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Producers should focus on your cash flow budgets and profit and loss statement.

David Kohl, Contributing Writer, Corn+Soybean Digest

March 21, 2024

2 Min Read
Getty Images/BsWei

The other day, one of the top agricultural accountants provided a straightforward perspective of the agriculture environment ahead. It appears we are headed towards a period similar to the post commodity super cycle era from 2013 to 2020. The difference is that now we have higher, inflated costs and very resilient and higher interest rates. Both of us agreed that 2024 and beyond will be analogous to walking a tight margin tightrope over an economic terrain that could present deep losses if not well managed. How does one manage the chasm of profits and losses in a very challenging and volatile economic environment?

First, focus on your cash flow budgets and profit and loss statement. Compare actual results to your projections. The cash flow should be prepared at least quarterly, even if revenues are only received once per year. The careful monitoring of expenses throughout the year and how they impact your break-even point can be a valuable tool when making marketing and risk management decisions.

Next, zero in on efficiency, while still also being effective. Cost-cutting and expense restrictions can be effective, but be careful of the “Boeing aircraft company effect.” In recent years, Boeing focused on cost-cutting for positive short-run results. However, they compromised long-term effectiveness, which may be why the doors are missing bolts and flying off airplanes! Yes, be prudent on costs, but realize long-term efficiencies may require certain expense increases or capital investments.

When managing the tightrope, one may be required to eliminate various activities or resources, known as the “minus mindset” discussed in previous articles. Examples that may require elimination or a shift include rented ground that is outside of efficient logistics, a landlord that is a hassle to deal with, or a marginal enterprise. This is where the famous partial budget or enterprise budgets can be valuable tools in your assessment.

Managing the tight margin tightrope requires input. This is why a team of advisors or assistant coaches can be invaluable in providing guidance, serving as a sounding board for ideas, and providing the necessary networking for new ideas. The journey ahead will require agility, nimbleness, and resiliency with a series of incremental steps to improve your business and financial IQ along the tightrope journey.

About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

Dr. Dave Kohl is an academic Hall of Famer in the College of Agriculture at Virginia Tech, Blacksburg, Va. Dr. Kohl has keen insight into the agriculture industry gained through extensive travel, research, and involvement in ag businesses. He has traveled over 10 million miles; conducted more than 7,000 presentations; and published more than 2,500 articles in his career. Dr. Kohl’s wisdom and engagement with all levels of the industry provide a unique perspective into future trends.

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