Perrin: Baby, it's cold outside

Details

Published on Thursday, January 16, 2014

By: Steven Perrin

myWestman.ca

This week I present farmers with a silver lining to this wretchedly cold weather: it's a great time to sharpen your pencils and work out your budget for the coming production year!

While I am a staunch advocate for detailed budgeting every year in and out, this one in particular calls for a concerted effort to pull out the spreadsheets and determine your costs down to the nickel. (A year ago I would have said penny, but now that 7-11 is rounding up or down on your gum purchase, I suppose it's okay for you to do that too).

The last couple of years of extremely tight carryovers allowed farmers to be a bit more cavalier about their budgets, but after the tremendous harvests of 2013 we've returned to a reality of much slimmer margins and a more challenging selling environment.

Half of good crop marketing is choosing the right crop to grow. It hardly needs to be said that understanding your costs for producing each crop is essential to the process. Figuring out the variable costs, like fertilizers, for a given crop is straightforward enough, but where some farmers come up short is in determining how to break down their farm's fixed costs in order to assign them to the various crops they're growing. When this is done correctly, it gives one a much more precise picture of each crop's profitability, which, now that we're back to thin margins, can mean the difference between choosing the right or wrong crop to grow.

The more precise your understanding is of the price at which a given crop you're growing becomes profitable, the better you'll be able to avoid the trap of obsessing over the price fetched per bushel, rather than the profit in the bank at the end of the year. How many farmers have ultimately failed to make a profit because they couldn't let go of what the price per bushel used to be, or could be in future? Farming for profit margins and not flat price is key!

During periods of high carryovers like the one we're in now, locking in some advance sales will be key to ensuring cash flow and reducing stress. But you can't do that unless you know you're locking in a profit, which you can only know by making a detailed budget. Whether you do that yourself or seek a professional's help, it's bound to be worth the effort spent.

Besides, with temperatures this low and the World Juniors finished, what else are you going to do? Give me a call at 204-761-0267 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. to set up a time to figure out your 2014 budgeting costs and pinpoint your break-even costs of production.