by Jason Fewell

Life is a series of ups and downs. It might sound like a cliché, but it is true. Farmers and ranchers see ups and downs in their livelihood every day, probably more than other businesses. Many factors that affect farms and ranches are out of their control, including interest rates, weather, market forces and global politics. Dealing with these changes in their business and personal lives can be difficult.

Farming is a cyclical business. Good years are followed by bad years, or followed by average years, or followed by more good years, etc. During the good years, when markets or yields are up, farmers’ financial picture looks good.

Good, bad and ugly of farming

These are the times when spending on long-term assets increases. Unfortunately, most long-term assets are purchased on credit. Then, when commodity prices or yields are down, the payments are hard to make.

Increased interest rates raise costs and need to be considered in every purchase. Interest rates were low for many years, but increases and the large dollar volumes that farmers and ranchers deal with today cause interest costs to be quite high. It is important to evaluate purchases and understand the total cost over time.

Inflation increases costs of everything. While commodity prices fluctuate up and down, costs for repairs, supplies, insurance, family living, equipment, vehicles and most other things only go up.

Family living costs can also increase substantially when prices or yields are up, and rarely go down when markets or yields turn down. Take time to evaluate family living costs to see what can be cut during times of lower yields or prices.

During the bad or average years, spending on long-term assets might decline when less money is available to make large purchases. But payments must still be made on the assets. It’s during the downtimes that financial and personal decisions can become more difficult. Sometimes it becomes necessary to manage cash flow carefully, refinance debt or take other measures to keep the operation moving forward.

Support mental health

When outside forces affect the farm or ranch, moods can be up or down. The mental health of the operator and those close to the operator become very important to keep track of in both good and bad times. Emotion can often take over for reason and logic when making decisions.

It is important to talk to a spouse, financial adviser, lender, counselor or other consultant when making a long-term decision, because too many decisions are made based on current events and may not take into consideration abrupt changes that the future will bring. We need to remember that “always” and “never” rarely occur in business or life.

Fewell is an instructor for the North Dakota Farm Management Education Program at Lake Region State College in Devils Lake. The program teaches economic and financial management for farmers and ranchers. Visit ndfarmmanagement.com.