Farming to Lose the Least Money
From 2014 to 2019, we considered, facetiously, renaming our cost of production program from Profit Manager to Least Loss Manager. There were some ugly years in there, many of which would have been substantial losses without insurance or government payments.
I don’t predict the future, but as we look at 2024, there are many operations with red ink indicating a loss on their reconciliation and projections. It’s an uncomfortable position, especially those with low liquidity and working capital who are going through transition or significant investment into the business, uncertainty in landlord relationships, solar pressure and uncontrollable weather.
As I type this on a plane 30,000' over Morris, Minn., we encountered significant turbulence on a sunny day — a poetic analogy to my premise. Knowing the turbulence was coming, the pilot began a descent to get us to a safe flying altitude.
Let’s look at how to mitigate loss and plan to pilot through tough years.
1. Communicate with your lender.
2023 was full of “Well, I definitely should have sold more when the prices were high” conversations at the end of the year, and a lot of people got their feelings hurt. Put together reasonable projections, be honest about the loss outlook and start looking at borrowing options, capital burn rate and expenditure plans.
2. Control what you can, but don’t be cutthroat or drastic.
If you need to reduce fertility inputs, negotiate pricing or double down on your diligence in purchasing and timing, do so. Don’t step over a dollar to save a dime by ruining trusted relationships with vendors who have taken care of you.
3. Spend money to make money.
This might seem contrary to the prior point, but the fastest way to decrease cost of production is to increase yield. Don’t sacrifice yield for the sake of savings; you won’t prosper if there’s poor production.
4. Know your numbers – don’t guess.
The most helpless feeling expressed in these situations is uncertainty. What do I stand to lose? Where should I market, especially if it’s at a loss? If you know your numbers, you’ll make better decisions and reduce the stressful impacts of years with loss.
5. Refine your processes in accounting and budgets.
Are your books a mess? Take time to have a clear chart of accounts, profit and loss statement, and balance sheet. Make a budget and try your best to stick with it. In tight years, the unintended and unplanned expenses usually tip the scale between profit and loss.
6. Get help if you need it.
Put pride aside and have serious conversations with your lenders, advisers, consultants, friends, family and fellow farmers. If you’re stressed, talk to someone. If you are in a bad financial position, communicate with those who need to know. Face your problems head-on and attack as only you, the leader of your farm business, can.
Make the best decisions for your business in 2024, even if it means taking a loss on paper. You will survive to farm another day, but you need to position yourself and your decision-making now for a potentially turbulent flight ahead.
