Whole Farm, Profit Objective Pricing

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Payday is the day agricultural producers sell their commodities and livestock. Most of us, whether farmers, small businessmen, or employees, wish to earn the most for our efforts. The intent of this guide is to help producers calculate a profit objective price for their commodities in any given year based on that year’s farm mix of crops and livestock and on historical expense, income, and production data. With the knowledge of this profit objective price, actual marketing plans can be devised and carried out.

At a minimum, profit for a full-time farmer must be able to pay family living expenses, principal payments, income taxes, self-employment taxes, and necessary capital purchases. These five items are paid with taxable dollars. Any farm that cannot generate sufficient profit to meet these needs will either lose equity or must find alternative sources of income.

How objective pricing differs

Whole farm, profit objective pricing differs from breakeven analysis of enterprises. Break-even analysis is just that, covering expenses, but not including a profit objective to cover family living, principal payments, taxes, and capital purchases. Whole farm profit objective pricing includes these items in the required net cash flow outcome. Meeting the profit objective price for farm commodities will enable farm operators to meet their obligations.

Authors: 
Michael R. Langemeier
Publisher: 
Kansas State University
Year: 
2010