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New Georgia Economics Tool Helps Estimate Production Costs

By Clint Thompson, University of Georgia College of Agricultural and Environmental Sciences 

 

If Georgia farmers want to maximize their profits, University of Georgia Cooperative Extension economist Amanda Smith says that, like all business owners, they first need to know their costs of production.

Whether you’re talking about seed costs, fertilizer or fuel, farmers need to calculate their total expenses to maximize their profitability during the harvest season. That’s the message Smith has been communicating to producers during this year’s winter crop meetings.

“In the case of peanuts, if growers are planning on shortening their crop rotation, they know they’re likely to take a hit in terms of yield,” Smith said. “I want them to also be thinking about how it’s going to impact them from a cost-of-production standpoint.”

Making a change like this could result in lower yields due to more disease or insect pressure, she said. “If growers anticipate more disease and insect pressure, they can expect a higher cost to manage it through additional disease-control sprays or other measures.”

With assistance from fellow UGA Extension agricultural economists Adam Rabinowitz and Don Shurley, Smith has formulated a cost-of-production table – the “2017 Row Crop Comparison Tool” – that allows row crop farmers to estimate their total variable costs per acre and their return above variable costs. Variable costs are what it costs to plant, grow and harvest a crop.

Based on a survey of local input suppliers conducted in cooperation with UGA Cooperative Extension agents, Smith calculates what farmers can expect to pay for seed, chemicals, fuel, insurance, labor, fertilizer and irrigation for row crops like cotton, peanuts, corn, soybeans and grain sorghum. The costs vary depending on the commodity.

“Seeds are generally one of the higher costs for several row crops. As far as peanuts are concerned, disease control is where (growers) spend much of their chemical expenses,” Smith said.

For irrigated peanuts, disease control represents 13.2 percent of total variable costs. Disease control is 8.7 percent of total variable costs for non-irrigated peanuts, she said. Fertilizer costs represent a larger portion of the total variable costs of cotton and corn production.

“Irrigation can also be expensive for cotton, corn and peanut crops, depending upon the weather,” Smith said.

Land rent is also a cost factor. In Georgia during 2016, irrigated cropland cost an average $189 per acre and non-irrigated cropland cost $63 per acre, according to the United States Department of Agriculture, National Agricultural Statistics Service survey on cash land rents.

UGA Extension’s estimates of costs in the crop enterprise budgets are based on a typical production year, assuming an average year in terms of rainfall and crop rotations and calculating what’s expected to be the average season price and yield per acre. Smith recommends growers use UGA’s estimates as a guideline and adjust the numbers to reflect their management decisions and historical yields.

Based on expectations for the upcoming year, peanuts seem the most attractive crop for farmers as far as return above variable cost per acre, according to UGA Extension experts. However, peanut acreage is expected to be near, or over, 700,000 acres in Georgia this year. This means farmers will likely shorten crop rotations, Smith said.

“At county meetings, we stress that if you are changing crop rotations, you’ll need to make some revisions to your budget. It doesn’t just impact yield, but it can also increase your costs. You need to add a little bit more for input costs for improving soil quality or reducing pests likes weeds, insects and diseases,” Smith said.

With planting season a few weeks away for corn growers and a couple of months away for cotton and peanut farmers, Smith said most have an idea of what they’re planning to plant and where. For example, many farmers signed contracts for peanuts early in December.

“With contracts ranging anywhere from $425 to $475 per ton on a portion of yield, combined with good management, many peanut farmers figured that they could cover their cost of production. When you can forward contract at a price above your cost of production, you can reduce your risk,” Smith said.

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