Do you know your magic number?

Planter: inspected, check. Seed: ordered, check. Look to see if the neighbor's in the fields? Check.

Yeah, you've been cooped up all winter. You've got more cabin fever than a flight attendant on a 16-hour leg to Singapore. Like the proverbial political candidate, you are tanned, rested and ready to go.

But before you jump on the tractor let me suggest one more management exercise - something that could save the whole year. Are you ready for this? Get out the books (not again!), sharpen your pencil, fire up the calculator and - are you ready? - nail• down• those• production costs. Find the magic number. Memorize it.

Did I just hear all the air go out of the machinery shed? That's no fun, you say. Besides, you've already spent as much time as you can stand with bookwork. You don't figure on sitting at a desk until at least November.

Sorry, this one is important. With cash rents, fertilizer and fuel at all-time highs, knowing your production costs can be a beacon in what might become a frightful growing season.

It sounds like a simple exercise. Yet, only one fourth of commercial farmers in Iowa can actually tell you what their production costs are, claims Iowa State Ag Economist Mike Duffy.

"This is so important with the recent increases in fuel and fertilizer," he says. "We never used to think about energy before - it was there and it was cheap. After we saw what happened with the hurricanes and price rises, it's going to be in everybody's best interest to watch their costs this year.

"I'm not sure farmers do have a good appreciation for their costs," Duffy continues. "They do a good job on year-end matters, but they could do a better job on costs by individual fields, or by crops."

Fiscal ignorance

A lot of farmers won't admit it, but they get by on a kind of fiscal ignorance when it comes to knowing how much money they spend. Some figure if the bills are getting paid, it must have been a profitable year. Most have a good idea what they spend, but couldn't nail it down to an exact figure.

That won't cut it in today's business climate. This year could be the one that separates the survivors from the has-beens.

"Without knowing your costs, you'll never truly know your business," says Dale Nordquist, Farm Management economist at University of Minnesota. "Now more than ever you need to know the impact of an increase in fertilizer costs. If you know where you've been historically in your cost of production, then it's pretty easy to figure out what a $20 per acre increase is going to do to the bottom line. You need that information to react to opportunities and changes."

Nowhere is that more important than marketing. Your breakeven cost is the starting point to begin locking in sales.

"In marketing, you've got to set goals on where you start pricing your crop," Nordquist says. "You need to know at what point you're making money."

Often you hear of farmers who were afraid to lock in a price before harvest. "It's always tough to pull the trigger, but it's tougher if you have uncertainty about where your profit margins are," Nordquist says.

Production costs can be used to benchmark your operation - compare your costs vs. others. But it's more powerful for a producer to use those records to compare costs on a year to year basis.

Breaking down your costs can help determine which practices actually help the bottom line. Your calculations may lead you to conclude there's no way you can continue certain activities, like recreational tillage. Or, let's say your fuel bill per acre is 20% higher this year. Is it simply higher fuel price or did adding that 80-acre field 2 miles down the road contribute? Can you modify field operations to combat that increase?

Last year's record yields may have saved the farm, but don't use them to figure this year's costs. For one thing, bankers won't let you get away with that. Second, you'll lull yourself into poor management decisions. Use 5-year average yields to calculate costs per bushel.

Based on Iowa Farm Business Association records, the top third most profitable farms made money in every year except 1981. "What that says is, every year someone is making money," says Duffy. "So it's important to know what you're costs are, where you're spending money and what kind of return you're getting - and that's where your better managers come in."

And you'll sleep better at night knowing exactly what you need to do to beat the magic number.

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