What’s Your Target?
When was the last time you played darts? OK, when was the last time you played darts blindfolded? The second game is a little more challenging because you may have no idea where your target is. But it’s a lot like the game some farmers play of trying to sell their crops into a market rally without knowing where profit resides for their operation. It’s difficult to know when to pull the trigger during the growing season if you don’t know where you will be able to profit.
I’ve heard some bankers say 80% of the farmers they work with don’t have a solid cost of production or a marketing plan. So if you’re ready to go with that, you’re in the minority.
In a recent webinar offered by Penton Agriculture, Purdue University Professor of Agricultural Economics, Michael Boehlje asked attendees about their cost of production for the upcoming growing season. Here’s how they answered. This time more farmers knew. They may have been ball-parking it.
If you’re serious about marketing and profiting in a season that’s going to bring narrow opportunities for this, it’s important to know. And when we talk about breakeven, it’s not just seed plus herbicide plus hired labor and fuel. You should be including land costs, equipment costs (depreciation) and family living expense. The reason family living is included is that it’s essentially the salary you’re paying yourself from the business. Once you roll that all up, then you know your target.
We’ve developed a financial tool that helps farmers do this. It allows you to input costs and market strategies/positions, along with crop insurance. Then when those market opportunities come along in profit territory, you’re notified, so you can quickly act. Essentially, we help you find the target and the program tells you when to pull the trigger according to your plan.
If you’d like to see how the software works, sign up for a free trial at www.agwizard.com