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Working Capital and its Effects on your Grain Marketing Plan

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Matt Roberts
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Home > Education & Events > October 2017 > Working Capital and its Effects on your Grain Marketing Plan
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I've taught grain marketing for 15 years in one way or another, and I always like to start with cost of production. Looking at both your income statement and your balance sheet. In addition, I think that no marketing plan is complete without thinking about your balance sheet; specifically how much working capital you have. Working capital is either cash on hand, inventory, grain inventory, pre-paid inputs, and receivables, minus your short-term debt, minus your balance on your operating line, or any other short-term obligations.

You can think of it as the cash you have available over the next year. The reason that this is so important, is that it tells you how much risk you can take as a grower. If you have a lot of working capital, then you can take a lot of risk. You can afford it, because if you set up a marketing strategy that doesn't work out, it fails, you take a lot of risk and it fails catastrophically, you can afford it because you've got the cash.

This is what's really important, if you are a young or beginning farmer, or have a weak balance sheet. This applies to a lot of today's largest farms, because commonly, we'll see farms that are 15,000 or 20,000 acres, they rent 90, 95 percent of that. If you're one of those farms, you probably don't have a lot of equity, you don't have a lot of working capital.

For you, you have to play small ball. It's a term that comes out of the movie and book Moneyball. You have to emphasize singles and doubles over home runs, because you can't afford to strike out. A lot of times, young and beginning producers, they see old, successful farmers and think, I have to be really aggressive if I'm ever going to catch up with them. However, in marketing, that is not true. The reason being, you can't afford to be wrong.

The key point is, particularly in times like now, with very tight or negative profit margins, is in understanding; having a very disciplined marketing plan that places the emphasis on taking profits when they're available, not trying to hit home runs. Hit singles and doubles, is most important, particularly for young and beginning farmers.

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