rodrod5 - 11/7/2012 01:31

I would go one step further and say you need to include the opportunity cost of "money" in general

that is the cost of the opportunity you are forgoing by owning land, equipment, buildings, and the like along with the invested money in production cost VS what you could earn if all that was sold off and you had it invested in something else safe like a bank FDIC insured CD

fortunately for farmers (and other business owners) today (unfortunately for retirees, and investors) that rate of return is next to nothing so it is not really that hard to calculate the cost......but with the black jimmy C getting another term perhaps we will get double digit interest rates matched with double digit inflation and massively declining crop prices and then the cost of having money in farming VS doing something else really will matter

if you can make 2% per year farming VS 12% for doing nothing but putting money in a CD you have to take a good hard look at that 10% opportunity cost of money that you are forgoing it is just simple business

now farming is generally a much longer term business than a bank CD or even fixed treasuries, but you still need to do the same thing when you go to buy a new tractor, build a bin or shop, or make some other type of investment in the operation

for the "farmers" on the forum that only look at "farming" it is the same as saying if I could make a 13% return on an investment of $100K by putting in tile VS a 3% return on an investment of $100K by buying a more efficient or larger (more acres per man hour) tractor or combine......does it really make sense to go ahead and buy the tractor just because you want new iron.....no of course not because you are losing a 10% return on that investment VS tiling (and then taking the additional return on investment from tile and maybe buying new iron unless of course some other investment in the operation affords a better rate of return)