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How to Manage Costs for a Mixed Operation

Rolf Penner of Morris, Man., says the key to a successful mixed farm is knowing your costs and updating them at regular intervals.

“Knowing your costs lets you know your break-even point,” says Penner. He and his father, Udo Penner, farm 1,800 acres of cereal and special crops and finish 6,000 hogs annually, 15 km northeast of Morris. “Once you know where your break-even point is, you have a target. If you don’t have a target, you can’t hit the target.”

Penner says it’s important for him to understand his costs because he runs two farm operations side-by-side, grain and hogs, but uses the same bank account for both. Understanding basic input costs allows Penner to make timely decisions. With costs changing constantly, he needs updated, current information about the costs of both sides of his operation. “It isn’t good enough to know them today or yesterday.”

He reviews costs regularly. On the crop side, it starts in January, or even the previous fall. Penner calculates his costs, but more specifically he tracks the costs back to each crop (mainly wheat, canola and soybeans). “You break it down, the seed, fertilizer, chemical, fuel, etc., and start tracking, them including price changes, and all those variables throughout the year, updating as you go along,” he says.

The first real check occurs after he completes seeding and can evaluate his fertilizer costs. “You finally put it in the ground ­— did you buy too much or did you have a little extra?” says Penner.

He takes another check after spraying the crops. Chemical prices change and sometimes he has to spray for certain weeds and sometimes not, so he makes adjustments accordingly.

“So you get to the harvest point, the crop comes off and now you know what all your costs are. Hopefully you have yields that can make you some money,” Penner says.

From paper to software

“I’m not an old guy, but I remember when I used to do it all on paper. I would have pieces of paper all over the place — in notebooks, binders, loose papers with budgets and lists. I’d add everything up with a calculator, creating the lists over and over again,” he says. “Now I’ve switched most of that stuff over to different computer programs.”

Penner says Microsoft Excel is a must for today’s farmer. “If something doesn’t exist or there’s a program out there that doesn’t quite put the numbers together the way you want, or the way you think it should, with Excel you’re able to do it,” he says. “It has been on my to-do list to take a winter and develop my own crop record program, but I’ve yet to put it together.”

An important reason Penner still has hogs, even after a short hiatus, is to help diversify his income. There was a time when hogs helped out the grain farm financially, but for the last number of years the grain farm has had to help out the hog side of his operation. There was a time when mixed farmers could jump in and out of the hog business, often keeping supply and demand in check, but it doesn’t work that way with a modern hog operation, says Penner.

“With the kind of facility we have, the commitments, my weanling supplier on one hand, and Maple Leaf Foods in Brandon on the other, either I’m in the business or not,” says Penner.

So how does Penner amalgamate the two operations? When doing the budgets, he looks at each side of the operation separately, but at the end of the year it all comes together on the farm’s balance sheet and income statement.

“I don’t have different bank accounts for my hog or grain operation, I run the whole thing together,” he says. “It goes back and forth from general to specific depending on what I’m trying to do.”

Managing Costs

With volatile feed and fertilizer prices, Penner watches the markets and locks in prices when it looks advantageous to him. Feed prices are another key variable. “Looking at the price of feed, I’m constantly watching to see when is a good time to lock in the feed prices,” says Penner.

Penner believes the key to profitability is tracking costs and knowing exactly which pieces of the farm are making money. This approach takes extra time and effort, but for Penner, it’s paying off. †

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