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Use the Right Financial Management Tools

Date: 
Author: 
Glenn Wachtler
Educational Opportunities: 
Articles
Interests: 
Grain, Dairy, Swine, Beef, Young, Beginning Farmers
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The downturn cycle currently facing the Agricultural industry has been difficult for many Ag producers.  For many operations, their goals maybe focused on building financial security.  It makes sense that they would like to preserve the assets they currently have, while managing risk in order to avoid losing their hard earned equity. When working towards that goal, it’s important to evaluate whether or not you have the right financial management tools in place to help you on your way.

In my role as a financial officer for Compeer Financial, I have had the opportunity to work with several farms that have carefully managed through the downturn and have the ability to make a large purchase or plan an farm expansion. There are farms that are waiting for the right opportunity to grow their farm; whether it is finally being able to buy the piece of land that comes up for sale next door, or renting a large tract of land that came available.

There are some farms have remained financially secure who aren’t looking to grow their operation, but are wanting to operate a profitable farm with what they already have.  It is important to remember that every situation is unique, although your goals may not necessarily be different than many others in your business.  Using the right tools will give you the confidence that you are on the right track to meet your goals.

At Compeer Financial, we have developed a tool that we simply call the margin manager.  As the name implies, the tool will help you track your farm’s cost of production for corn, soybeans, or any other crop.  Your margin can be calculated on a per-acre or per-bushel basis using a Microsoft Excel based spreadsheet.  As you’ve probably heard many times before, it is becoming increasingly important to know your financials and know them well. I encourage the clients that I encounter to know their financials on as granular level as possible, knowing your margins on a per-field basis is a great start. However, being able to use a tool like this to calculate it on a per-acre or per-bushel basis would be invaluable knowledge to help drive decisions for your operation.

The tool can help you easily calculate the cost of your rented land as well as the cost of your owned land.  It can blend both of those costs to give you an overall cost of land to use in your margin manager cost of production.  If you are considering a new farm purchase or even the impact of paying down real estate debt, the tool is great at scenario planning.  Compare your cost of land against benchmarks from Illinois Farm Doc, or Minnesota farm business management data (FINBIN).

The cost of equipment can have a large impact to your bottom line.  I like to use the tool’s machinery calculator for adding up the lease payments and loan payments to see the cash flow requirements that are necessary to support field operations.  A ratio that I like to see is the total lease and loan payments totaling less than $65 per acre.

Knowing your cost of production is the foundation of your grain marketing plan, but you also need to track the sales you have made and plan for additional sales in the future.  Comparing your sales to your crop insurance guarantee and your expected production keeps you focused on your overall risk management goals.  Use the tracking log and data from the grain marketing and insurance spreadsheet of the margin manager to keep you up to date on your grain sales and crop insurance.

Whether it is Compeer’s margin manager or another reliable financial tool that you have found, the key is to produce the most accurate information you can get and actively use the information to make decisions that will positively impact your operation. 

If you are interested in the margin manager, you can download this tool for free if you have Microsoft Excel at: https://pages.compeer.com/MarginManager.html. As harvest wraps up across much of the Midwest it will soon be time to shift gears to year-end financials. Using tools and resources available to you will allow you to have up to date and reliable financials heading into year-end so you can make thorough business plans for 2019.
 
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