|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
 |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Calculating Your Breakeven and “Wal-Mart Price” By Tracy Sayler To evaluate what may or may not be a fair selling price for your grain, it only makes sense that you know your breakeven price. This is generally calculated by dividing total cost (farm and family living expenses) by average or expected yield to arrive at a per-bushel-yield price. Some farmers use computer spreadsheets to keep track of breakeven cost and income, while others might scribble numbers on a copy of last year’s Schedule F. This is an example of a worksheet used by Mike Lockhart to assist crop producers to figure their breakeven. Lockhart is a Ulen, Minn. crop producer, and a farm business management instructor with Northland Community Technical College, based in Thief River Falls, Minn. First thing is to enter estimated yield by crop. “I always tell the guys there are three yield numbers we have in mind as farmers: the one we hope we never get, the one we hope we always get, and the one that’s the most realistic. Most farmers know what that realistic number is, similar to a five-year average,” Lockhart says. Next is to figure direct crop expenses by crop, and then overhead or indirect costs. “The budget is simplified somewhat and we don’t include depreciation, because our calculations are focusing more on figuring breakeven.” Lockhart’s worksheet subtracts government farm payments and other off-farm income from the overhead. “That’s income that doesn’t need to be applied toward your crops’ profit expectations.” Direct and Overhead costs are then added to figure total costs ($163, in the case of Lockhart’s wheat example). The breakeven price is $3.70 ($163 total costs ÷ 44.1 yield = $3.70 breakeven price/bushel). So what’s the “Wal-Mart Price” all about? “That came about from 1996, when price was above breakeven yet people weren’t selling. So then we put another target out there,” Lockhart explains. “Basically, it’s factoring in a 20% markup or price increase. We used Wal-Mart as the example because they are the largest retailer in the world. They buy things wholesale, mark it up and resell them at a profit. That’s the same thing we want to do. We want to make a nice profit above our breakeven. So we added a ‘Wal-Mart Price’ column in our breakeven worksheet to reflect what kind of price we need to shoot for to get our mark-up. The Wal-Mart comparison just kind of stuck, and it helps guys understand the concept.” To arrive at the “Wal-Mart Price,” Lockhart first multiplies total crop cost by 1.2. Thus in the wheat example: $163 x 1.2 = $196. That figure is then entered into the “20%” column, which reflects the 20% price markup. The $196 is then applied to estimated yield to arrive at the “Wal-Mart Price” ($196 ÷ 44.1 yield = $4.44/bushel). “So you’re aiming for a selling price of $4.44 per bushel for your wheat. That 20% markup is about $30/acre above your breakeven. Multiply $30 by, say, $1,500 acres and that’s an extra $45,000. Guys see those kind of numbers and it makes it easier to sell grain when you have that benchmark.” The “Wal-Mart” price also allows cushion in case average yield used in the worksheet falls below expectations. “You could take a 20% yield reduction and still meet your breakeven,” Lockhart points out. Producers Lockhart works with in the NCTC Farm Business Management program are now familiar with the “Wal-Mart Price” concept, and are anxious to get those numbers down on paper as a marketing benchmark to shoot for. They haven’t had to wait long this year, as corn and soybean prices have already met or exceeded the Wal-Mart Price that producers in Lockhart’s groups established for themselves. “I don’t care if you just start selling at one truckload at a time. If the price you want is there, get something started, get something sold,” he says. “Because if the price goes down, you’re going to wish you had more contracted.” BreakEven Worksheet Example
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||