After several years of healthy profits, the anxiety of uncertainty is back in time for the ‘23 growing season. Farmers need a bigger bankroll than ever to stay in the game, and for some, it can start to feel like a casino– especially as the ghosts of high input costs and rising interest rates loom in the shadows.

The trouble is, “the house always wins” at the casino. So what will it take to be dealt another winning hand this year?

“If you start thinking it’s a high-stakes poker game you’re just betting on the draw and I don’t want to do that,” says Illinois farmer Terry Pope. “I want to use tools to minimize risk. If you leave yourself exposed to the whims of the market, then yes, it can feel like a high-stakes craps game.”

“If you leave yourself exposed to the whims of the market, then yes, it can feel like a high-stakes craps game.” – Terry Pope, Credit: Holly Spangler

Pope has some ’23 corn and soybeans already sold. He bought a put option to establish a floor price.

“It’s a risk to put in a crop, but we have tools to mitigate the risk,” he says. “If I can raise 200 plus bu. corn and assure myself a minimum of $6 per bu. or $1,200 an acre, why wouldn’t I? Even if my costs are $1,000 to $1,100 an acre, I’m still making money.

“This is the year we really need to use the tools we have available and if we don’t know how to do it there are marketing services that can help,” he adds. “I cringe when I pay what it cost to have a marketing service, but I look at it as education and insurance.”

Related:How much, if any, should you forward contract before planting?

Know the numbers

Like many successful producers, Pope stays vigilantly focused on his budget and cash flow projections (see p. 30). Doing so helps him identify potential shortages and adjust as needed, so he can ultimately make better informed decisions.

Likewise, forward pricing can help operations lock in profitable prices for their crops in advance of the harvest, which in turn reduces the risk of price fluctuations.

Brad Zwilling, vice president of data analysis at Illinois Farm Business Farm Management, encourages farmers to put together a cash flow plan and review it at least on a quarterly basis, if not monthly. There are tools that can help. For example, The University of Illinois farmdoc group offers an excel spreadsheet (FAST, or Farm Analysis Solution Tools) that spits out quarterly or monthly cash flow projections.

“When you do this on a monthly basis you can really see when money is needed and how much,” Zwilling says. “Then you will know monthly what you need to borrow or use cash for when inflows do not cover outflows.”

For most farmers, running numbers can be a difficult task. Still, there are free spreadsheets and analysis tools available that can make you a smart operator. It just takes time to set up and learn.

“Anything we can do to make us a better consumer of our own numbers, makes us a better farmer,” Zwilling says.

Reduce risks

At the end of the day, it’s about reducing risk as much as possible so your operational decisions don’t feel like as much of a gamble. What that means exactly will be different for each individual operation.

For example, Naomi Blohm, senior market adviser with Stewart Peterson, correctly predicted that rice and lean hog futures would have plenty of reason to rally in 2022 – and they did. For 2023, Blohm is predicting cotton and oats will have room to run.

Those are two fairly regional crops, however. A Wisconsin farmer doesn’t have the option to plant cotton, and his or her Alabama counterpart probably won’t be growing oats anytime soon. The point is to look beyond the “Big Three” of corn, soybeans and wheat to see if there are other rotational opportunities available.

Results from last month’s Farm Futures planting survey shows most respondents aren’t looking to make big shakeups in their rotations this year, says Farm Futures grain market analyst Jacqueline Holland.

“Wheat is likely to gobble up any extra acres on the market this year, thanks to crop shortfalls last year raising prices during winter wheat planting last fall,” she notes. “Farm Futures projects that total wheat acreage will reach 48.8 million acres on the surge in wheat acreage, which will be the largest wheat crop planted since 2016.”

The survey showed expected acreage increases of 2.1% for corn, 1.6% for soybeans and 6.4% for wheat, Holland adds.

Partnerships with lenders, accountants and other third parties will be as important as they ever have been in 2023, according to Zwilling. They can help you stay forward-focused rather than making reactionary decisions. There are also some common-sense financial measures to take, like paying off long-term loans with higher interest rates first.

“The only reason to pay down debt is to pay it off and build capital back up, not to refinance right now, since interest has jumped from 3 to 7% on long term loans,” he says. “Interest rates can have a huge impact, but as long as you plan ahead, you should be okay. And it’s nothing like the 80s.”

Read more:

How much, if any, should you forward contract before planting?

Should I use puts if I already have crop insurance?

What impact would a recession have on farming?