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Managing Your Farm Operation: Big Value in Small Profits

Date: 
Author: 
Glenn Wachtler
Educational Opportunities: 
Articles
Interests: 
Grain, Young, Beginning Farmers
Home > Education & Events > September 2019 > Managing Your Farm Operation: Big Value in Small Profits
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When it comes to managing your farm operation, assessing your individual operation and the opportunities you have for positioning yourself for profit is key.  

Is there really that big of a difference between a small loss and a small profit?  The answer is a resounding YES.  The reality for most ag producers is that they have other parties who have a vested interest in seeing their farm operation do well; including spouses, families, ag lenders, partners, employees, landlords and others.  A loss of a couple percentage points vs a couple percent profit certainly doesn’t seem like much difference. However, it has the power to demonstrate that your operation has staying power; not only in good times, but also during challenging ones.   It’s representative that you can handle additional investment opportunities if they present themselves.  For instance, would you invest in a business that did not show a profit in many consecutive years?  Under most circumstances, a prudent investor would say no.

Over the last several months, I have been receiving balance sheets and income statements from grain producers for 2018. Analyzing these statements has allowed me to better grasp just how the producers I work with performed.  For many producers, last year was definitely a year of mixed results, and it’s certainly looking like 2019 will be another challenging year for many producers.   In 2019, the price increase in corn may simply not be enough to offset the impact of tariffs and large carry-outs on soybean prices to make our farms profitable.  With potentially lower yields this fall due to the late planting season comes another looming concern.  After having some time to digest the financial information from the previous year and talking to some producers, I have been better able to consolidate my thoughts on how can we make the best out of a challenging situation.

You may be thinking that every grain producer has been struggling and have all shown multiple years of losses after many months of low corn and soybean prices.  However, the results are really a mixed bag. For example, some producers have been managing small profits even during the down years.  Each one of these producers successfully gained profits a little differently, but in most cases it came to them being able to lock in above average prices on a good portion of their corn and soybeans.  After reviewing their statements and visiting with them, it seemed they had the confidence to forward contract their crop because they knew their break-even price level and had confidence in their crop insurance program.   Knowing their numbers allowed them to allocate all of the resources the crop needed to give it the best chance to achieve above average yields.  On the other hand, I have seen other producers make poor agronomy decisions because the low commodity prices affected crop management practices.  If too much of your time is spent thinking about the enormous issues of tariffs, difficult spring conditions, and low commodity prices, it may take away from the focus of maximizing your own operation.

It seems that many producers have been missing the chance to forward contract their grain at profitable prices for the small windows when they are available.  Instead, they chose to sell when they needed to add cash flow, or when their schedule allowed them to deliver the grain.   With all of the uncertainty in yields and prices, how will you know when your farm can deliver a profit?  You will need to study your input costs and break-even per bushel at different yield scenarios for your corn and soybeans; including any prevent plant crop insurance payments and expenses.

This will require some work, especially in a tough year like 2019 that is hard to predict.  Tools like Compeer’s Margin Manager will help in this process, as well as other programs and detailed record keeping systems.  It is especially important that you get an accurate break-even to work with as yield and price scenarios unfold this year. Make sure you are calculating your payments and family living needs into your break-even if they are not covered by other sources of income.  Get in touch with your trusted advisor if you need some help or an additional sounding board.  Between spraying and scouting is the perfect time to brush up your grain marketing plan for the year.

So how do we make the best of a challenging situation?  In my opinion, this adds up to thinking small.  Think about your own farm, and your profit opportunities.  Ask yourself what it will take to make a profit given your unique situation, no matter how small that profit may be.  It will help lead you to consistent decision making and will also lead to your farm business partners being engaged and supportive while you continue to invest in your operation.

Glenn Wachtler is a Financial Officer with Compeer Financial. For additional insights from Glenn and the Compeer team, please visit Compeer.com
 
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