Dust off your budget and decide what to do next
There ain’t no cure for the summertime blues like summertime financial planning, according to ag lending specialists.
“Summer is an important time to assess your operation’s financial picture, look at preharvest inputs and ROI, and take stock of pest and weather pressures,” says Scott Parker, regional vice president in Ohio for Farm Credit Mid-America.
Parker recently outlined six financial considerations to make during the summer months in Farm Credit’s latest Insights Report.
The tips include:
1. Reassess break-even cost of production. “The break-even point you calculated in December has probably changed,” he says.
2. Look at input margins. “[For example], if you invest $15 of fungicide per acre, are you reasonably confident that you will get at least $15 in profit from that application?” Parker asks.
3. Don’t be afraid to take a profit. That’s true even if there’s a chance prices could go higher.
4. Estimate your taxable income through year’s end.
5. Identify income opportunities beyond selling your harvested grain. Think about renting out an unused barn, providing custom-harvesting services or looking for an off-farm job. “Family living costs won’t disappear, so finding another source to replace these costs will help position your operation for future growth,” Parker advises.
6. Keep partners and financial advisers up-to-date.
That last point is especially important, according to Nick Stokes, business development manager for Rabo AgriFinance. That’s because it helps farmers and bankers plan together. If there’s a problem, it’s important to talk through it now rather than to wait until next spring
“The best decisions are made when you’re not under the gun—especially with margins as tight as they are right now,” Stokes says.
Look Ahead. Summer is also the perfect season to look ahead to next year. Many of the farmers Stokes works with already are asking questions about what next year’s economic picture looks like and which global factors will be at play.
“For us, that’s good because we want them to be proactive and thinking ahead to 2018,” he says.
The summer is also a great time to look ahead to next year’s possible equipment needs and related financing needs, Stokes says.
For example, will a lease or an outright purchase work best on your operation? What will the impact be for cash flow and your balance sheet? Have those conversations now, Stokes advises.