Knowing your farm’s production costs helps navigate economic realities

ANR Week workshop will help farmers of all skill levels understand how to use business numbers to prioritize options and make timely management decisions.

Cost of production can be a misunderstood concept, but it is important to understand in order to manage your business. Agricultural economists use the term to describe what it costs to produce and market an agricultural product per unit of production such as per bushel or per hundred pounds of milk or livestock sold. Some use it to determine what prices are needed for the balance sheet to stay the same from one year to the next. Most define cost of production as the break-even price needed in-order for cash flow to work.

Michigan State University Extension farm management educators will conduct a hands-on workshop to assist farmers in learning how to calculate working capital ratio and how to build their farm’s plan to manage the new economic realities in agriculture. Farmers will also learn what can be done to improve the farm’s working capital ratio. The workshop will take place March 8, 2017 at the Kellogg Hotel and Conference Center in East Lansing, Michigan as part of MSU Agriculture and Natural Resources (ANR) Week.

The program will run from 8:30 a.m. - 5 p.m. with registration starting at 8 a.m. Educators will also be available to answer questions during an optional dinner starting at 5:30 p.m. The program costs $125 per person. There are discounts available for additional attendees from the same farm. Learn more about this program and register online.

During the hands-on workshop, you will have the opportunity to calculate these values using your actual numbers. You will use and take home an excel spreadsheet that will help guide you through the process of developing these different break-evens for your farm business. This is one of several digital tools that you will have the opportunity to take home with you. Other tools include balance sheets, income statements and cash flow projections. One tool in particular is designed for dairy operators to evaluate the dairy’s financial risk in terms of working capital erosion and net worth change.

This program is designed to help everyone, from a novice to an advanced farmer understand your business’ numbers and how that translates into prioritizing options and making timely management decisions.

As the industry continues to change, so do the key factors for your operation’s success, as well as the items a bank will require before providing lending services. This session will also give attendees updates on the industry, explore key factors for success and discuss key documents and information banks need.

Financial experts will be on-hand to answer specialized questions and provide examples. They will help you gain the tools needed to make wise and timely decisions for your operation, allowing you to take the mystery out of your numbers and move your farm forward.

Additional articles in this series: 

Improve understanding of your farm's working capital

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