This economy has everyone taking a hard look at what they spend versus what they take in. Modern tobacco farmers are no different. They are constantly reviewing their input costs to see what they can trim from their expenses without sacrificing the quality of their product. Keeping a record of how every dime was spent can be a tedious chore, but a necessary one in order to determine whether or not your business is successful. The juggling act that is budgeting begins before a seed is planted in the ground and lasts well after the final bale is sold.
Crunch those numbers
So, where do you begin? Well, just as every farm operates a little bit differently, so does each farmer’s business plan. After determining your budget, good record-keeping is key.
A simplified budget process would go as follows: calculate budgets by taking the expected yield per acre multiplied by the number of acres to be planted. That number is then multiplied by the price you expect to receive, totaling up your anticipated gross receipts. From that point, subtract costs—both fixed and variable—to get net profit.
Realistically, a farming budget is much more complex for a number of different reasons, not the least of which is because your contract may not have been decided yet. The past few years, manufacturers have been somewhat hesitant to get contracts out early as they try to get a grasp on anticipated demand. Without contract information early in the year, it is more difficult for farmers to plan for their season.
Even when your contract is ready, predicting costs for the year is a tricky business. Fixed costs are typically the easiest to estimate. The money spent on equipment, buildings, irrigation systems and rent or land charges usually stays about the same each year. Variable expenses are more difficult to nail down; to help keep better track of them, growers usually separate variable expenses into two categories: preharvest and harvest operations.
Preharvest variable costs include but are not limited to:
• Tobacco transplants
• Cover crops
Harvest variable costs include but are not limited to:
When planning budgets, it’s important to note that input costs, such as chemical prices, tend to increase year to year. Experts believe input costs, especially the prices of fertilizer and fuel, will continue to rise in 2012.
The bottom line
Keeping an eye on your cost of production is essential for a farmer, as there’s no guarantee you’re going to make money off of tobacco. Once growers have a solid grasp on their expenses, they should look at the acres to be planted and the estimated total pounds that will be produced. To develop a breakeven price per pound, they then divide the costs by the total pounds.