Getting Started on Our Farm’s Cost of Production · 2020-02-04 · 3. Input data Cost of...

Travis Jansen

AdvancedAG Consulting

[email protected]

519-525-0654

Getting Started on Our Farm’s Cost of Production

FarmSmart 2020

• Introduction

• My experience learning about cost of production

• Measuring cost of production on our family farm

• Takeaways and lessons learned

Presentation Outline

Introduction

• Grew up on a farm near Seaforth

• BKi from uWaterloo in 2015

• MSc from uGuelph in 2018

• Antibiotics and COP on Hog Farms• Research on Young Farmers• Ontario Pork Young Leaders Program• FMC Bridging the Gap Program

• Contract work as a consultant

• Farm sheep with my brother

• Help out on family farm

What we really want to know is Profit

• Two parts: revenue and costs

• People like to focus on revenue because it tends to be easier

• Units x Price

• Growing 250 bu corn and selling for $6/bu doesn’t matter if it costs you

$1500/ac to grow

• Measuring cost tends to be harder as there are often more inputs than

outputs and the same inputs can be used to produce different outputs

• This presentation focuses on figuring out the cost side of the profit equation

Learning Cost of Production

Started in Graduate School

• Wanted to find a way to measure the economic value that antibiotics provide

to pig farmers… but how?


Antibiotic Disease Healthy Pigs

ProfitProfitProfit CoPCoPCoP

Needed to start by figuring out CoP on a healthy hog farm

I didn’t know:

• What costs were relevant?

• Where could I find cost values?

• How should costs be grouped?

• Were capital costs relevant?


Healthy Pigs

CoP

Needed to start by figuring out CoP on a healthy hog farm

I didn’t know:






Healthy Pigs

CoPStructure Data+

Two Steps to Getting Started:

1. Get your structure in place for how to measure your CoP

2. Collect data to fill the structure you’ve created


Structure Data

Swine Enterprise Budget

Industry Academics

What about real life?

• For strictly a pig farm, I would argue that it isn’t that different


Structure Data

Swine Enterprise Budget

Your Farm

The problem?

• It’s usually not that simple

• Many farm businesses grow and sell different things

• Different structures, different data


The solution?

• Enterprise budgeting

• Create a structure and collect data for different things


Farm Business

Enterprise 1

Enterprise 2

Enterprise 3

Enterprise 4

Hog Farm

Cash Cropping

Trucking

Custom Work

Increasing Detail

Structure + Data

Structure + Data

Structure + Data

Structure + Data

1. Create a structure and understand it

Again, for our farm I didn’t know:





Cost of Production on our Farm



Finances

Income Statement

Balance Sheet

Statement of Cash Flows



Income Statement

Cost of Goods Sold

Operating Expenses

Operating Overhead

Cost of Capital

Revenue

Interest

Components

Increasing Detail

• Corn• Soybeans• Wheat• Milk Sales• Etc.

• Seed• Feed• Fertilizer• Chemical• Etc.

• Equipment Repairs• Diesel• Propane• Electricity• Etc.

• Accounting• Bank Charges• Office Supplies• Telephone• Etc.• Depreciation• Land Rent• Equipment Rent• Land Clearing• Etc.

• Long Term Interest• Short Term Interest• Etc.

Money from farming activities

Things going into what you sell

Things you need to make what you sell

Things you need to run the business

Cost of Assets

Cost of borrowing

This is the Structure!

2. Make sure you have good data


Finances

Personal

Business

3. Input data


Here’s how we started:

A. Download all bank statements to an Excel file

3. Input data



B. Statements pasted into an Excel calculator

Personal? Date Expense Money Out Money In

Location on

Income

Statement or

Personal

Finances

Sublocation Details

p 01/03/2018 SUNWING VACATIONS 2,498.00$ Entertainment Travel and Vacation

p 01/04/2018 FOODLAND #6856 Clinton 46.72$ Food Groceries

b 05/22/2018 CHQ#02848-1140463392 1,717.24$ DOE Machinery Repairs Combine

b 06/04/2018 CHQ#02864-2141362744 4,244.46$ DOE Machinery Repairs Seed Drill

b 06/15/2018 HDC Wheat 20,002.80$ Revenue Wheat 5.74


4. Provide detail to data



C. Personal (P) or Business (B)


Location on

Income

Statement or

Personal

Finances

Sublocation Details










D. For Business, next step is location on income statement


Location on

Income

Statement or

Personal

Finances

Sublocation Details







Income Statement

Cost of Goods Sold

Operating Expenses

Operating Overhead

Cost of Capital

Revenue

Interest

Location




E. Then sublocation


Location on

Income

Statement or

Personal

Finances

Sublocation Details







Income Statement

Cost of Goods Sold

Operating Expenses

Operating Overhead

Cost of Capital

Revenue

Interest

• Machinery Repairs• Diesel• Propane• Electricity• Etc.

Increasing Detail




F. Then detail


Location on

Income

Statement or

Personal

Finances

Sublocation Details







5. Analyze data


From first column: Income Statement

70%100%

45%30%

50%

25%

Most

Profitable

Farms

25%

Income Statement 2019 January February March

Revenue:

Cost of Goods Sold (COGS):

Direct Operating Expenses

Operating Overhead

Cost of Capital

Interest

EBT

5. Analyze data


Second and third column: Provide multiple summary sheets


Location on

Income

Statement or

Personal

Finances

Sublocation Details







Increasing Detail

5. Analyze data



Machinery Repair Costs

275 911.30$

280 856.23$

2130 2,619.24$

2750 2,598.88$

3130 736.17$

4040 2,451.93$

Combine 14,642.10$

Corn Planter 451.77$

Cultivator 662.47$

5. Analyze data



Corn Wheat IP Soybeans

Acres: 93.00 43.00 98.69

Yied per Acre (bu or cwt for whites) 204.30 95.58 44.58

COGS

Seed 10,705.97$ 5,076.19$ 7,434.90$

Fertilizer 7,459.71$ -$ -$

etc. -$ -$ -$

Cost per Acre 390.30$ 73.04$ 152.78$

Cost per Unit ($/bu or cwt) 1.91$ 0.76$ 3.43$

Total Cost: 36,297.53$ 3,140.84$ 15,078.17$

Crop Summary

6. Reflect on process and refine

Lessons Learned

Income Statement Sublocation Details HST HST

Amount

Business

Year

Revenue Custom Hog Feeding yes 2,582.94-$ 2019

Revenue RR Soybeans 12.64 no 2018

Revenue White Beans 20.73 no 2018

DOE Machinery Repairs Cultivator Yes 10.73$ 2018

DOE Electricity Home Farm yes 51.02$ 2019

DOE Electricity North Barn yes 48.79$ 2019

• After 1st year

1. Moved to exclusive business and personal bank

accounts and family is more diligent using the

accounts appropriately

2. Added in a column for “HST” (Y/N) and auto

calculator for returns

3. Added in a column for “Business Year” and

“Transaction Year” to address prepaid expenses or

crops held over in storage until the next year

6. Reflect on process and refine

Lessons Learned

4. Started recording hours in a meaningful way

• Done in Excel online so people can do from phones

Provides good summaries

Lessons learned

Cropping Management Other Pig Barns Grand Total

Colin 116 382 89 587

Dad 720 172 285 900.25 2077.25

Ellen 20 60.5 80.5

Frank 14 14

Hannah 47 3.5 112 162.5

Kurt 6 3 28 37

Travis 23.5 100.5 19.5 29.5 173

Grand Total 932.5 272.5 696 1233.25 3134.25

Lessons learned

Home Barns North Barn South Barn Grand Total

Dad 76 384.5 431.75 900.25

Chores 32 257.75 250 539.75

Other 10 2.5 2 14.5

Prepare for Washing 2 2

Receiving 6 5 8 19

Repairs and Maintenance 9 32 65.5 106.5

Shipping 8 26.75 33.75 68.5

Sorting 2 21.5 20.5 44

Tattooing 5.5 8.5 14

Washing 15 32.5 47.5

Weighing 8.5 16.5 9 34

For us

• Recognize that it won’t be perfect the first time

• Develop your structure with everyone so that EVERYONE

• Understands how farm performance is measured

• Knows how to properly input data

• Sees the reason for all their data entry

• Sometimes it is better to start with less detail and focus on making sure

everything is filled out right

Lessons learned

For us

• That is why we still do whole farm – and for our farm, the operation is simple

enough that we can don’t need to split into multiple enterprises

• For enterprises that share inputs we allocate a % (tractors, labour etc.)

• Sometimes too much detail can deter you from doing the job

• For businesses looking to do multiple enterprises, our farm’s process can

easily be modified

Lessons learned

Currently we

do whole farm

Lessons learned

Finances

Cost of Goods Sold

Operating Expenses

Operating Overhead

Cost of Capital

Revenue

Interest

Income Statement

Y

Z

X

Y

Z

X

Y

Z

X

Y

Z

X

Y

Z

X

Could easily move to

enterprise by adding

another column in

spreadsheet

Lessons learned

Finances

Cost of Goods Sold

Operating Expenses

Operating Overhead

Cost of Capital

Revenue

Interest

Income Statement

Y

Z

X

Y

Z

X

Y

Z

X

Y

Z

X

Y

Z

X

Enterprise Budget

Could easily move to

enterprise by adding

another column in

spreadsheet

Lessons learned

Personal

? Date Expense Money Out

Money

In Enterprise

Location on Income

Statement Sublocation

b 01/02/2019 Hensall Co-op $10,000 Pigs COGS Feed

b 01/03/2019 Hensall Co-op $10,000 Crops COGS Seed

b 01/08/2019 Hensall Co-op $10,000 Trucking DOE Gasoline

Try to coordinate our efforts with accountant

• Took over Quickbooks data inputting from accountant in 2019

• Used accountants existing financial statement format for now

• For 2020, looking to modify Quickbooks format to the one in Excel sheet

• Hoping that I can export data from Quickbooks into Excel in a similar format to

how I was doing so that I can still do analysis

Moving Forward

• Good exercise for farm children to learn about business and add value to the farm

• Takes about ½ day each month

• 6 days per year (approx. 2.4% of time on 40 hr/week)

• We think it’s worth it

• Guides decision making and change

• I like Excel – very flexible

• many different programs available (HarvestProfit, etc.)

• CAP funding available:

• Business planning (35%, project cap is $10,000)

• Financial analysis (50%, project cap is $2,500)

Final Thoughts

FarmSmart Conference

January 18, 2020

Final Thoughts

Questions

Travis Jansen

AdvancedAG Consulting

[email protected]

519-525-0654

Getting Started on Our Farm’s Cost of Production · 2020-02-04 · 3. Input data Cost of...

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