Calculate the minimum yield or price needed to cover all costs. Know your break-even point before planting or selling.
A wheat grower has total costs of $800/ha. Expected yield is 3.5 t/ha at $300/t.
With a 24% margin of safety, this crop is financially sound. If yield drops below 2.67 t/ha or price below $229/t, the crop loses money.
Break-even yield = Total Costs ÷ Expected Price per unit. For example: $800/ha costs ÷ $300/t price = 2.67 t/ha needed to break even.
A margin of safety above 20% is healthy. Below 10% indicates high risk from yield or price fluctuations.
Both. Break-even yield is your production target. Break-even price tells you the minimum market price needed. Use both for complete risk assessment.
Include all variable costs (seed, fertiliser, chemicals, fuel, casual labour) plus allocated fixed costs (land, machinery depreciation, insurance, rates).