You today
You have the papers, the notebook, the spreadsheet from Step 1. But if someone asks what it costs to produce your unit (a bushel, a hundredweight, a head), you cannot answer with any confidence. The record is there, still raw. What is missing is the work that turns notes into a number, and it is that number that separates deciding from guessing.
Why this step exists
Measuring is taking what you recorded and turning it into numbers you can compare. Without a measure, you cannot tell a bad year from a bad decision: the result came out weak, and you do not know whether it was the weather, the price, or a choice of yours. With a measure, the difference shows.
And there is a trap the measure reveals: judging by a single cycle is judging noise. On grain farms in Kansas, from 2005 to 2014, 76% did not hold a consistent price position against their neighbors over the years, and only 23% kept income above the average for the whole decade. One cycle, good or bad, says little on its own. It is the series of several cycles that starts to show a pattern, which is why measuring early, and always the same way, is what builds that series over time.
What to measure
Four numbers, and the first one pulls the rest:
- The cost per unit, by area. What you spent to produce each bushel, each hundredweight, each head, in each area of production (the field, or the lot). It is the most important number on the farm, and the one almost no one has.
- Labor and machinery by area. How much labor and how much machinery each area used, so you see where the cost concentrates.
- What each area produced. The output of each field or lot, to compare the areas against each other.
- The price you got, against the region. The average price you received in the cycle, next to the reference for your region in the same period.
How to: work out the cost per unit
The calculation is a division, and you already have both parts in the Step 1 record. Add up everything the area cost in the cycle and divide by that area’s output. The result is the cost per unit.
Do it in three layers, from the simplest to the most complete, because each answers a different question:
- The direct cost: only what you actually spent on that production (inputs, fuel, contracted services, the labor for that job). It answers “does today’s price cover what came out of my pocket to produce?”.
- Plus the structure: add machinery depreciation and the costs that serve the whole farm, prorated. It answers “does the price also cover the wear on what I already owned?”.
- The total cost: add your own draw and the cost of capital and land. It answers “is it worth more to produce, or to do something else with the land and the money?”.
Close the last cycle’s cost within 30 days of harvest or of the animals being finished, while the numbers are still fresh and the invoices at hand. Start with the unit (the bushel, the hundredweight, the head); the other numbers follow, from the same record.
Why keep at it
Two reasons to measure always, and on time. The first: the number loses value if you are late, because the detail fades and memory takes over again. The second: a single measure says little, and it is the series of cycles that teaches. Measure one cycle and stop, and you have a snapshot; measure every cycle, always the same way, and you build the full picture, and it is the full picture that shows whether a decision was good. Measuring becomes valuable in the second and third cycle, not the first.
Common mistakes, and how to avoid them
- Judging by one cycle. A single year says little. Measure always, to build the series.
- Forgetting your own labor. A cost without your draw gives a false impression: it looks like there is money left over, but you did not pay yourself. Include the draw in the total cost.
- Measuring only the farm total. The total hides the area that loses money inside the average. Measure by area.
- Leaving it for later. Thirty days on, much of the detail is already gone. Close it right after the cycle.
- Changing the way you calculate each year. If the method changes, the series does not compare. Fix the calculation and repeat it.
Where to start
Take the record of the last closed cycle and work out just one thing: the direct cost per unit for one area. Add up what the area cost, divide by its output. That first number, on its own, already changes how you look at the selling price. The others come afterward, one by one.
Done when
You know what your unit of production costs, by area, across the three layers; you know how much labor and machinery each area used; you know what each area produced; and you know the price you got against the region. In short: you can say, with a number, which areas and which activities pay their way and which do not.
What this step does not cover
Measuring shows the number; what to do with it belongs to the next steps. And chasing more output for its own sake, the technique that makes an area yield more, is production technique, not management: that stays with the agronomist or the vet. Here you learn to see the cost, not to raise the output.