Making informed decisions is critical to turning profit

Kenneth Gautreaux, Gould, Frances I., Blanchard, Tobie M.  |  9/12/2018 7:30:37 PM

Profitability is essential for a farming operation’s survival. But determining the point where losses turn into profits is always a moving target and consists of many variables.

To help simplify the process, Michael Deliberto, an economist in the LSU AgCenter Department of Agricultural Economics and Agribusiness, has helped develop tools that allow producers to input farm operation data and determine the point of profitability using factors such as cost inputs, land rental rates and the market price of the commodity.

“No two production fields are alike,” Deliberto said. “We provide annual cost estimates based on components such as fertilization cost, disease and weed management programs, and fuel expenses. Farmers can customize the programs on factors that are unique to their fields, such as historical yields or land and rent costs. This will allow farmers to see what yields and the prices he or she will need to receive to determine their break even points.”

Deliberto said that these tools, which are electronic spreadsheets, also allow producers to compare the profitability of competing crops. This aspect helps farmers determine which crop appears to be the more profitable commodity based on current market conditions and cost of production.

“We provide a user’s guide for every spreadsheet,” Deliberto said. “They can be obtained from the LSU AgCenter website, and both parish extension agents and the state crops specialists have access to them.”

Deliberto said some aspects in the decision tools cannot be accounted for.

Trade agreements or tariffs placed on farm commodities can affect profitability and market uncertainty. Weather events also cannot be predicted, but they can have some degree of accountability in the spreadsheets by adjusting the yields based on how the weather influences the yields.

Risk management also is addressed, including issues regarding crop insurance and farm program payments.

“The spreadsheets are a good way to evaluate when crop payments may be triggered. Their amounts as prices and yields change throughout the growing season,” Deliberto said.

According to Deliberto, a strength of the spreadsheets is that the producer only has to supply a minimal amount of data to see results. The spreadsheets are unique by parish and examine other factors, such as whether the crop is irrigated or not.

Because the spreadsheets have a parish component, they take into account the variables of an area. Farms in Tensas Parish are not being compared with farms in Beauregard Parish, and the variability of production costs are in line with that geography.

“The main goal is to deliver interactive spreadsheets that are tailored to the individual farmer,” Deliberto said. “This is applied research, and we can deliver something useful for producers in enabling them in making better-informed decisions.”

According to Deliberto, producers must develop a comprehensive marketing strategy to give them a higher probability of turning a profit. This strategy can be created based on information growers have on hand and from using that information to customize the spreadsheets made available to them from the LSU AgCenter.

For producers to receive the maximum benefit from the spreadsheets, they should have accurate data from their farms and start using the spreadsheets early in the decision-making process to get a better understanding of what crops look the most promising as they pertain to making a profit.

Craig Gautreaux

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