Old MacDonald was a business man on the farm, and used math.
Farming isn’t all about growing plants, and raising animals. It’s a business with all of the math that is associated with running a business. Because it is a farm, not only are you using business math concepts, but there are other concepts involved in the operation of the farm to be successful. And being a successful farmer is difficult these days, so being good at math is definitely an advantage to running a profitable farm operation.
There are so many aspects of farming that require math skills that I’m going to concentrate on one aspect per post. This blog post is about the business math associated with farming.
Farming involves equipment, buildings, and inventory. I say inventory as a business term, but in farming this would be the cattle and crops that are being raised and grown to sell. The equipment is used to maintain and cultivate the inventory, and the buildings are for storage and protection of inventory and equipment. A farmer always needs to be mindful of the concept of ROI (Return On Investment). For every dollar that a farmer spends, how is that going to help make money?
The ROI concept is important to a farmer on the large expenditures and the small expenditures. Keeping track of costs on small costs like feed, pesticide, herbicide, vet costs and fuel can add up. However, if it offers a long-term benefit that outweighs the cost, it would be worth the expense. For example, many times a farmer has a choice between a low-quality, cheaper feed for cattle versus a higher-quality, more expensive feed. If the more expensive feed will allow the farmer to raise higher quality cattle and can receive more money for the cattle at market, it may be worth the expense of using the higher-quality feed. It all depends on the total cost of the feed and the amount of extra revenue the farmer can get for the cattle at market.
On the bigger level, equipment and buildings can be very expensive. It is fairly common for a tractor or combine to cost as much as a house. That’s why a farmer will weigh out the cost of the machine with how much increased productivity the farmer will receive from using the machine. The cost of the machine isn’t limited to the up front cost. There are also costs for maintenance, fuel and the loan on the machine that can hit on the farmer’s bottom line. Buildings also fall into a similar issue, they require maintenance and may have a loan as well.
Keeping a vigilant eye on ROI is a constant part of life for a farmer. It isn’t just a job, it’s a lifestyle. It involves very hard, laborious work, and a savvy business sense. Watching markets, costs, prices, and trends are a daily ritual for a successful farmer.
For more on some of the math discussed in this post, try some of these online calculators: