What's a Bushel Worth To You?

November 16, 2017

We’ve talked to a lot of growers and found that while most have a good estimate of their overall expenses, they often don't know their true cost of production per acre. If you only have a ballpark figure, your estimate could be at the high or low end of the range, and where your estimate falls on that range could make or break your business.

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The FarmLogs Planner and Marketing tools work together to easily connect your cost of production to your marketing decisions, so you always know the price you need to sell your grain at in order to make a profit.

Let’s take a look at an example:

James is a corn and soybean grower in Iowa. He runs a 868 acre operation split between corn and soybeans. At the end of the season, James’s 434 soybean acres yielded 55 bu/acre for a total of 23,870 bushels. He called his local elevator to get the current sales price and learned that he could sell his soybeans today for $9.20/bu (after deducting the local basis of -$0.30).

Soybean Price at local elevatorJames wanted to know how much he would profit from his bean sales if he sold at the local elevator's current price, but only had a rough estimate of what it cost him to run his operation. He was dreading sitting down to figure out his true cost of production, because he knew that analyzing all of his costs could be complicated and time consuming.

If James had the FarmLogs Planner tool, he would be able to create a flexible plan for his operation and keep track of all of the the expenses associated with raising his crops in one place. He would also be able to visualize his total spend across his entire operation, each field, and each commodity he grows. 

Cost of Production

Cost of production averages retrieved from the Iowa State Extension Office. 

After inputting his expenses and yield information, James could see that growing his soybeans cost $529.05/acre, or $9.62/bu.

James could then use the FarmLogs Marketing tool to visualize how much he’d need to sell his beans at in order to be profitable. Selling at his local elevator’s current price of $9.20/bu (after the -$0.30 local basis), would end up costing James $20.90/acre, or $0.38/bu. This would mean a total loss of $9,070.60.

-$0.38/bu loss
Though not the outcome James was hoping for, he wasn't surprised given the current commodity prices. However, with the Planner & Marketing tools, he could now see how selling a portion of his beans at different times of the year can positively impact his profitability and help him meet his cash flow needs.

Knowing his cash flow needs are met, the Marketing tool allows James to decide how much of his grain he can sell later to get a better price. The Price Chart shows him historical futures prices for each commodity, and the Breakeven Calculator allows him to see how much revenue he might gain or lose based on price and yield fluctuation.

Establishing a marketing plan based on accurate breakeven and target profits helps James market his grain profitably without emotions getting in the way. Now, James could confidently sell his grain knowing exactly how much of his sale price is net revenue.

Soybean SalesWith this information, James decides to sell 5,967 (25%) of his bushels at harvest to cover his short term cash flow needs. He then secures a July contract for his remaining 17,903 bushels at a higher futures price, allowing his average sale price to still be profitable.

 

 

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Rachel Nizinski

Author

Rachel Nizinski is a Michigan native who developed a passion for agriculture throughout her time growing up in the Midwest. She attended Saginaw Valley State University, and joined the FarmLogs team as a content writer in 2016.