As producers seek to improve their bottom lines this spring, one approach they can try is to create cash-flow projections for the next 18 months to two years. When one quarter ends, do a quick comparison of actual versus budgeted expenses, then roll into the next quarter.
“It helps control spending,” says Jack Davis, Extension crop business management field specialist at South Dakota State University. “If there are other opportunities you can take advantage of, you might start to see those.”
Ahead of planting, it’s a good idea to holistically evaluate your operation in five key areas—commodity marketing, production, finance, legal and human risk—says Kelvin Leibold, Extension farm and ag business management specialist at Iowa State University. Be sure any plans remain flexible.
Here are steps you should take as you ramp up for the season ahead, according to Leibold and Davis
- Determine how much of the old and new crops you need to sell, and identify which tools to use. These can include hedges, options, forward contracts and accumulator contracts.
- Evaluate federal crop insurance guarantees and ensure your plan accommodates those figures.
- Identify target prices and dates for commodity sales, and schedule sales orders.
- Take steps to protect prices from downside risk.
- Assess on- and off-farm grain storage needs, factoring in old crop that is in the bin and recent big yields.
- Figure out your acreage mix for the season based on weather, market demand and projected returns.
- Review fertility programs and consider split applications, depending on nitrogen costs.
- Weigh pest pressure and whether to beef up crop genetics, add pesticides per acre or take other steps.
- Evaluate tillage systems to maximize management around resistant weeds and costs.
- Consider spreading out machinery costs by bringing some repairs in-house and putting additional hours on the existing fleet.
- Compare actual versus budgeted expenses more often than you have in the past.
- Analyze the costs and benefits of production decisions such as cutting back on traited corn and increasing chemical applications if needed to rescue the crop during the season.
- Take stock of working capital to ensure cash flow.
- Integrate record-keeping systems to generate profit-and-loss statements for every farm you manage.
- Maximize profitability by managing taxes and family living expenses. Consider a side business to add revenue.
- Ensure workers are trained to limit the risk of spray drift and odor nuisances.
- Review workman’s compensation policies, insurance plans and other risk-management products to ensure your business has adequate coverage.
- Evaluate health insurance plans and other benefits to verify you are compliant with regulations.
- Read through land lease contracts to ensure you are meeting landlords’ expectations.
- Mend fences to keep livestock from wandering.
- Work on your transition plan to ensure steps are in place to pass on the business as well as its management responsibilities.
- Delegate some commodity-marketing duties to the next generation so they have real-world sales experience and feel the hit on their pocketbook if a decision doesn’t go as planned.
- Coach team members on strategic planning.
- Encourage your team to think creatively.
- Seek low-cost ways to hire out routine tasks.