Managing risk also means lowering cost

When it comes to managing risk, an agriculture economist says the first thing farmers need to figure is how much it costs them to raise their crop.  Purdue’s Mike Boehlje says farmers need to have a tighter handle on their cost structure.  “We need to know how much of cost is fertilizer, seed, and chemical,” he says.  “We need to figure our cost not per acre in my judgment – but per bushel.”  And farmers figure up cost per bushel, he says, because that’s how they market grain.

In this type of economic environment Boehlje tells Brownfield farmers have to look at ways of lowering their input costs.

One of which, is evaluating cash rents.  “They are sticky moving downward,” he says. “It’s really hard, but we shouldn’t put it off the list of costs we need to think about lowering.  Farmers need to explain to the landlord why we can’t pay the rents that we paid in the past.  Maybe negotiate an arrangement that says if prices go back up – ‘I’m willing to pay more’ in form of a flexible cash rent.”

Boehlje says the most important marketing decision farmers make isn’t the price at which they sell their crops, it’s actually what they pay for their inputs.  Because, he says, what farmers pay for their inputs sets cost structure for the operation.

AUDIO: Mike Boehlje, Purdue Ag Economist (1:00mp3)

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