Once you establish your breakeven cost to produce an acre or a bushel of corn and soybeans, you can do a lot with that number to improve the financial management and profitability of your farming operation.
"Farming is a high risk business and to succeed in today's environment producers need to be diligent in knowing their breakeven costs," emphasizes Steve Johnson, Iowa State University Extension farm management specialist in central Iowa. "Without a firm understanding of the cost to produce a crop, you are merely making a 'best guess' and that is usually a poor business strategy."
Cost of production information can and should be used to help the producer do a better job of marketing their crop. "It can be used to help you understand when to sell your crop to ensure profits for your farming operation," he notes. "In addition, knowing your cost of production and breakeven can help you determine if paying a higher cash rental rate for one farm can be justified across the entire farming operation. Or, if the purchase of a new farm at today's record-breaking prices for land can be justified."
A vital number when evaluating a potential grain sale or major purchase
Always knowing your breakeven, and at what price you need to sell your crop to be profitable, puts perspective back into an emotional decision. "For many farmers, capturing this data can be difficult and time consuming," says Johnson. "However, new tools are available to help farmers determine their breakeven and to help them establish goals."