Many agricultural operations fail to determine if they are making a profit. Some think that spending money to create taxable losses to offset non-farm income is a good idea.
This philosophy may be good if the expenditures produce increased future revenues (e.g., cow and bulls) or increased efficiencies (e.g., equipment); however, this philosophy is generally not good if the taxable losses are from activities where costs exceed future revenues. If an agricultural enterprise is making production decisions based on tax information, the operation may be compromised. Best management decisions do not always align with strategies to minimize taxes.
In today's economic climate, producers are constantly challenged to reduce production costs and optimize production/revenues to remain competitive. In lowering production costs or increasing revenues, each operation should calculate its own unit cost of production to have the information needed to make management decisions. In a time where input costs continue to be high, it is imperative for each operation to calculate its production and financial performance.
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