what is your break even price for tomatoes cost with a wage rate of $10/hour ... wright, b. 2005....

What is Your Break Even Price for Tomatoes and Other Vegetables?

Corinne Alexander Associate Professor Purdue University

Michael Veldstra Research Associate Purdue University

Whole Farm Budget

Department of Agricultural Economics Purdue University

Purpose of Budget

•  Assess profitability of current or potential enterprises

•  Test new ideas and compare enterprises to identify best ones

•  Estimate future needs for inputs, facilities, storage, marketing


Budgeting

•  No One-size fits all

•  One piece of the picture

•  Different Practices

•  Different Costs

•  Different soil types

•  Many different variables affect break-even price

Budgeting

•  Many different examples of vegetable budgets

•  Know your own costs, not someone else’s

•  Separate costs for each vegetable as much as possible

•  How to allocate overhead?

Data you will need

•  Individual Crop Expenses

•  Production Records

•  Crop-specific expenses

•  Equipment & Building Costs

•  Investment Value

•  Amount allocated to each crop

•  Annual ownership cost

•  Labor Costs for each Crop

5 parts to a Vegetable Budget

1.  Gross Returns

2.  Variable Production Costs

3.  Fixed Production Costs

4.  Total Costs

5.  Summary of Returns

Gross Revenue

•  Gross Revenue=Price X Production

•  land unit(e.g. per acre, per 100 row ft.)

•  Production volume

•  Production by week vs. annual

•  Price records by market channel

•  a sales unit(e.g. per lb., per box)

•  Weekly vs. yearly average

Variable Production Costs

•  Seed, fertilizer, chemicals, etc.

•  Equipment, fuel & repairs

•  Hired labor

•  Interest on operating capital

•  May be helpful to separate pre-harvest and

harvest costs

•  Labor

•  Cash flow issues

Fixed Production Costs

•  Equipment Ownership

•  Building Ownership

•  Family Labor

•  Land

•  Management

Fixed Production Costs (Continued) Allocated to each crop •  For example, you have 6500 row feet per acre:

•  If your land rent is $200 per acre, the land cost is $3.07 per 100 row feet

•  Machinery cost is $500 per acre, or $7.69 per 100 row feet

•  Family labor cost is $750 per acre, or $11.54 per 100 row feet

•  If these are your only two ownership costs your total ownership cost would be $22.30 per 100 row feet

Break-Even Calculations

•  Break-Even Yield: At a given price, the yield needed to cover all costs

•  Break-Even Yield = Cost/Price

•  Break-Even Price: For a given yield, the price needed to cover all costs

•  Break-Even Price = Cost/Yield


Summary of Returns

•  Gross Revenue

•  Returns over variable costs

•  Gross revenue – variable costs

•  Net returns/Profit

•  Gross revenue – variable and fixed costs

Cost by Marketing Channel


http://www.extension.iastate.edu/agdm/wholefarm/html/

Farmers market: 20 weeks/40 markets

Wholesale: 20 weeks

Transportation $.25/mi, 3,200mi $800 $.25/mi, 1,600mi $400

Labor ($10/hr) 2 people @ 12hr/wk,

$4800 1 person @ 4hr/wk,

$800

Supplies (bags, sacks, other) $20/wk $400 $30/wk $600

Total costs for season $6000 $1800

Total costs allocated to tomatoes(20% of total sales)

$1,200 $360

Marketing costs/lb sold (760 lbs sold) $1.58 (800 lbs sold) $.45

Profit By Marketing Channel



Example 1 Farmers’ Market Wholesale

Expected selling price $3.00 $2.10

Total costs $1.96 $0.83

Estimated profit $1.04 $1.27

Estimated mark-up 53% 153%

Lbs. sold 760 lb. 800 lb.

Estimated Profit $790 $1,016

Profit By Marketing Channel



Example 2 Farmers’ Market Wholesale

Expected selling price $3.50 $1.50

Total costs $1.96 $0.83

Estimated profit $1.54 $.67

Estimated mark-up 79% 81%

Lbs. sold 760 lb. 800 lb.

Estimated Profit $1,170 $536

Tomato Budget Interviews

•  Size of operations ranged from 200 plants to 10,000 plants (almost 2 acres)

•  Marketing channels- On farm, wholesale, farmers market, CSA, restaurant •  Tomato price ranged from $1.50 to $3 per lb

•  Small sample size •  Each farm operated differently

•  Difficult to generalize



Production Variable Costs Min Max Average

Fertilizer $0.00 $5.06 $2.87

Plants $1.77 $10.00 $6.26

Herbicides $0.57

Insecticides $0.37 $2.83 $1.28

Fungicides $0.62 $3.54 $1.99

Twine $0.57 $1.60 $1.04

Plastic Mulch/Drip Lines $2.60 $4.00 $3.34

Irrigation $0.47 $7.14 $3.81

Variable Cost Estimates from Interviews Costs Per 100 row ft.


Harvest and Marketing Min Max Average

Plastic Disposal $1.50 $3.54 $2.71

Fuel and Lube $1.06 $1.49 $1.32

Marketing Costs $0.15 $8.00 $4.82

TotalVariableCosts $30.01

Hoop House

Initial Cost $98.00 $160.00 $135.38

Maintenance $11.80 $37.04 $18.71

•  Other costs include straw mulch, stakes (wooden or metal), fumigation, bees

Variable Cost Estimates from Interviews Costs Per 100 row ft.

