and protuce,

If he experiences 2-3 poor reveune yrs maybe he cuts back.

Loimte chices  + B/E looking out to CZ14 today, ve wha teh px is come fall 2014 can be very different

[elcheapo]

I am in a bad mood this morning, but
when I read "does break even price
Matter? "

YES! !!!!!!

you must make money to stay in business

What a stupid question to ask.

I'LL ask you, does it matter if this company
Breaks even. Ask your editor/publisher
That question.

[sw363535]

There are folks who do not need a budget and do not need to figure COP.   And it is not a determining factor in the per bushel price of crop.  

But those who know their COP will adjust to changes a full year ahead of those who don't.  Will know if they farm the acres to pay for that piece of equipment.  Will find comfort in their marketing decisions instead of always measuring against the highest price.  Will know if a croping change is in order.  Will know a good investment from a desire.

Someone on here made the example that the numbers can talk you out of a good investment ------------ That is true if you do not consider enough numbers.  Too many times we cherry pick the numbers to our desires.  If we are too conservative we will make a piece of land pay for itself.  If we want it badly we will see how the one we already own can help pay for the over priced one.

Usually we are not looking at enough numbers.

answers ------ 1  ------ elcheapo is right --------COP is essential to being in business for everything, marketing not being the most important reason ------------ Those who tell you they never figure it most often know their COP so well they don't take the time to write it down.  ----------- like the perfect wife who never needs money-------- she also never needs a budget, she knows her cost of living.

answer 2-------  Really ---- I do not market without knowing COP.  This year for instance.   I am hesitant to know what a good price is when I have no idea where costs will be.  So I want to hedge a price, contracts make me nervous.  Once harvest is over and I see $4.10 will cover "everything" including a reasonable living, then $4.80 makes me a lot more comfortable----- deals get done.  

All those years of raising hogs.  I didn't do it because I loved the critters,  I did it because I knew that additional 25 cents per bushel was putting us over our grain COP.  How do you know that if you never figure it.

Many of our guys have off farm jobs.  They will give you many reasons why.  But it all boils down to they need it because their COP is too high.  That is how they make that decision  figuring their COP

Marketing decisions made from COP does not mean that we market at a profit.  Knowing how much your loosing is even more important than profit margin.  How else can we make decent decisions.