In the agriculture industry, the only guaranteed certainty… is that there will be uncertainty. It’s this uncertainty that drives home the importance of knowing your operating costs and how much you need in revenue to cover them (and make a profit). Your breakeven point is specific to your operation, and will be different than your neighbor’s operation.
So what exactly is a breakeven point? Simply put, your breakeven point is the amount of money you need to make to cover all of your production costs. Breakeven means that your net profits will be $0. You won’t have any money in your pocket as profits, but you won’t lose money on your production costs either.
Production costs include the cost of seeds, fertilizers, soil treatments, labor, interest on lines of credit, income and property tax, and any other costs associated with growing your crops. Any income you make that exceeds the price of these costs is considered to be profit.
Your breakeven point is essential when determining your crop marketing strategy. Any pricing plans you make should be centered around this breakeven point, which will allow you to determine what you should set your price targets at and how much profit you can expect with these price targets.
Here are a couple of our favorite free tools to get you started
Keep in mind that your breakeven point might change throughout the growing and harvesting seasons due to discrepancies in projected yields versus actual yields. If you have less crops to sell, you’ll need to bump up the price to achieve a breakeven point. The opposite is also true; if you harvested more crops than expected, you can lower your price and still hit breakeven.
Find out how our Yield Estimates can help you operate your farm with more certainty..
Regardless of market price fluctuations, selling above your breakeven cost will generate profits and selling below will generate losses. Having an accurate breakeven point will allow you to make smart decisions when marketing your crops and provide insight into what “good prices” actually look like for your business.