Business | Spring 2010
Profitability begins with accurate budgets.
By Joy Gregory
Some farm operators tell business analysts they don’t have the time, inclination or skills to do a better job of field crop budgets — even if they understand how that would aid cash flow projections and crop marketing. Others admit they just don’t want to know how much it really costs them to nurture a crop from seeding to harvest. "And they’re only partly joking," says John Molenhuis, the analyst behind the 2010 Field Crop Budgets released by Ontario’s agricultural department.
"Typically, farmers view records from a tax-management strategy. That’s still important, but good records can help make wise production decisions, too," says Molenhuis.
That’s a message one of Leo Kosokowsky’s clients understood only after he agreed to crunch some real numbers on his flax crop, says Kosokowksy, president of Ag Mpower in Saskatoon. That client knew he was getting a 75-cent/bushel premium on flax seed he sold directly to a seed grower. But further analysis showed that his crop "was really coming up short in terms of paying its own way on the farm and that was a complete surprise to him," recalls Kosokowsky.
Once armed with accurate information, the grower could look for ways to make flax pay. "He needed to reduce his acreage and to go back to basic agronomics and look at how he could increase his average flax yields so he could keep the crop in his rotation," explains Kosokowsky.
The 2010 Field Crop Budgets caution producers to remember that budget programs are "most meaningful" when they use their own data for expected yields and specific costs. If your five-year average is 120 bushels of corn per acre, there is no value to punching in a seed company’s claim for 180, notes Molenhuis.
"Machinery cost is a big one," he adds. His field crop budgets include average custom rates in the province. After looking at the numbers, some producers realize they would be better off downsizing their machines, taking on custom work, or hiring out some operations.
Information is power
While direct costs-per-crop are relatively easy to identify and tally, especially
if you already keep electronic records, indirect costs (like machinery depreciation,
taxes, insurance, fuel and labour) are considerably more complicated to assign to
separate crops. If these calculations are new to you, or appear too complicated,
look for help. Provincial ag ministries in Ontario, Alberta and Saskatchewan offer
websites with field crop budget data. And the Canadian Association of Farm Advisors
(CAFA) is a good place to start a search for an independent consultant who can help
you use crop budget data to set rotations, improve agronomics and generate the break-even
data you need to forward-market portions of your crops prior to seeding.
Information is power, says Kosokowsky, CAFA’s current chair. "We’re farming at a time when profit margins are too thin to work with ballpark numbers. And it’s too late to adjust rotations after your crop is in the ground. Accurate crop budget information gives you the power to make decisions. Once you know it costs $9 to grow a bushel of canola, you have permission to take a price above $9."
