Fixed farm expenses play an important but often overlooked role in crop budgets and producer returns. A look at Purdue University crop budgets from 1990 to 2014 found that, on average, variable expenses accounted for 40% of total budgeted expenses while fixed expenses (family labor, land, and machinery) accounted for 60%.
Lowering costs of production are a critical step for managing in the current environment of low commodity prices and tight-margins. Fixed expenses, as we noted last year, have been slow to adjust. This week’s post takes an updated look at fixed expenses. Continue reading →
As we’ve pointed out in previous posts (most notably here), a return to profitability for producers in light of lower commodity prices will require a combination of three scenarios: 1) variable costs moderate through eventual reduction in farmer demand for inputs 2) fixed costs decline through reduction in fixed asset demand and values, and/or 3) output prices may improve. About a year ago we noted that fixed expenses were still increasing, but at much slower rate. This week we take an updated look at fixed expenses to evaluate if producers have adjusted their cost structure lower. Continue reading →