Comparing Production Costs

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This year, low grain prices combined with severe drought in much of Montana to make farming pretty miserable.  Many producers are asking—could I have done something better?  The calls and emails I’ve received on this topic range across the risk management spectrum.  Some people are looking to better understand their crop insurance options.  Others want to diversify production, and some are interested in switching production systems entirely.  In order to evaluate a new crop or livestock enterprise, comparing costs and returns is important.  Of course, what those costs and returns are will depend on the specifics of your operation. For example, whether you have access to irrigation, your proximity to points of sale, soil characteristics, precipitation, and readily available equipment can all make big differences when it comes to whether a new enterprise will be profitable.

 

There are several resources that can be useful in making these comparisons.   Anton  and I published a winter wheat budget last year.  But for comparison, you probably want to look at more than one crop.  Some states publish cost of production estimates for a range of ag enterprises and regions annually.  These are usually on a per-acre basis.  This year, the Montana Department of Agriculture published crop budget estimates for pulse, oilseed, and grain crops. (Downloads available here; scroll down and to the right.)  The Excel version can be adjusted to better fit your operation and includes a larger suite of crops. (For example, canola—the growth of which Anton recently discussed).

 

Other states, like North Dakota, have been making these estimates yearly for awhile.  In fact, if you’ve spent time with the NDSU budgets, the Montana budgets will look pretty familiar.  (The Montana budgets use the NDSU format and share some of the same numbers.)  Particularly if you farm or ranch on the eastern part of the state, taking a look at the NDSU budgets may be worthwhile.  (The NDSU budgets also include useful detail – if you are curious about calculations and assumptions.)  You can also get an idea of how estimates of costs and returns vary regionally, since NDSU produces nine regional versions of their budgets.

 

If you’re closer to the western side of Montana, budgets from Idaho might be helpful.  The latest Idaho budgets are from 2015 and crop and input prices have changed since then.  However, the Idaho budgets include the most detailed assumptions and calculations.

 

So how might your costs and returns compare?  There are probably things you can adjust right away, like any prices you’ve contracted in advance.  Others may require further calculations, or a call to your equipment dealer or input supplier.  For others, you might consult neighbors or perhaps on online calculation tool. MSU Extension EconTools has several tools to help estimate prices and basis, or nitrogen fertilizer costs, for example.

 

I’ll be leading workshops in January during the Golden Triangle Cropping Seminar that will cover these topics.  So come say hello!  The schedule is on our events page. We’ll be visiting in Stanford, Fort Benton, Havre, Chester, Shelby, Conrad, Cut Bank, Great Falls, and Choteau.  Other speakers will include Clain Jones, Cecil Tharp, and Darrin Boss.

 

(Photo by kevin dooley is licensed under CC BY 4.0)

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About Author

Kate Binzen Fuller is an assistant professor and extension specialist in the Department of Agricultural Economics and Economics at Montana State University. She holds an M.S. and Ph.D. from the University of California, Davis. Her extension and research program focuses on the economics of farm management decisions, including USDA programs and policies, pests and diseases responses, and issues surrounding leasing and land values. Kate’s extension program takes her on the road often, resulting in a rapidly expanding knowledge and appreciation for Montana’s interstates, highways, and (especially) gravel roads.

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