How To Start Planning Now For Next Year

October 30, 2017 06:22 AM
 
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As we close out the 2017 fiscal year and finalize our decisions, it’s time to get to work planning for success, survival or both in 2018.

What did we learn this year? Capturing any sort of profit in the grains this year has been extremely difficult if not impossible. Marketing opportunities have been almost nonexistent for corn. We had a grand total of about two trading days in June and July to sell somewhat close to breakeven.

Many of us set targets that just didn’t quite hit. Some focused so intently on pricing the 2016 crop they overlooked new-crop sales. Others assumed poor local weather conditions would cause the market to rally. Unfortunately, burdensome carryover supplies surprised producers, as we had mountains of old-crop corn to work through the system.

Enhance Discipline. The prospect of continued pressure on grain prices remains intact. Are you willing to continue this year’s strategy into 2018? If the past couple of years have worked out well for you in terms of risk management and marketing strategies, congratulations. If not, prioritize some action items for next year.

Mapping your plan will help you be more disciplined with difficult decisions. It will also help you share your business vision with family, employees, lenders and other partners.

Preserve Inputs. Over the past couple of years, cost-cutting has been at the top of most every producer’s mind. Land rents have been slow to come down, and some are still hanging on to farms where cash rent is way too high. I often hear producers say, “This is the last year I’ll pay rent at this level.” Many farmers have been saying that for the past three years.

Continual loss of money, even in one portion of the business, severely erodes working capital over time. Be willing to walk away from a bad deal; there will be other opportunities.

Other inputs that merit caution include seed, fertilizer, crop-protection products, crop insurance and additional products that enhance productivity or protect it. Be careful when cutting costs in these areas.

Let value drive decisions rather than cost. If you spend $1 and get back $1.10, that’s value. It’s not just a matter of the amount listed on the check. Always do the math. Even when commodity prices are low, protecting a higher yield will ultimately lower production costs. The same is true for seed treatments and fungicides. They might not necessarily increase yield, but they will protect it. Always keep in mind that we can’t sell what we don’t produce.

Market Tactically. Big carryovers and reasonably good yields mean prospects are not good for strong price opportunities moving forward. What if we grow another massive crop? We are simply outpacing demand with outstanding production. Individually, we all need to increase yields each year because it’s the fastest way to lower our cost of production.

For many operations, 2018 price opportunities are extremely close to breakeven using a five-year yield history. This might be one of those years to be aggressive with sales. It might not be a bad idea to keep the top side open with calls or to use minimum-price strategies for a portion of production.

The bottom line is that we need to make sales more aggressively. Waiting for the ultimate price target can be an expensive proposition. Instead, consider some early pricing to match purchases. If you purchase $100,000 of fertilizer or seed, sell $100,000 worth of grain to cover the expense. Matching some of your input purchasing with sales can help you be deliberate in taking advantage of a margin opportunity instead of looking for a price target. This strategy also works well for managing cash-flow needs.

Be Resilient. Next year is likely to be challenging. Build plans now so you’re ready to meet those challenges head on and profit in 2018.

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Comments

 
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Jim Weeber
Goshen, IN
10/30/2017 07:32 AM
 

  I can't recall a time when we were not in survival mode here. Dad took over from grandpa in about 1935 when granddad said, "If you can pay for this place you can have it!" $8000 dollar government mortgage at the time looked like a lifetime debt. Dad said after 1929 it was tuff through the 30's all the way to WWII. Since than the 40-50 cow milking herd paid for 5 bachelor and 3 masters degrees and raised 2 families. Now the greatest threat is (along with low prices) the encroachment of urban dwellers escalating my property taxes (over $1000 a month) as they demand a "Cadillac" school system. Nice as it is, it voraciously consumes money and I think I am done raising my own children. Paid the last college bill 2 years ago. Makes the county services look like a bargain. Almost looks as if there is a plan to eradicate agriculture from our township. I told the school board a couple years ago I had halted capital improvements as I'm not sure if they are for me or all the "hanger-oners". Lets not forget all the various insurance bills etc.. You can forget about hiring labor in todays market. The RV industry rules our county. The point is it will take something beyond conventional ag income to stay here on this farm and many other places too. Get bigger and profit from an economy of scale you say? When the margins tighten and even go negative those guys bust and assets fall into the hands of "least cost producers." I've seen my share of human carnage created by tuff times on the farm. Twice this year I've seen a local banker walking down the street in town with a farmer and his wife. I think it is kind of serious when he wife is along. I'll try to stay optimistic. The economic/currency manipulators, land grant universities and industry cheerleaders have brought us to this point. Surely they will save those on the farm who have reason to not sleep well at night....... As always hunker down, survival mode. Always a storm coming.

 
 

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