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5 Adjustments Top Ag Producers Make in Challenging Times

Date: 
Author: 
Brian Postin
Educational Opportunities: 
Articles
Interests: 
Grain, Young, Beginning Farmers
Home > Education & Events > April 2019 > 5 Adjustments Top Ag Producers Make in Challenging Times
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With the ongoing challenges facing the agriculture industry, clients often ask me what practices I see being implemented by top producers. Here are a few of the adjustments top producers are making during challenging times.

Know Your Numbers. It’s likely you’ve heard this multiple times, but it bears repeating. Top producers know their numbers, including cost of production, actual production history, financial ratios and others. Knowing your numbers well will allow you to make business decisions more efficiently, because you have the data to support them. Use your numbers to benchmark against operations in your area. Universities and other Ag organizations can provide that information. You can use that to help find opportunities for cost savings or increased revenue.

Evaluate Your Strengths and Weaknesses. As a farmer, you deal with issues related to seed, fertilizer, chemical and machinery, which are all constantly changing. Grain farmers also have to know the marketing and strategic planning aspects of their business. Is there an area that you are particularly strong in? Are there things that you aren’t very good at or that you don’t enjoy doing?

Performing an honest evaluation of strengths and weaknesses will help you in preserving or correcting them. When you determine any weaknesses, you don’t need to take them all on yourself. The best producers aren’t afraid to use outside resources to improve themselves. If you’re a poor marketer, seek the help of a professional marketing advisor. If you struggle with bookkeeping, visit with a CPA to assist in evaluating the current state of your business. Not an expert in agronomy? Utilize the expertise of an input supplier. In tough economic times, we often focus on cutting expenses wherever possible, but sometimes improving on our weaknesses can provide a direct increase in profitability.

Adjust Capital Purchases. A common adjustment I see producers make when margins are tight is to modify capital purchases. This might mean postponing certain purchases or trade-ins for another year or so, if possible. However, some capital purchases can make a lot of sense, even in difficult times. For some, it may be additional grain storage to better manage basis and shrink. While the savings of commercial storage and the potential marketing gains won’t immediately add to your bottom line, once the loan is paid off, farm profitability will improve in the long term.

Another option is to look at making strategic capital purchases with another producer. For example, a 1,000-acre grain farmer may not be able to justify having his own sprayer. Two 1,000-acre farmers partnering together to buy a sprayer may be more economical, as opposed to paying a retailer to spray their crops.
In contrast, if you need to generate cash flow to reduce some debt, a capital asset sale may be a good plan. Evaluate the inventory on your operation and see if there are pieces of equipment or machinery that aren’t being fully utilized. It’s much easier to sell something if it’s not getting used much. Keep in mind that there may also be rental or leasing options that would allow you to get the necessary equipment.

Evaluate Land Costs. In many cases, rental rates for land are too high to generate a profit and producers need extremely strong yields just to break even. For many, the strategy has been to hang on to farms even if the rent is too high, and hope that the rent will be lowered in the future or that prices will rebound. Landowners are often slow in bringing down their rent figures.

Keep communication with your landowners open and direct, and share your cost of production numbers for that particular piece of land. Include actual expenses to plant and harvest crop on that ground, plus overhead expenses for machinery, insurance, labor, etc. that often gets overlooked. This will help you paint them a better picture of what it is you are dealing with, and how the rental price impacts that.

Flex lease options can provide the landowner with some upside potential if things are good, but also give the producer some benefit if income is down. If you can’t come to a profitable rental agreement, letting the farm go may be in your best interest.

Think Outside the Box. A strategy of hoping prices improve isn’t really a strategy. If your operation is struggling to make payments and working capital is tight, you may need to be creative in finding solutions. Perhaps it’s getting an off-farm job or finding a value-added product to sell. Some producers may have the ability to work with a neighbor and share labor or equipment. Or plan a new specialty crop that can be grown on a few acres. 

Most out-of-the-box ideas can be easily dismissed for one reason or other, but with the size and cost of modern machinery, there’s little reason that we can’t alter our current way of doing business to become more profitable.
Change is rarely easy and isn’t always fun. As we continue to navigate through these challenging times, it is time to evaluate any ways that will help you succeed into the future. As you think about your operation’s future and the legacy you want to leave behind, don’t let the discomfort of some short-term tough decisions stop you from keeping a close eye on the big picture.
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