Costs and returns project

• Congress decreed that USDA conduct cost of production (COP) studies for selected commodities

• National survey for 15 commodities annually since 1975

• Based on a rotation done every 3-8 years• Estimates between surveys are based on

updates of price, acreage and production changes

COP includes all costs

• Includes estimates of cash expenditures and noncash costs.

• Cash expenditures occur when factors of production are purchased or rented.

• Noncash costs occur when factors are owned by the operator (like land and labor)

• Costs are assigned to family labor as if the labor was hired

Complete data on the commodity are collected

• Production practices

• Acreage and production

• Production costs associated with commodity

• Overhead costs (taxes, interest, insurance, utilities, and other costs not associated specifically with the commodity)

Types of costs (more)

• Operating costs– Seed, feed (and pasture), fertilizer and

chemicals– Custom operations purchased– Other inputs such as fuel, water, utilities, vet

and medicine, bedding and litter– Repairs– Interest on operating inputs

Types of costs (more)

• Allocated costs– Hired labor– Cost of unpaid labor– Use of machinery and equipment (capital

recovery)– Cost of land (rent or opportunity cost)– Taxes and insurance– General farm overhead

Not all costs are easily obtained

• Farmers generally know the direct costs of inputs such as fertilizer or seed, or the cost of buying feed for the animals

• Some products are valued by the quantity used times an average price

• For costs like use of machinery, we use indirect costs based on engineering relationships

• For whole farm activities (like overhead) we allocate a portion of the whole cost to the commodity

How returns are valued

• Gross value of crop production is calculated by multiplying yields by crop prices

• Gross value of livestock production is the cash receipts received from the sales of animals, eggs, and milk.

• We put a value on secondary products such as wheat and oat straw, cottonseed, cull animals, and manure using other survey data, state-average prices, or actual cash receipts.

These costs and returns information are used to

• Examine the factors contributing to differing levels of financial performance– Analyze trends in farm sector receipts, expenses, debt, assets,

and costs of producing crops and livestock – Degree to which costs vary for producers of different

commodities and indicate possible reasons for the variation

• Analyze structural change

• Determine how benefits from government commodity programs affect farm’s cost structure

COP forecasts

• Cost-of-production forecasts for major field crops are developed as a part of the USDA Baseline projections to develop projected net returns for major field crops.

• These baseline projections allow a discussion of alternative outcomes for the agricultural sector under expected or proposed future policies.

• Cost-of-production is only forecast at the national level and would differ considerably among regions, individual farmers, and by size of operation.