3 Ways to Plan for Periods of Profits and Loss
In our client base, corn has had a net return of 14.4%, and soybeans have had a net return of 12.8% since 2012, including government payments and insurance claims. Those numbers are respectable, but also take into consideration the extremes of zero percent profit and upward of 30% profit. How do we plan for that year over year?
Periods of profitability and loss come in waves. There was good profitability 2012 to 2014, followed by five years of low return. We have again seen good numbers since 2020. I think the next wave is coming.
As we get more numbers in and have more meetings, we will get a little smarter. But profit margins have dropped to the 3% to 10% mark for a lot of producers this year. Of course, these are projections, but they are a good indicator of our price environment as it stands today. What are you going to do about it?
Specifically, what would you do if you knew you would have a 30% profit next year instead of 3% to 10%? You’d probably think about your equipment trade needs, what areas of your business need improvement, infrastructure changes or land purchases. These are all things you should do in the low profit years, but be more meticulous and prioritize your decisions.
Here are three key things to do in 2024:
1. Develop a Capital Expenditure Plan and Prioritize It
What needs to be maintained, traded or bought new for operational success? We all have wants, needs and issues, but the money gets short.
2. Hone in on Your Numbers
Sharpen your Excel spreadsheets and proverbial pencils. It’s amazing how few phone calls we get on cost of production and profit analysis when people make money versus when things start to get tight. I’m happy to help, but don’t wait until it’s too late.
3. Get a Pulse on Your Business
What we call the “State of the Business address” is a comprehensive end-of-the-year presentation to your team, family, lenders, etc., on where the business is, where it’s going and important numbers and metrics to know. If you aren’t keeping detailed information on your business, how do you know where to improve it? And if you’re not doing this work, who is?
I don’t give marketing advice, and I’m not a professional, but one thing to consider from a historical standpoint is how you make sales. Do you sell a load or two as the market changes? Do you sell a certain percentage monthly? Are you willing to pull the trigger on large percentages of production regardless of how many bushels it is?
We so often hear, especially after years like 2023 when we saw the front number on corn go down $2 to $3, “I wish I would have sold more when the price was high.” Don’t get caught not selling more when it’s profitable if that’s what your business needs.
2024 is going to be a good year, and I wish you all the best in your production and business decision-making. I look forward to seeing you at the Top Producer Summit where I will be presenting on “Planning for Profit in 2024.”
