Are you clear on your cost of production?
3-MINUTE READ
With rising input costs and continued pressure on grain prices, knowing your numbers has never been more important. The key to long-term profitability isn’t just chasing the best price on the day – it’s understanding the breakeven price for each crop you grow.
AHDB recently projected that, after two years of easing, cost of production is set to climb again for harvest 2026, driven largely by rising fertiliser prices. Meanwhile, the lack of “right-to-repair” protections in UK farming continues to prop up tractor maintenance costs.
All of which means that understanding your own cost base is critical if you want to stay in control of your margins.
What to include
A true cost of production (COP) calculation needs to cover both fixed and variable costs.
Variable costs are the direct costs of planting and producing each crop, divided by hectare planted. These typically include seed, fertiliser, sprays, drying and storage, agronomy and fuel. The more detail you can build in, the better. If you hire labour, include that, but you might also want to include the cost of your own labour.
There may be savings to be made by purchasing inputs such as fertiliser early, but make sure to add in the cost of storage until you need them.
Fixed costs are the underlying costs of running your farm business, regardless of which crops you grow. These include machinery (including new purchases, repairs and depreciation), rent and any applicable taxes or financing costs.
Spread these fixed costs between your crops, divided by hectare planted, to help you find a more accurate breakeven figure for each crop. Any underestimation here could risk overstating your profitability.
By adding your fixed and variable costs together, you’ll have a clear picture of your COP for each crop per hectare.
Example costs per hectare (fixed and variable) included in total cost of production for Group 1 wheat
Making projections
Once you know your overall cost per hectare, you can calculate breakeven prices for different yield scenarios. For each crop, divide your total cost of production by your estimated yield per hectare, and you’ll have a breakeven price per tonne.
A simple spreadsheet can help you test a range of outcomes:
Using last harvest’s yield as a baseline
Projecting based on the five-year average yield
Running “what if” scenarios based on historic high and low yields
This allows you to see how sensitive your breakeven is to yield variation. For example, a 1t/ha difference on wheat could shift your breakeven price by £20/t to £30/t.
Example breakeven prices for Group 1 wheat based on different yield scenarios
Using your COP throughout the year
Working out your cost of production isn’t a one-off exercise. The earlier you calculate it, the more useful it will be through the complete harvest cycle.
If you know your potential COP per crop before drilling, it can guide your cropping choices and rotation planning. Based on historic yields, you can plan your planting for maximum profitability.
Your projected breakeven prices also give you a sound basis for forward-selling. You can compare forward prices against your projected breakeven to decide when and how much to sell, even before your seed is in the ground.
Remember, a profitable trade is never a bad trade. And the earlier you lock in profit, the more you manage your longer-term risk.
It’s important to recalculate your COP for each crop once your actual yields are known at harvest, to refine your marketing plan for the rest of the year.
Updating as conditions change ensures you’re always working with the most accurate data.
Confident, informed selling
Being clear on your cost of production keeps your focus on profitability, not just price, and helps you take control of your marketing decisions.
When you know your COP, you can see when a market price is genuinely profitable for your business. It also stops you from holding out too long for unrealistic price highs, enabling confident forward-selling throughout the season.
This shift – from chasing peaks to locking in sustainable profits – helps build resilience year after year, learning from each harvest and strengthening your position for the next.
Need any help getting started with Hectare Trading? Contact our team today and we’ll show you how to access free market insights and post your first listings.
This article is for general information only and is not an instruction to trade. While we make every effort to ensure the accuracy of the content at the time of publication, Hectare Trading makes no guarantee regarding the data provided.