Use of Cost-of-Production Data 



The table shows U.S. corn production costs from USDA's 

 1985 annual COP report. All receipts, costs, and returns 

 have already been defined and explained. Although costs 

 and returns in USDA's budgets are on a per-acre, per-cwt, 

 or per-head basis, per-bushel or per-pound estimates can 

 also be quite important for farm management or planning 

 and for agricultural poUcy and program decisionmaking. 

 One can derive per-unit crop costs and returns by dividing 

 each item's cost by the yields given with each budget or by 

 trend yields determined elsewhere. 



Each budget has four cost indicators and three return 

 indicators. These indicators can be used for many 

 purposes, so correct selection of the proper cost or return 

 depends entirely on the user's objectives. 



Cost Indicators 



Economic costs excluding land reflect all cash expenses 

 (less cash interest), capital replacement, and allocated 

 returns to labor, operating capital, and nonland capital. 

 These costs indicate average longer run costs that must be 

 somehow covered to keep an acre of land in production 

 before payment of land rent, whether to the owner- 

 operator or to the landholder. 



Economic costs including land reflect total economic costs, 

 including an estimated rent to the landowner. This 

 measure, for which all longrun costs appear in the budget, 

 indicates the breakeven longrun average price necessary to 

 continue producing a crop. For example, the economic 

 costs including land for producing corn ranged from 

 $265.43 to $294.59 during 1983-85, or a 3-year average of 

 $2.86 per bushel. 



Return Indicators 



Cash expenses reflect the shortrun out-of-pocket variable 

 and fixed costs incurred and, if converted to a per-bushel 

 or per-unit cost, the minimum breakeven price needed on 

 an average acre of cropland to raise and harvest a crop 

 with a given yield. For example, when actual yields were 

 used, corn cash expense per bushel ranged from $1.75 to 

 $2.54 during 1983-85, with an average per-bushel cash 

 expense of $2.09. 



Cash expense with replacement includes the addition of 

 capital replacement expenses and the dollars needed to 

 replace the machinery and equipment used up during the 

 production process, plus all cash expenses. To maintain 

 the physical production plant over time, timely 

 replacement of the capital stock is necessary. 



Net cash returns (receipts less cash expenses) are 

 estimated by subtracting total cash expenses from total 

 cash receipts. 



Net cash returns after replacement (receipts less cash 

 expenses and replacement) reflect cash available for pay- 

 ing the farmer's owned inputs after all cash costs are paid. 



Residual returns to management and risk are the longrun 

 economic indicators used to compare commodities and to 

 assess relative returns among commodities. 



The net returns, whether on a shortrun cash basis or a 

 longrun economic basis, are the principal indicators of the 

 firm's well being. 



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