Have you ever been to a farm meeting and there is a speaker talking about the cost of production? Do you ever feel like they are speaking no different than the teacher in Charlie Brown?
Farming is business and businesses need to know their cost of production. Guessing your cost per acre is just not good enough.
A great way to not impress your banker is to not know your cost of production. Cost of production is not about the pennies, its about understanding your business from the expense side of the income statement. Knowing your cost of production creates the opportunity to be a better crop marketer. Knowing what price you need or would accept based on expected return over costs is much better than just accepting a price based on the “feel” on that day.
Having a grasp of your cost of production prevents the uncomfortable feeling of not knowing what is happening in your business. Becoming a better farm business manager is not just about getting more for your soybean crop. Its also about controlling and managing your costs. This leads into capital expenditure decision making and building your long term loan strategy. Cost of production is not sexy but knowing it does pay the bills and it will make your farm business successful in the long term.
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