High commodity prices, decent yield potential and the opportunity to be in the black have many farm operations stretching their financial legs and their budgets in 2021. However, experts say if the family’s ‘Master of Coin’ is going to spend some of that cheddar, then make sure it’s on things that will pay the farm back.
“How do we manage this profit in a year that’s really shaping up to look pretty good,” asks Shay Foulk of Ag View Solutions.
He says it starts with having a plan and the software capable of tracking every dollar.
“You don’t want to accidentally buy a boat if that wasn’t part of your plan especially when you have these price opportunities,” said Foulk.
Here are some tools and tips to consider in 2021:
Agronomy Trials
Employ precision technology
From fertilizer modeling to variable rate applications, an investment in agronomic technology can pay dividends.
“Especially for the plains states from Texas to North Dakota, grid soil sampling has a high ROI,” said Brian Arnall, a precision nutrient management specialist with Oklahoma State University. “Our prairie soils have high acidity and so the ROI on variable rate lime for both yield and herbicide activity is extremely high.”
Better nitrogen management
“Fertilizer costs are through the roof,” said Arnall. “There are a lot of good opportunities out there, including modeling, technology or otherwise, to adjust what you’re doing on nitrogen and the ROI can be big. It’s not just economical, it’s both environmentally smart and sustainable.”
On-farm research
“Right now, we have so many groups doing precision management, but we don’t have the site-specific data that we need to go with it,” said Arnall. “We have great technology that can test things like nutrient management tools, seed technology, equipment and get really specific data. That means response curves. That means performance. The biggest ROI is on-farm research.”
Land Investments
Buy for the long haul
“Buying land is a little bit like getting married,” said Alan Hoskins a rural banker with American Farm Mortgage and Financial Services. “It’s an extremely long-term proposition that you want to make sure is going to be the right fit over the balance of your career because no one purchases land (typically) with the intention of selling it.”
Make those acres pay
“We may be able to afford it today, but what will it cost us in the end,” said Hoskins. “I would ask a producer what they see this netting them over the period of time that they own it.”
Leave emotion at home
“Be a logical buyer and don’t let emotion overcome you,” said Hoskins. “It may be the only time in your life that you get the opportunity to purchase this land, but you don’t want to sacrifice future opportunities because you let emotion get the better of you.”
It must add value
Hoskins says land that is a good fit will enhance the overall value of your farm.
“If you have the ability to add land that presently joins you, it’s going to increase the value of the unit as a whole simply due to the size factor,” said Hoskins. “However, if you pay a sizable premium today to buy the land that joined you on the south, and the land on the north comes up tomorrow, which of those is going to be more valuable to you from a long-term perspective?”
Equipment Decisions
What’s it worth
“How is this equipment is going to make money over and above its cost and can it improve profits or minimize things like seed costs,” said Hoskins. “If there are increased revenue opportunities associated with an equipment trade we need to factor that in and not just the price of the trade itself.”
Weigh investment vs cost
“Twenty-five years ago, we’d be talking about guidance and say how much longer a farmer could run or more recently how much row clutches can save on seed,” said Hoskins. “Today it is truly about looking at the investment versus the cost. We’re talking about revenue opportunities today that candidly didn’t exist 20 years ago.”
Time your trade-ins
“If a person is running new equipment, we look at their cost per acre running new equipment versus what it might be if they were running one or two-year-old equipment,” said Hoskins. “Today the availability of both new and used equipment changes the conversation and the decision of whether or not to trade may need to be made a little bit quicker than what we’ve historically seen.”
In-Season Marketing
Talk with your processor
“I think one of the biggest things we can do is talk with the processor and saying, hey, when do you need grain?” said Foulk. “I like to ask what we can do as farmers to coordinate a little bit better with them and maybe capture some of that basis.”
Off-season opportunities
“Transparency is key and that means working with them not only in the busy season but in the off-season,” said Foulk. “Let’s make sure that both needs are being met.”
Know Your logistics capabilities
“It’s great to have the opportunity to capture some of a processor’s demand,” said Folk. “Know your logistics limitations but don’t ignore the opportunity to market while everyone else is in the field.”
