By: Sara Schafer, Editor
Previously published by AgWeb
Harvest marks the end of one season and the beginning of another. After you park the combine for the year, you should head to the office to grade your financial success and start planning for the next crop cycle.
“Just as the combine gives you absolute production yield, an office-centric mind will give you absolute profitability yield,” says Chris Barron, director of operations and president of Carson and Barron Farms in Rowley, Iowa. “Once harvest ends, take time to understand your production cost.”
Use this time to rest your body and mind and then start planning for a profitable 2019.
“Now you have the time to look at the numbers,” says Ashley Arrington, founder of ag consulting firm Agri Authority and a 10-year veteran of ag banking. “What was this year like? What will next year be like? If you start thinking on these items before beginning next year’s crop cycle, you will be better positioned for a more successful and less stressful year.”
With continued financial stress for many farmers, now is the time to be proactive. Ask yourself the following questions, Arrington and Barron suggest.
- Were you on budget for the year? If not, why? Should you alter your budget for next year? Or, was it a one-time expense that you don’t need to account for in the future?
Be sure to calculate each expense in terms of cost per bushel, says Barron, also a financial consultant for Ag View Solutions and Top Producer columnist. “This helps you understand the value of incremental changes. You might assume an expense is significantly higher this year than last year when it might only represent a difference of 2¢ or 3¢ per bushel.”
- How close were your income and yield projections? Were variances from your income expectations attributed to prices or yields? Analyze and document the reasons, Arrington suggest. If the answer is yields, was it a one-time event impacting yields or the start of a new yield trend?
- Can you pay off your annual operating lines and other loans? If not, how short will you be?
“It is probably best to address this with your primary banker sooner rather than later,” Arrington says. “If addressed quickly you can probably work hand in hand with your banker to create a workable restructuring deal.”
- Can you make your annual debt payments on land and equipment? If not, talk to your banker soon and start an action plan to work through the shortfall.
- Did all components of my operation make money? Look at each profit center in your operation. For example, did your crop acres fall short and cow herd earn profit?
Analyze the expenses and income for each profit center, Barron suggests. “This is critical to determine which parts of your business are performing and which ones are lagging.”
- How will next year be different? Will you need to change some aspects of your operation to be on top of your game for next year?
“If you know you will need to make some necessary land improvements, replace some equipment, or make some large but essential repairs, go ahead and talk to your banker about it,” she says. “Start running the numbers on how the changes could possibly positively impact your operation and decide if the changes will pay for themselves.”