ROSEAU, Minn. -- It doesn't seem possible that Christmas is a few short weeks away. It seems only a few weeks ago that we put the crop in the ground, calves were born and we were shining up the golf clubs. Now the crop is in the bin, the calves are going to market and we want to move the fish house to our favorite "hot spot."
The end of the year also is the time to get farm records up to date and do tax planning. This year, don't forget to review your 2009 crop budgets. Knowing your cost of production and breakeven price is one of the most important aspects of farm management. This breakeven price can, and will, vary from farm to farm. Make sure next year's cost projections and returns are realistic for your farming operation so that you can handle the good, the bad and the ugly of 2009.
Predictions
What are the good, bad and ugly of 2009 crop budgets? The good: Fuel prices are trending downward. This summer's prices of $140 barrel for crude oil and $4-a-gallon gas at the pump are long gone. Fertilizer prices have moderated for now. But for how long? Nobody knows.
The bad: Commodity prices have plummeted from highs set last winter. Remember $25 wheat? That was just a few short months ago. The current local bid for wheat is in the $6-per-bushel range. Other commodities have seen a similar price decline.
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The ugly: The banking industry is in turmoil and very few 2009 crop budgets have a positive return. For example, with current input prices, wheat will have to top $8 to break even. A few years ago, $8 wheat would have been a record price with record profits. Now costs have risen so much that $8 what could mean a negative cash flow.
Since farmers can't change high input and low commodity prices, the first response is to complain. Complaining will not help your profit-loss potential, but a realistic crop budget can help you implement strategies to minimize downside risks. By having a good handle on the costs of production, you can buy when inputs decline below your projected costs and sell when commodity prices rally above your breakeven price. By developing various management strategies, you will have a better probability of a positive cash flow in 2009. Hopefully, you will see less of the bad and the ugly and a little more of the good.
Editor's note: Grafstrom is a farm business management instructor with Northland Community and Technical College in Roseau, Minn.
