CHAPTER XIV DETERMINING THE COST OF PRODUCING FARM PRODUCTS 122. Cost of Production Studies. Farmers have long been interested in learning which crops can most profitably be grown. Few farmers keep sufficiently accurate records of their farm business to determine the facts. A few agricultural experiment stations prior to 1890 had attempted to learn the profits from growing certain crops. The investigations were limited in scope, however, and the data secured were so inadequate as to be of little value. The first comprehensive study of the cost of producing farm products was begun by the Minnesota agricultural experiment station in cooperation with the Bureau of Statistics of the United States Department of Agriculture in 1892. These studies have continued without serious interruption until the present time and have given much information of value in determining the cost of farm products. The disturbance of economic conditions by the world war stimulated greatly the demand for information about the cost of production. As a result investigations of the cost of producing farm products have been undertaken by many other agricultural experiment stations and the work of the United States Department of Agriculture along this line has been greatly enlarged. Data covering the costs of producing the most common crops and live stock products are rapidly becoming available. 123. The Purpose of Cost of Production Studies. Many erroneous views are held regarding the purpose and value of cost of production studies. Such studies do not give a basis for price fixing. Neither do they insure a profitable price to all growers of a commodity because costs vary greatly even on farms in the same community. An average cost figure seldom serves as a satisfactory price basis for all producers. Cost figures are of value, however, to (1) the individual farmer, and (2) to the public. They are useful to the individual (1) To record the details of the farm business for (2) To furnish information that will enable him to (3) To provide information to farm operators who (4) To make possible a comparison of relative To the public cost of production data are of value in providing the facts which give a basis for intelligent judgment upon the probable effects of any proposed legislation or public activity, upon the farmer as a producer and as a citizen; also as one of the means of providing basic facts needed by legislators in comparing the profits of competing lines of production and in estimating necessary prices. 124. Farmers Must Choose Paying Crops and Products. The farmer deals with many different crops and with different classes of live stock. From the live stock he has various forms of products to sell. It is important that he be able to calculate or estimate closely what it has cost to produce the crops or to make the live stock products. The profits he can make from his farm as a whole, depend upon the size of the margin between the cost of production and the selling price of the products or crops he has to put on the market. Often one crop will be produced at a loss, or some live stock product must be sold below cost for a short time. This can usually be done without seriously interrupting the farm business, but the farmer should select crops and stock that in a given locality will for an average term of years, sell for more than it costs to produce and market them. That is the only possible chance of making the farm pay. In order that crops or products may be produced at the lowest possible cost, it is important that those be selected that fit well together, thus distributing the labor throughout the year. This allows the farmer to use more of his own labor and that of his family, and reduces the amount of necessary equipment to the minimum. The saving in hired labor and equipment reduces the cost per unit of production and increases the profit from the farm. The difference between the cost of production and the gross value of the products of the farm indicates the correctness of the farmer's methods. A study of methods of determining the cost of farm products will help in understanding the business problems of the farm and in learning which enterprises pay best. Land 125. The Factors of Cost of Producing Crops. In growing crops there are several factors which enter into the cost. must be used, buildings are needed to protect equipment and store the product. Both man and horse labor must be employed; machinery will be needed, and there is more or less general expense to meet. With a knowledge of local values it is possible to determine quite accurately the costs arising from each of these factors in a given locality. The method of calculating the cost is discussed in the following paragraphs using the product of an acre as a basis. 126. Cost of Land and Buildings. To determine the cost for land and buildings, calculate the interest on a fair valuation at the local rate. Divide the total amount of interest by the number of acres in the farm or field to get the rate per acre for the crop under consideration. If the land is leased on a cash basis the rental rate per acre is equivalent to the interest charge. To the interest charge add the due proportion of taxes and insurance, and such other items of general expense as may be incurred. A depreciation charge on the buildings should also be included. This will vary in different regions but should run from 3 per cent to 5 per cent on the value of the buildings. This amount distributed over the acres in the farm will give the depreciation charges per acre. The sum of the charges for interest on land, taxes, insurance, and depreciation will give the total cost per acre for land and buildings. 127. Cost of Man Labor. To determine the rate of man labor it is necessary to learn the value of labor for the year. This includes (1) cash value for labor hired or performed by the farmer and his family, (2) the cost of board for hired labor, and (3) perquisites if any are allowed, such as keep of a horse as is the custom in some places. A record should be kept or a close estimate of the total number of hours of labor performed for the year. The total cost for labor divided by the total number of hours of labor will give the rate per hour. Then by recording or estimating the number of hours required per acre in growing the crop, the cost per acre for man labor may be calculated. 128. Cost of Horse Labor. To determine the cost of horse labor per acre it is necessary to learn the total expense for horse labor for the year. This will include (1) interest on the value of horses for work purposes; (2) depreciation, which in the cases of young horses may be offset by the appreciation in growth; (3) interest on harness equipment and depreciation on harness; (4) shoeing; (5) feed; (6) labor in caring for, and (7) general expense, as for medicines, veterinary attendance or other similar charges. As in determining the cost per acre of man labor, it is necessary to record or estimate the total number of hours of labor performed by the work horses. The total cost for labor divided by the total number of hours of labor will give the rate per hour. Table VIII gives the rate per hour for horse labor in Minnesota for the years 1904-1907. NOTE.-Where an estimate must be made it will be best to make it by operations performed on the crop. For instance, to plow a 20-acre field will require 100 hours of man labor. To harrow the field would require 10 hours. To sow a crop of oats would require 15 hours. To harvest it would require 36 hours. To stack it would require 40 hours, and to thresh it would require 60 hours. The farmer who actually plows the land and handles the land will be able to make a very close estimate if he gives careful thought to the matter. *From Bulletin No. 117, Minnesota Experiment Station. **From Bulletin No. 179, Minnesota Experiment Station. |