Module 3: Target Price and Breakeven
Your Farm is Your Company
Crop and livestock production is big business.
Producer goals:
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Maximize revenue: Generating a profit
Control expenses: Keeping costs down
Sustaining and often expanding the business
Providing the means for a comfortable lifestyle for family and employees
Producing quality crops and livestock
What is a Target Price?
The price a producer would like to sell a commodity.
Price includes the cost of producing the commodity and the
profit.
How does a producer determine the target price?
How to Determine Target Price
• The producer must determine the total cost of production for a crop
year in order to create a breakeven.
The Farm Risk Management Tool helps the producer to identify and
calculate these expenses.
Cost + Profit = Target Price
Breakeven
Breakeven is the price at which the producer
has no profit or loss. At breakeven, sales
cover the cost to grow or raise the
commodity.
How is breakeven determined?
Understanding Breakeven for Crops
Step 1
• Determine the total units to sell.
• (total acres x anticipated yield)
Units
Breakeven
Step 2
Step 3
• Estimate total expenses for crop year.
Expenses
• Divide the total units by the total expenses
to find the breakeven price per unit.
Understanding Breakeven for Livestock
Step 1
Step 2
Step 3
• Determine the total units to sell.
• (total head x anticipated lbs per head)
Units
Breakeven
• Estimate total expenses for production
year.
Expenses
• Divide the total units by the total expenses
to find the breakeven price per unit.
Setting a Target Price
Determining breakeven allows the producer to see the true
cost of production and to set a realistic target price.