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Having a better understanding of break-even costs

An ag economist says it’s a good idea for farmers to stress-test their break-even production costs.

Matt Erickson, an ag economic and policy advisor with Farm Credit Services of America, says it’s important to run through some hypothetical scenarios. “For instance, let’s say that we have, a 5% increase in cost or maybe our yields are expected to decline by 2 or 3 percent,” he says.  “We can sensitize our balance sheets and our numbers to see what our new break-even could be.”

He tells Brownfield when it comes to margins, operations need to build in some wiggle room, and that means having a complete understanding of costs and revenue. “Understand your fixed costs and understand your variable costs,” he says.  “At this point, with margin compression going on, it’s really important that you look at your fixed costs and variable costs to see if you can kind of lessen that down a little bit in terms of getting a better margin in the future.”

Commodity prices have been under pressure, and Erickson says it’s important for farmers to have a secure risk management plan in place.

Brownfield interviewed Erickson during the 2024 Commodity Classic.

AUDIO: Matt Erickson, Farm Credit Services of America