Many farmers saw high profit opportunities in 2020 and 2021. But higher input costs are starting to eat into those positive margins.
As you look forward to 2022, ask yourself two questions around your farm costs, suggests Shay Foulk, an Illinois farmer and farm business consultant with Ag View Solutions. They are:
- Why is this happening?
- What can we do about it?
“The reality of what we’re facing is pretty staggering and daunting, when you start putting numbers to it,” he says. “What we are seeing is roughly a 67 cents per-bushel increase in cost of production per corn for 2022 versus 2021.”
So how should you react? Consider these strategies:
- Reconcile any 2021 budget surprises. Bret Oelke, farm management coach with Innovus Agra, says the two most common surprises at the end of the year are significantly more or less grain production or machinery repair bills. “Review these two issues more than just annually and make adjustments,” he suggests. “Your banker will find out about it eventually, so you may as well have them help brainstorm the answer.”
- Update your input cost projections. Talk to your suppliers now about their cost estimates for 2022, Foulk says. “Do the research and don’t leave these numbers to speculation.”
- Explore financing options. How much debt are you carrying? Can you refinance some of it? This could increase your working capital position or create a stronger balance sheet so you can make better decisions, Foulk says.
- Reconsider your labor strategy. How can your farm stand out in an extremely competitive labor market? Change your culture and focus on productivity versus hours worked, Oelke says. “From a farm management perspective, you don’t buy someone’s time,” he says. “You buy their output. Production agriculture is seasonal. You may have some long hours during certain seasons, but your team doesn’t have to work in the wintertime. Put people on a salary and focus on getting more done in less time.”
- Develop a capital replacement plan. Inventory your farm’s equipment and key assets to set three- to five-year replacement goals. “We all have needs and wishes, but your capital only goes so far,” Foulk says. “Share your capital replacement plan on equipment with your lender to give him or her confidence in your operation and hold you accountable.”
