Bringing producers and industry together.

Margin Creators vs Price Predictors

The concept of price is ingrained into our minds at a very early age. Recently while our family was watching television my oldest son Karson piped up and said, “Daddy, I just saved a bunch of money on my car insurance!” My first blush was that he didn’t understand what car insurance even was, but his next statement told the real story. Karson responded by saying, “It’s when you wreck your car and they give you money to buy a new one.” In today’s society the focus on price and the pressure to get the best deal (whatever that maybe) has created an environment where our individual business decisions are the focus and not the final results of all the decisions.

 

Production agriculture is feeling the same societal focus on price. Whether it is the value of grain at a specific elevator or the price per ton on fertilizer, many producers throughout the United States struggle with the emotion of price and how it effects their operation.

 

TMA’s focus is on the profitability of the farm on a per acre basis. We take into account each operation’s projected expenses, revenue guaranteed through crop insurance, and the value of their grain marketing decision to arrive at a profit/margin per acre value. This approach provides a clear answer to frequently asked questions of what is the price of grain going to do today and is $5.00 corn a good price. It is not about the price of the commodity, but it is about how today’s price fits into your farm’s profitability. Forecasting the overall market direction and individual market bias are still important parts of the decision making process, but the focus needs to be on what you can control.

Now is the time to look at the margins that are available for your operations. In the last couple of months, producers throughout the United States have experienced the volatility of the markets. The average central Kansas producer has experienced similar volatility with farm margin changes of more than $125/acre on their 2011 new crop wheat. The real question to ask yourself is, what is my farm’s margin goal and how can I lock in my operation’s profitability for this year and years to come?