Knowing how much it costs to produce your product is one of the most important pieces of information for a farmer, rancher, or agribusiness manager. The cost of production provides the foundation for calculating breakeven prices, which impact marketing plans and sales decisions. One effective tool for these calculations is the enterprise budget.
Enterprise budgets are detailed plans that estimate the costs of producing a specific agricultural product or service. An enterprise budget can be created for each crop, livestock, or service that a grower plans to produce during the year. Examples include corn, cotton, peanuts, feeder calves, hay, blueberries, tomatoes, cabbage, and many others. An enterprise budget is typically created on a per-acre, per-head, per-pound, or per-service basis. They are also created for one growing season or production cycle.
One of the first steps in creating an enterprise budget is to estimate costs. There are two types of costs, variable and fixed. Variable costs are use-related and will vary based on the level of production and the amount of input a grower plans to use. Variable costs can include seed, fertilizer, fuel, repairs & maintenance on machinery, labor, pesticides, or feed, depending upon the enterprise being evaluated. Fixed costs are time-based and do not change regardless of the production level. Fixed costs include land ownership costs, interest, depreciation on machinery and equipment, insurance, and taxes.
Once variable and fixed costs are estimated, a grower can calculate their breakeven price. The breakeven price is the price at which costs are covered, and profit is zero. Breakeven price equals total cost (variable + fixed costs) divided by expected yield, as shown in the equation below. The expected yield tends to come from historical data for that farm. Growers can also calculate a breakeven price that covers only their variable costs, the only difference being that you would use variable cost in the equation below instead of total cost..
Growers who estimate their breakeven price know the minimum price they need to get for their product to cover their costs. It is advised that growers lock in prices above breakeven as part of their marketing plan and sales decisions to give them a higher chance of making a profit.
The land-grant universities throughout our coverage area have enterprise budgets that can be used as a template for growers. These enterprise budgets are representative of the region where they were developed, and individual farm numbers will vary. Producers are highly encouraged to use the budgets as a template and adjust the numbers to reflect their production plans for the upcoming season. This will provide a more accurate estimate of their own cost of production and breakeven prices.
Smith, Amanda. “Estimating Cost of Production and Breakeven Prices with Enterprise Budgets.” Southern Ag Today 6(3.1). January 12, 2026. Permalink
