While your year-to-year may differ, you can always think back to the best price you ever sold your grain at, the lowest basis, and your highest yield. But, market prices and basis fluctuate, yields aren't always the same, and one thing is for sure: there will always be uncertainty.
That uncertainty makes it more important than ever to know how much money you need to make to cover costs and make a profit. Knowing that number, your break even, is just as vital as knowing how much money is in your checking account. It's specific to your operation, your costs, and your yield, and it’s not going to be the same as your neighbors.
Say I farm 1,000 acres of corn and my cost per acre (seeds, hired help, equipment, rent, etc) is $720. That puts the total costs of production for my operation at $720,000. My target profit is $60 per acre this year, and I’m expecting to produce 200,000 bushels. That puts my break even price at $3.90/bu. Knowing this number provides me with certainty, because regardless of what happens, I know if I sell my corn for $3.90/bu or higher I will break even.
You can use this equation to calculate your break even.
For the above example: ($720,000 + $60,000) ÷ 200,000 bu = $3.90/bu
Simply put, your break even connects your inputs and outputs. On the input side, it helps you build your budget for purchasing before and during the season. You can make better decisions on when to apply, what to apply, and more easily calculate what activities are going to give you the most return on investment (ROI). On the output side, your break even lets you know at what price you have to sell the grain you are marketing in order to make a profit.
You will also find that knowing your break even can help you answer other questions. Big questions, like when to expand or what equipment to purchase, and small questions, like if you should apply a chemical to a field or when to take a family vacation.
While it takes time to calculate your true break even, doing so is a great investment in your operation.
It will allow you to have more informed conversations with your banker, give you a better understanding of the most opportune time to forward contract, and enables you to make smarter on-farm decisions. And at the end of the season, you can more confidently answer these questions: which crops and practices had the highest return, and what am I going to plant next year?