Manage Farm Financial Risk: Cash Flow & Breakeven Strategies
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Completing Cash Flow Statements: A Strategic Foundation
A comprehensive cash flow projection gives you visibility into your operation’s cash needs month-by-month and annually. This helps you prepare for surplus periods and plan for shortfalls.
Regular updates to your cash flow statement ensure foresight and adaptability to periods when cash flows become strained. An annual cash flow statement can aid in making informed decisions regarding grain sales, equipment purchases and labor management, ultimately stabilizing your business model and reducing interest expenses by better managing borrowed funds. Evaluating your operation’s cash flow and profitability separately is essential for a sustainable business model.
Need help getting started? Get financial document templates, including a cash flow in our resources.
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Calculating Corn and Soybean Breakeven Costs
Farming is a risky business that deals with forces outside of your control every day. Managing the decisions that are within your control will help lead to a more profitable business model for your operation. Knowing if you’re making profitable marketing and input-buying decisions can give you peace of mind and clarity in your decision-making process and insure the long-term viability of your operation.
The first step to understanding your breakeven cost is to calculate your cost of production. Cost of production should encompass all expenses, including family living costs, equipment payments, real estate loans and crop inputs like seed, fertilizer and chemicals.
Once you calculate your total costs, you will want to divide that by your expected production over all acres farmed for each crop. Ideally, you will want to allocate your corn and soybean expenses for each crop calculation. Also, be sure to allocate expenses like farm and equipment payments on a prorated basis for each crop. Formula given below.
Total Farm Expenses + Family Living + Income Tax – Non-Grain Income - Depreciation + Current Portion of Term Debt ÷ Total Expected Bushels Corn/Soybeans = Corn/Soybean Cash Flow Breakeven
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Once you determine your per-bushel cost for corn and soybeans, you can use this calculation for making profitable marketing and input purchasing decisions. Regularly updating these calculations enables you to adapt to market changes and make informed decisions that protect and grow your bottom line.
Need help calculating cash flow or breakevens? Compeer’s Grain Margin Manager tool assists in calculating costs of production and projecting profitability.
Resources like this allows you to input your specific data and provide a personalized breakeven analysis that can guide your financial strategies.
Grain Margin Manager
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