Cost of Production

Agricultural producers consider different types of production costs over the short-term and long-term. In the short term, producers pay close attention to operating costs - these include the costs for items used in the production process, such as seed, fertilizer, pesticides, fuel, feed, veterinary and medicine, and hired labor Over the long term, producers must consider other costs of production as well. Asset ownership costs include the annualized cost of maintaining the capital investment (depreciation and interest) in machinery, equipment, and facilities, and costs for property taxes and insurance. Not included in operating and ownership costs are the opportunity costs for other resources, such as the farmer’s labor and land.

For example, the time spent by a farmer in the production of a commodity could have been spent producing other commodities or working at an off-farm job. Land has a cost equal to its rental rate, whether the land is actually rented or owned by the farmer. Costs for these resources may affect the business decisions made by some farmers, but some farmers are willing to accept a return to these resources that is less than their opportunity cost in order to remain in farming.