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Prairie Farmer - April 2007

Break Ground on Break-Even Prices

Garrett Stoerger
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign

As your planter rolls across the field this month, laying in the seed corn that will lead to what you hope will be a bin-busting harvest, do you have in your mind the price at which you'll need to sell that grain in order to make money? Granted, you've already written the checks for the seed, chemicals and fertilizer to raise the crop. You may have even priced out another bin to hold it all and take advantage of a little carry in the market. But have you penciled out your actual break-even price — the point at which you'll have to sell grain in order to first, cover expenses, and second, make a profit?

The good news is, you don't even need a pencil to do so anymore. Members of the Farmdoc team at the University of Illinois have created a FAST program to help you work quickly and easily through this budgetary problem. The Break-even Analysis Tool lets you simply input your data and compute the break-even levels. You can even use the default values as guidelines to get you started.

To begin, use the main menu to navigate to the input section of the tool. Here, you can input items such as acreage, per-acre budgets, revenue and cost splits on rented acres, and outstanding loan data. Don't worry; this is the only portion of this FAST program that requires data entry. From this point forward, you will only need to concentrate on analysis.

How it works

Analysis data appears in two simple charts near the bottom of the sheet. What does this information tell us? For starters, we can quickly determine the price at which we need to market our grain in order to achieve positive net farm income.

Next, the program calculates breakeven price after family living expense. From these figures, the tool calculates a break-even point for capital replacement and term debt repayment margin, which essentially provides you the price at which you'll need to market grain in order to meet your expenses.

Towards the bottom of the sheet, you'll find your yield data displayed in two ways, in a table and a chart (see example on this page). Those charts let you examine both total costs and net income. The total cost data illustrates total costs per bushel; net income values show you where you'll need to sell grain in order to make money.

You can also use this tool to project net farm income, a statement of cash flows and capital repayment capacity. The program presents this information in a straight-forward layout that allows you to analyze the output in terms of total farmland, operator acres (acreage operator generates revenue from) and tillable acres.

The ability to do break-even analysis on your farm is an important part of successfully managing risks and establishing the income level required to meet all outstanding debts. The Breakeven Analysis tool can quickly and precisely determine what prices and yields your farm will need to achieve in order to make it a profitable year.