The Road Warrior of Agriculture
Sharpen Your Pencil!
Knowing your cost of production is not going to be an option but a requirement for the producer that aspires to be profitable.
Drawing from the Minnesota West Farm Business Management summary finds a wide spectrum in cost on all enterprises.
For example, on soybean enterprises that were cash rented, the total cost of production per bushel was $5.47 on 286 farms in 2001. Further analysis finds this cost declining to $4.24 per bushel on the top 20 percent of profitable farms, compared to $6.98 for the low 20 percent. As profitability increased, cost of production showed a decrease.
For farms that were owned, the total cost of production was $4.62 per bushel on 235 farms in 2001. The highly profitable farms had a cost of $3.74 compared to the low 20 percent of profitable farms’ cost of $6.31. This was nearly a $2.50 difference.
One of the farm management instructors uses an interesting measure of machine and man cost per acre. His top 20 percent of producers have a cost of $22 per acre, including machinery cost, hired and management labor. The low 20 percent had a cost of about $60 per acre.
Lesson Learned
Fully deployed human and capital assets are becoming even more critical in a globally competitive environment.
In a commodity business, keeping overhead costs low and using cost control techniques will be key elements for success!
On the Road?
Last week I made it to Texas, but the snow hit Virginia before my flight could leave for Canada. I plan to head up to Toronto this week, but with more winter weather headed in, I might be grounded again. The one thing you can never control is weather. I will also address the National Block and Bridle Convention in Washington, D.C. this week. This year the Virginia Tech chapter is hosting it. It should be an energizing conference!
Editors' note: Dave Kohl, Soybean Digest Trends Editor, is an ag economist at Virginia Tech. He recently completed a sabbatical working with the Royal Bank of Canada. He is now back at Virginia Tech with his academic appointment, which is teaching, extension, and applied research.
To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.
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