Producers must know their costs

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By Kari Burnett, PAg, Regional Farm Business Management Specialist

Saskatchewan Ministry of Agriculture, Swift Current

There is an old management saying, “what you can measure, you can manage”, and this is very true in agriculture today.

Understanding your cost of production is important in farm management - whether you are producing crops such as wheat and lentils, or livestock products such as cattle, hogs, or eggs. It is a critical step in your ability to set price targets for marketing. If you know how much you need to cover your costs, it can be easier to determine what a good price is. It can also help to determine your coverage needs when it comes time to determine what level of crop insurance you should take on. An accurate calculation of your cost per bushel or per animal produced will provide a valuable guide to enterprise decisions such as crop rotations and livestock production. Bear in mind, the cost of production on your farm will not be the same as your neighbour’s cost.

Costs to include are both variable costs and fixed costs. Variable costs change according to what you are producing – things like seed, fertilizer, chemical, crop insurance premiums, feed, veterinary and medicine costs, fuel and repairs. Fixed costs tend to remain the same even as production changes – things like your phone bill, accounting bill, depreciation, and property taxes.

Crop Planning Guide

The Saskatchewan Ministry of Agriculture publishes a ‘Crop Planning Guide’ each year to assist producers in estimating their cost of production for the various crops.  The crop planning guide includes each of the three soil zones in the province as well as the specialty crops guide. The Crop Planning Guide is also available online, at www.agriculture.gov.sk.ca/crop-planning-guides.

The guide contains an estimate of variable and fixed expenses for an average sized farm in each of the soil zones. For 2014, the general assumptions are stated at the front of the guide. The crop prices used are farm gate price estimates based on information available in early December 2013, and should be continually adjusted as spring approaches. The yields used are increased by 20 per cent above long term Saskatchewan Crop Insurance Corporation (SCIC) yields to reflect a higher level of management and higher input levels.

It is important to understand that the figures used are estimated costs based on recommended production practices for that soil zone and are meant to be used as a guide. To make the best use of the Crop Planning Guide it is important to use the worksheet supplied with the publication, or to use the downloadable spreadsheet from the website. You can then enter your own costs, yields and commodity price estimates, as well as your overhead expenses. Of course, some of these are unknown at this time of year, but using the best information available and updating as the season progresses will keep your target prices updated.

On-line Calculators

In addition to the published crop planning guides, a number of on-line calculators are available on the Ministry of Agriculture website. The planners are Microsoft Excel spreadsheets and may be useful tools in determining your individual cost of production. To find these calculators go to the Ministry of Agriculture website at www.agriculture.gov.sk.ca and search for “on-line calculators”.

Some of the calculators found here that may be useful in determining your costs of production include:

- The Crop Planner

- Bale Grazing Calculator

- Beef Cow-Calf Plan

- Cattle Feeding Break Even Calculator

- Farm Machinery Custom Rental Rate Guide Calculator

Knowing your break-even yields and prices won’t guarantee a farm profit but it does keep you on target when used in decision making and can greatly improve your chances of success.

To pick up a Crop Planning Guide, stop by the Swift Current Regional Office or contact Kari Burnett at (306) 778-8216 or by email at kari.burnett@gov.sk.ca; call the Swift Current regional office at (306) 778-8285 or contact the Agriculture Knowledge Centre at 1-866-457-2377.

Organizations: SCIC, Agriculture Knowledge Centre, Saskatchewan Ministry of Agriculture

Geographic location: Swift Current

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