Breakeven on Unpriced Commodity

It may not be too hard to get the breakevens on your commodities when you haven't priced any of your projected production, but lets say you've priced 2000 bushels at the local co-op, you've hedged 5000 on the futures market, and have placed a put on another 5000 bushels. What's your breakeven on the commodity that you haven't sold? How many bushels do you still have to sell?

Priced vs Sold

First of all, let's use the terminology of priced instead of sold. If the bushels are hedged or if a put is put in place, the bushels aren't actually sold, but a price has basically been established for those bushels.

Projected Income

We're going to assume that you've got some data calculated on your cost of production. If you don't, you might be better of reading the article on calculating your cost of production.

If your expenses are summed, added, calculated, listed, and aggregated, the next step is to work on the income. Take the total number of bushels that are yours. For a cash rent situation, this is the total production. On a crop share rental agreement, it's going to be your share of the bushels.

Now subtract the number of bushels that are priced from the total production that you are planning to have. That's the amount of bushels you have left to price. Second, take the expenses and subtract from them the amount of projected income that you are going to get from the bushels that you have already priced. Okay, you have two numbers now. The amount of uncovered expenses, and the unpriced bushels. Divide the uncovered expenses by the unpriced bushels and you'll have your cost of production on unsold commodity.

Was that fun? Did you enjoy it? Are you still going to enjoy it as fertilizer prices move up and up? What about when you can't get the chemicals that you were planning to buy? Are you willing to do the math again when it looks like some of your fields aren't going to yield what you expected them to?

A better way

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