Treat every line item on your farm budget as critical

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You’ve heard all the clichés. Measure twice, cut once. Don’t put all your eggs in one basket. Don’t count your chickens before they hatch.

In today’s low commodity price environment, these old adages hold true as ever on the farm. You have to know your numbers and get a sense for how things look on paper before you make production decisions on your farm. Every little item in your farm budget makes a big difference to working capital. And that means going through your profit and loss statement (P&L) with a fine-toothed comb.

You can’t change grain prices, but you can balance getting the most out of your crop yields with watching your spending. Go through every line item on your budget and treat each decision as critical. Ask yourself:

  • “Is this a necessary expenditure?”
  • “Am I getting the most value out of it?”
  • “Am I paying what I should be paying for it?”

Relationships are priceless, so I don’t want to suggest you throw them out the window, but every dollar you save on your farm budget makes it easier for you to manage your farm and maximize working capital. Here are a few of the items on your P&L that you can examine more closely amid low commodity prices.

Property insurance: When was the last time you shopped it? Give your incumbent company a chance to quote it, too, but shop around for better rates.

Equipment: Are the values for insurance correct? You might be perfectly happy with your insurance company, but the value of the equipment might be too high so you’re paying more than you should be. Is there a piece of equipment that is costing you more money than you’d be paying if you replaced it with something newer? Are there pieces of equipment you are insuring you no longer own or are there pieces missing on your list?

Fuel: Look at locking in fuel prices while we’re at lower levels.

Inputs: Are you paying too much? You might really like the people you’re buying from, but this is business, and you have to take care of yourself.

Credit: This is a tough environment to shop banks in right now unless you’re doing quite well, but nothing is off the table completely when dollars are at stake. Maybe you can negotiate better terms.

Expansion: Be cautious, but if you can pick up acreage at the right price and it’s a good fit for you, you might be able to deploy excess labor and equipment to gain economies of scale.

In all cases, balance the value of the relationship with the value of the products and services you’re receiving. If, on balance, the relationship is lukewarm and you feel like you’re “taking a bath” after shopping around, it might be time to make a switch.

If you need a second opinion on your P&L, please feel free to reach out to me at alan.grafton@kcoe.com.

Alan Grafton
Alan directs K·Coe Isom's AgKnowledge services that provide farmers from coast to coast with CFO-level counsel and financial and accounting support of all levels. He cultivates operational growth by focusing on the business information and analytics to help today's farmers reach maximum financial yields.
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