Labor Estimates from InterviewsHours per 100 row ft.


Labor Min Max Average

Transplanting 0.13 0.17 0.16

Growing From Seed 4.29

Tying/Pruning 1.03 4.74 2.17

Weeding 0.09 1.03 0.52

Harvest/Packing/Washing 3.72 16.20 9.69

Paperwork 0.07 0.71 0.28

Other 0.25 2.48 1.17

Total 18.28

Veggie Compass

•  USDA and Ceres Trust: funded project to collect labor data

•  Erin Silva, John Hendrickson, Rebecca Claypool, Ashleigh Ardledge Keene at UW, plus Jim Munsch and David Baker

•  On-farm labor data collection: daily or weekly forms for major labor uses and crops


Source: Mitchell, Paul D. "Determining Your Profitability: Things to Consider and Tools to Help." University Of Wisconsin. 4 Oct. 2011

Veggie Compass


Field Growing Harvest

FG & Harvest % FG

% Harvest

Farm 1 433 204 637 68% 32%

Farm 2 1757 4537 6294 28% 72%

Farm 3 1031 2185 3216 32% 68%

Farm 5 299 208 507 59% 41%

Farm 6 701 188 889 79% 21%

Veggie Compass


Planted Area (100 row ft.)

Total Harvest & FG Hours

% of FG% of

Harvest

Summer Sq 3030 147 15% 85%

Winter Sq 3920 140 71% 29%

Spinach 800 66 24% 76%

Broccoli 150895 1138 27% 73%

Lettuce 27595 560 18% 82%

Potatoes 4200 256.5 45% 55%

Peppers 28163 365 26% 74%

Tomatoes 27950 1348 51% 49%

Carrots 1900 206 46% 54%

Beans 5600 255 40% 60%

Onions 3600 105 56% 44%

Garlic 5360 186 35% 65%

Wholesale prices per cwt (100 pounds)Chicago Terminal

Average weekly price 1/1/09 – 9/24/11 Crop Package Price Lbs/pkg$/100lbsCucumber:Kirby 11/9bu 27.03 50 54.06Cucumber:Kirby 11/9bu 24.55 50 49.10BellPeppers 11/9bu 17.05 29 58.79BellPeppers 11/9bu 17.05 29 58.79BellPeppers 11/9bu 17.36 29 59.86Tomatoes,VineRipe 15lbflts 14.72 15 98.13Tomatoes,MatureGreen 25lbcrtn 14.83 25 59.32

•  Cucumbers are about $55/cwt on average •  Bell peppers are about $60/cwt on average •  Tomatoes are about $60/cwt on average


Labor cost with a wage rate of $10/hour

•  Prices: Cucumbers $55, Peppers & Tomatoes $60 •  If these labor data are accurate, some of these farmers could make a profit and sell at wholesale prices

$/100lbs SummerSquash Peppers TomatoesFarm1 20.75 52.58Farm2 98.39 204.44 92.95Farm3 13.77 57.36 326.40Farm4 10.36 197.53 18.28Farm6 3.40 10.63 25.34Farm7 619.74 46.12 60.60


Lessons from Veggie Compass and Purdue Interviews

•  Lots of variation in labor use across farms

•  Lots of variation in cost of production & profitability

•  Veggie Compass data shows some growers could make a profit at wholesale prices, other growers need to sell at retail prices

•  Growers need to estimate their own costs of production including labor to get an accurate estimate

Sources Chase, C. 2008. Pricing for profit. Iowa State University Extension, Ames.

Chase, C. 2009. Developing Enterprise Budgets for Organic Crops. Iowa State University Extension, Ames

Mitchell, Paul D. "Determining Your Profitability: Things to Consider and Tools to Help." University Of Wisconsin. 4 Oct. 2011

Mitchell, Paul D. "Enterprise Budgeting." University Of Wisconsin. . Web. 20 Dec. 2011

Wright, B. 2005. Crop Budgets for Direct Marketers(A3811-9). UW-Extension.

Cost Estimates from InterviewsCosts Per Acre


Production Variable Costs Min Max Average

Fertilizer $0.00 $354.34 $200.58

Plants $123.89 $700.00 $438.05

Herbicides $40.00

Insecticides $26.01 $198.23 $89.63

Fungicides $43.34 $247.79 $139.00

Twine $40.00 $112.00 $72.50

Plastic Mulch/Drip Lines $182.04 $280.00 $233.76

Irrigation $33.00 $500.00 $266.50

Cost Estimates from InterviewsCosts Per Acre


Harvest and Marketing Plastic Disposal $105.00 $247.79 $189.84

Fuel and Lube $74.34 $104.02 $92.49

Marketing Costs $10.25 $560.00 $337.45

Total $2100.70

Hoop House

Initial Cost $6,860.00$11,200.00$9,476.79

Maintenance $826.00 $2,592.59 $1,309.65

Labor Estimates from InterviewsHours per Acre


Labor Min Max Average

Transplanting 9.00 0.17 10.90

Growing From Seed 300.00

Tying/Pruning 72.00 332.00 151.73

Weeding 6.07 72.00 36.41

Harvest/Packing/Washing 260.06 1134.00 678.05

Paperwork 5.00 49.56 19.94

Other 17.34 173.45 81.70

Total 1278.73

what is your break even price for tomatoes cost with a wage rate of $10/hour ... wright, b. 2005....

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