As farmers across the country prepare for harvest, many are already thinking about what they might grow next year and what help they will need from the bank to do it. Regardless of your need for an operating loan, it’s a best practice to be realistic about price projections on your budget for the following year so you capitalize on market opportunities that present themselves.
“When you target, you don’t start targeting too low on price projections,” says Chris Baron of AgView Solutions. “If you look at seller sentiment, there’s a lot of negativity in the market right now and when everybody is the most negative it’s probably at the low or toward the low. Don’t be overly optimistic, but don’t be pessimistic either.”
Barron recommends farmers define their projected revenue on their five-year average yield. He says it’s important to use actual numbers, not accelerated numbers.
“Then on price objectives, you want to have that be more of a target than a prediction,” he says. “What price level do you need to achieve for breakeven?”
The first objective is to break even, Barron says. The second objection is to meet a margin target.
“If you want to make $50 per acre,” he explains, “at what price above your breakeven would you have to sell your grain?”
You should have a breakeven goal and a margin goal. It’s crucial to have those numbers in place before the start of the year because as the market saw in 2017, there’s often a short window to capitalize on price. Barron says it’s practical to sell some grain at breakeven price to cover expenses. Then he says it’s not a bad idea to wait until to you see prices meet your margin goal.
That can’t happen, if you don’t know what your goals are.