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Cost of Production, NWARC

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