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Cost of Production, NWARC

created using Mundus Presentation template
published by Anton Bekkerman

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COSTS OF PRODUCTION

A Quick Guide

An Overview of Reasons, Tips, and Tools for Maintaining Economic Oversight of Your Operation

Why Should We Care?

Crop prices have dropped from historical highs...

Source: USDA NASS

...and cattle prices are not far behind

Source: USDA NASS

Ag market downturn is even evident in input markets!

Source: GreenMarkets

Where are Ag Markets Heading?

Source: FAPRI, Aug 15

Most crops: 2015/16 and 2016/17 are predicted to be 10-year low points

Cattle:  expected continued price drop Other livestock:  similar to crops

Factors that Will Potentially Affect Markets

El Nino

Interest rates

TPP

Exchange rates

Geopolitics

Don't Forget Uncertainty

Lines indicate level of uncertainty (coefficient of variation)

Source: Lawrence, et al., 2016

If Economists Were to Become Farmers, Where Would They Start?

Great! Now What?!?

Better Yet...

1

Assemble the Data

Tips and Ideas

Pick the low-hanging fruit: What are the easiest data to gather?

Try to get a historical perspective: 5-10 years

Organize, organize, organize: time consuming but worth it

2

Consider Economic Costs

IRS (Schedule F) collects accounting costs

Necessary to also consider opportunity costs (i.e., forgone revenue opportunities)

Common Examples:

Your labor requirements

Opportunity cost of using land

If you didn't farm, you could be earning money elsewhere

If you didn't use your land for farming, you could lease or sell it

Tips and Ideas

Opportunity cost of land can be approximated using land rental rates

(for Montana counties: goo.gl/3Yubm1)

Labor rates can be approximated using:

Custom application rates

Machinery use in hours per acre

(sources and links below)

3

Benchmarking

How you might feel about your operation before benchmarking to others...

...and how you might feel after benchmarking to others

Finding Benchmark Information

Data are nearly non-existent; 1996 was last large-scale data collection effort

MT Dept of Ag 2014 models:  goo.gl/SbVUsZ

North Dakota (northwestern) is most consistent source, but is it representative?

NDSU 2016 models:  goo.gl/I10fyB

Northern Idaho is closest match, but most recent version is 2014

U. Idaho 2014 models:  goo.gl/kYYNq8

Other opportunities:  

Private financial and lending organizations

Co-operatives and producer organizations

MSU's Dept of Ag Econ & Econ Cost of Production Project

Develop producer-driven benchmarking database and tools

Objectives:

Current status:

Collected base information; developing web-based anonymous data collection modules

Biggest need:

Producer buy-in and participation

Methods:

Anonymously collect MT producers' information to establish aggregated detailed economic benchmarks

Dr. Anton Bekkerman

[email protected] 406-994-3032

View as infographic with clickable links

http://www.antonbekkerman.com (blog with MT ag econ news)

https://goo.gl/44ku7E