Toban Dyck: Do you know your cost of production?

If there ever was a year for a detailed budget, it’s this one

He leaned over and said, “Do you know what one of the biggest issues facing farmers is?” I’m paraphrasing. I didn’t have my notepad out and open. I had no way of knowing that I would be talking about such heady stuff, given where we were.

We were both waiting for the same prop plane at a small terminal at Toronto’s Pearson airport. We were both heading to London, Ont., for a leadership-training workshop at the Ivey Business School.

“It’s that farmers don’t know their cost of production,” he said. He then further unpacked what he meant by that relatively sharp indictment of us growers. I knew this person, though I had no idea he was also taking the workshop.

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He maintained, and I am sorry for not naming him (it wasn’t a formal interview), that many farmers either don’t know how to properly account for all their expenses or are just not doing so for some reason. This loose, ignorant approach to running a farm seems to have led to poor decision-making, misguided frustrations and an inability to market crops.

For example, we talked about machinery depreciation, a tax write-off intended to help farmers save for repairs or replacement. Well. I think everyone reading this knows that depreciation is insufficient preparation for machinery replacement. The true cost of repairs or replacements needs to be part of any farm’s cost of production calculation, as well as heating your house, running your pickup and all the other details that are a pain to wrap your head around.

Fiscal knowledge is quite possibly an unharnessed power on many farms.

We had time to kill and I was more than engaged, so him and I continued to dig in. We talked about carbon tax, and both agreed that, while we’d rather not have it, it’s certainly not the biggest problem besieging the industry.

He could tell me to the penny how much he spent on grain drying last year, and it was a lot. He could also tell me how much he spent on carbon tax, which, he argued, is a nuisance expense, but not one that’s going to push his operation over the edge.

Farmers have spent a lot of energy fighting for the abolition of the carbon tax and for improvements to be made to business risk management programming. Perhaps that is because they both represent policy that is easy to understand and easy to oppose and/or comment on. I get it. Solving the market crisis and building new ones is much more tricky, but also, and we both agreed on this, much more critical.

I have had this conversation on cost of production before, or at least one quite similar. In spring of last year, we were discussing this very issue at the Manitoba Pulse and Soybean Growers office. 2019 was poised to be a poor year, and 2018 wasn’t so fantastic for farmers, either.

I hear a lot about the services provincial agriculture departments used to provide to farmers, and I also hear about most of those have been discontinued completely or placed on the lap of universities and commodity groups. I am assuming, though I don’t know for sure, that at one point ensuring farmers were equipped with the most up-to-date grain marketing knowledge and extension materials fell under the purview of government.

If that was the case, it’s not anymore. It falls on others. Commodity groups take up mantles such as this. This is why we talked about it at work. If developing materials on grain marketing and getting a better handle on a farm’s cost of production is something that growers would benefit from, then doing so should be considered.

My dad often asks me if I’ve put a budget together for my portion of the farm. When I started farming in 2012, the margins were such that budgets didn’t need to be comprised of actuals. They could be hastily put together using rough predictions and last year’s data.

This is not the case anymore, and the farmers out there who’ve been through a dry spell or two and handled those periods through a razor-sharp awareness of all the expenses that their farming operations have to pay and exactly what yields they need to break even, along with what the market needs to give them in order to make ends meet.

This gentlemen talking to me at the airport is one of those farmers. He knows exactly what he needs to sell his wheat for to make $1 and has an understanding of his farm’s expenses that far exceeds most formulaic budget spreadsheets.

My wife and I bought 80 acres in 2018 and 120 in March of this year. In addition to this, 2020 is not being hailed as a comeback year for the commodities market. If there’s a year for a detailed budget, it’s this one. Knowledge is a powerful thing.

About the author

Columnist

Toban Dyck is a freelance writer and a new farmer on an old farm. Follow him on Twitter @tobandyck or email [email protected]

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