Experts Offer Insight into Cost Assessment for Farmers

Reviewing Variable and Fixed Costs to Make Accurate Assessments and Projections

by MARY TOOTHMAN

As is true for all businesses, farmers can benefit from keen awareness of expenses and
income— and by planning the next year’s financials well.
Economists from the University of Georgia’s College of Agricultural and Environmental
Sciences recommend that Georgia farmers understand production costs prior to planting next
year’s crops.
Amanda Smith, a UGA Cooperative Extension economist, says prices have gone up for
diesel, some chemicals, and land rent, while seed and fertilizer continue to be significant
expenses of growing crops.
Farmers need to be diligent with record-keeping, she says. And it’s important for them to
know how increased production costs, plus low commodity prices, impact their bottom line.
“It’s good business practice to be on top of your numbers and ask, ‘Am I losing money with this
crop? Can I afford to pay land rent on these acres?’” Smith says. “If you can’t afford it, you
may need to step away and look for an alternative.”
Jeff Cook, University of Georgia Cooperative Extension County coordinator in Taylor
and Peach counties, offered some perspective specifically for peach growers. Because last
season was so bleak for peach growers, a big change will be felt financially as a result of this
season’s greatly improved circumstances. “This year, we should have a normal crop,” he says.
“We are on track. We hope to have a really good year.”
Last year’s weather was problematic for Georgia peach growers. “We have to have
around 1,000 chill hours (when it’s under 45 degrees) during the winter months, from October to
February,” he says. Last season, the number of so-called “chill hours” had only reached 500 by
mid-February. Things are looking up this season. “Now, we already have almost 900 hours.”
When peach-growing season goes well, and there are more peaches than usual, it’s not a
problem, Cook points out. “Having a lot of peaches doesn’t hurt you,” he says. “I don’t think
anybody ever said we had too many peaches.”
Although Georgia is called the Peach State, it is not the country’s leading producer of
peaches. Still, Georgia produces over 130 million pounds of peaches each year and UGA
Extension provides both farmers and home gardeners a variety of information to help have the
best output with the least amount of labor possible. Georgia has two commercial peach-growing
regions. The central region is the largest, with about 1.6 million peach trees and 75 percent of
the state’s production. The southern region produces about 30 million pounds of peaches
annually.
Production costs for farmers are divided into two categories: variable and fixed costs.
Variable costs consist of seed, fertilizer, chemicals, labor, land rent, fuel, repairs, and
maintenance. Fixed costs refer to the cost of owning machinery, equipment, irrigation, and
buildings. These ownership costs include depreciation, housing, insurance, and taxes.

When making year-to- year planting decisions, growers need to look at the returns above
their variable costs, according to Smith. In the long run, farmers also need to cover those fixed
ownership costs.
A major variable cost for some farmers is land rent. Last growing season, the average
land rent for irrigated cropland in south Georgia was $206.25 per acre, according to the United
States Department of Agriculture National Agricultural Statistics Service (USDA-NASS). This
marked an increase from the $202 average that landowners charged in 2016. For non-irrigated
cropland, rent was $80.50 per acre in south Georgia, higher than the 2016 average of $76.25.
Peach farmers, Cook says, can benefit by being aware of such cost fluctuations as diesel
prices. “In this economy, the biggest thing is watching for ways to cut costs. When they see that
diesel is going up, buying several months’ worth ahead can save money,” he points out.
Sometimes the cost-cutting comes from more unfortunate areas— such as savings on
fertilizer when the weather resulted in no crops.
One variable cost that Smith says may vary from farmer-to-farmer is repairs and
maintenance. She allotted $54 per acre for repairs and maintenance in peanuts. But producers
who operate older equipment may be faced with higher repair bills if they’re unable to replace
old tractors and implements.
Despite variances in categories and differences between types of crops, all farmers can
improve projections— and reduce the possibility of unpleasant surprises— by keeping careful
records and making projections.
UGA agricultural economists urge farmers to check out the enterprise budgets, available
online at agecon.uga.edu/extension/budgets, and adjust the cost estimates to reflect their
production practices and what they anticipate for yield.