Farm Management Minute: How does your 2014 budget look?
As you are making decisions for 2014, hopefully you are putting together a budget for the year and running break-even scenarios. With the drop in value of commodity prices compared to prior years, this is more important than ever. If you have done this already, you may not have been too excited when you see what you need to raise and what you need to sell it for just to break even.
At this point in the year, most of your direct or variable costs such as seed, fertilizer, chemical, planting and harvesting are known. But is that everything? Not hardly! Other direct costs that need to be considered are crop insurance, fuel & oil, repairs, hired labor and operating interest. According to data from the 2012 South Dakota Annual Report, these expenses totaled $83.17 per acre. These costs are often overlooked when budgeting, especially when budgets are tight.
Unfortunately, these numbers still do not include all costs, there is not anything included yet for overhead expenses. Overhead expenses are those that are not directly related to the crop operation, but necessary for the farm to operate. These include building and machinery leases, property taxes, farm insurance, utilities, professional fees, term loan interest, and depreciation. These expense totals should be allocated and divided across all of the acres. In 2012, these overhead expenses totaled $143.87 per acre.
The same considerations need be taken when looking at your livestock enterprises as well. In addition to variable livestock expenses such as feed and vet supplies you also have to consider direct expenses such as marketing, fuel & oil, repairs, and custom hire. Overhead expenses that also need to be considered include hired labor, farm insurance, utilities, interest, and depreciation. In 2012, these expenses associated with a beef cow herd totaled over $87 per cow.
As margins for 2014 appear to be tighter than in the past, you need to be aware of all of your expenses when calculating your break-evens. Producers who participate in the farm business management program through the South Dakota Center for Farm/Ranch Management receive an enterprise analysis which shows them their actual overhead expenses per acre or per head for their operation. Producers can use this data to help minimize their expenses and improve the profitability of their operations. If you would like more information on this program, please visit our website at www.sdcfrm.com.