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Know the Cost of Your Pickles

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Written by Brent Thielges, LaMoure Location President. Original story appeared in The Bargain Network, an addition to the LaMoure Chronicle. 

As a banker at Choice Financial, I am privileged to work with the greatest group of people in the world – the farmers who work hard to feed the rest of us. It is very rewarding to partner with our producers on their path to success. One of the most important tools for both the farmer and banker is to have a plan.  A roadmap.  Yet, a plan can be one of the most challenging things to put to paper. After all, none of us have that elusive crystal ball. How is anyone supposed to know what the price of corn will be next fall? What’s the weather going to be like? While we aren’t going to predict exactly how the coming year will play out, having a plan – a roadmap – will at least keep us going in the right direction.

“To understand if you are truly making money, you need to know your cost of pickles and napkins.” 

Years ago, when I was new in the lending business, I had the opportunity to work with a young couple who was pursuing their dream of starting their own business – a bar and grill.  As I sat in a meeting with these new entrepreneurs and a small business professional they relied on for advice, the professional offered a piece of guidance that really stood out to me.  “To understand if you are truly making money, you need to know your cost of pickles and napkins.”  This seemed like odd advice. But the more I thought about it, the more it made sense – sure, everyone in the hamburger business thinks they know their input costs – the beef patty, the bun, maybe some cheese or bacon, maybe both.  But how many consider a cost as seemingly insignificant as pickles? What about ketchup, mustard, onions, mayo?  You get the idea.  Then he continued.  “What about napkins?”  Huh?  Never thought of that before.  Suddenly you realize there are more costs to consider than just beef and a bun.

No, we don’t know what the cash price of corn will be next fall, but if we know what our breakeven price is, then we have a better idea of where our marketing targets should be. 

Many experts will say knowing your true cost of production is the foundation of creating a helpful roadmap.  I agree.  No, we don’t know what the cash price of corn will be next fall, but if we know what our breakeven price is, then we have a better idea of where our marketing targets should be.  Beyond the seed, chemical, fertilizer and other direct input costs, what about living expenses, health insurance, equipment payments, or college tuition?  What about all those smaller things that we don’t think add up to much of anything?  This is where the pickles and napkins come into play. If all of these things are considered and you find out your breakeven price of corn is $3.15 a bushel, then it makes it easier to make that sale at $3.25, even though it seems like a shame to not get at least $4.00 like we did a few short years ago. You find out that your marketing price target should be relative to your breakeven price rather than compared to historical market prices. This is especially true in more difficult times. As they say – it’s nice to hit a home run every once in a while, but it’s the singles and doubles that consistently win ballgames.

—Brent Thielges, LaMoure Location President