Make a Wet Harvest Productive with Updates to Your Financials

By Bob Campbell, senior vice president

With grain harvest temporarily on hold due to rain in many parts of our territory, now is a great time to update your 2018 cost of production calculations and potential break-even prices based on anticipated yields.

Why is this important? We anticipate that most grain producers will store their 2018 grain and look for marketing opportunities in 2019. Understanding your cost of production on those bushels will give you an informed marketing target.

If you borrowed against your 2018 bushels, you will want to share with your lender both your updated cost of production and marketing plan, including the timing and amount of your planned sales. This conversation will allow your lender to help you identify the appropriate debt structure for your marketing plan and your 2019 production year.

Use your office time to also consider the cumulative impact the past few years has had on your operation. Ask yourself these key questions:

  • Do I have adequate liquidity? This is the working capital you have available to meet short-term financial obligations. While always an important indicator of your risk-bearing ability, working capital is especially critical in times of volatility. Frontier Farm Credit recommends, in general, that grain producers have working capital of at least $200 per acre farmed.
  • Has my overall debt load increased due to losses? If so, it is important to understand how this increased debt is impacting your fixed costs.
  • Do I need to adjust my operation to be cost competitive?

Armed with these answers, you can start putting together your business plan for the coming year. Based on anticipated markets, what are your initial thoughts about your crop rotation?  What would your initial cashflow projection look like based on your planting intentions?  How does the projected cost of production align with the markets?

I invite you to contact your local Frontier Farm Credit financial officer to discuss these and any other questions you might have as you assess your financial position.


Positioning for Financial Success

Every farmer or rancher defines success differently. But every successful farmer or rancher shares key management and financial practices. Frontier Farm Credit has been providing opportunities for customers to learn about important best management practices through meetings, conferences, and other resources. Here are some practices that come recommended by Dr. David Kohl, an ag economist specializing in business management, as he has visited with groups during these events.

Strive to be 5 percent better: The best producers are only 5 percent better than average. Ask yourself: What are three ways I can become better in my production, marketing, cost management and risk management? Talk to your lender and advisory team to identify changes that can make your operation better in the coming year. There is no silver bullet. It takes small, executable improvements, year after year, to keep your operation moving forward.

Know your cost of production: Profitable farmers know their cost of production on a per-unit basis – and apply this knowledge to their daily decisions. Arriving at an accurate cost of production requires good financial records, which benefits producers in many other areas.

Have a sound financial system: Link your financial records to a financial dashboard that allows you to monitor and manage your operation on a regular basis. Monitor your financial performance at least every couple of weeks. Put a time on the calendar to update financials and plan for the future at least once per year. Look for warning signs and trends to make the adjustments necessary to keep your operation moving in the direction you desire.

Conduct an accrual analysis to gauge profitability: Embrace accrual accounting. It will give you an accurate accounting of your earnings. Managing financials only on the Schedule F will postpone issues in your operation – and your ability to identify and make necessary changes — by two to three years.

Make working capital work for your operation: A secondary line of defense when profits suffer, working capital is critical for a number of reason, including marketing flexibility, investing in capital expenditures at optimal times and risk management.

As a general rule, Frontier Farm Credit looks for working capital of $200 an acre for a typical corn or soybean rotation, although that number can differ depending on the area and intensity of production. Cattle and hog feeding operations, in general, should aim for working capital of at least 25 to 30 percent of livestock value.

Your local Frontier Farm Credit financial officer can discuss each of these strategies in greater depth. Call today to learn more and position your operation for success.