How do you take emotion out of farm finance management? By turning data into knowledge. Those are words to live by for Guy Mills, who farms near Ansley. "It all goes back to knowing what your cost of production is and knowing what you invest and how it impacts your cost of production," Mills says.

ENTERPRISE ANALYSIS: Guy Mills keeps track of each line item for each enterprise, counting up the costs for different enterprises as they progress through the production cycle.

Managing cost of production without keeping track of data is what Tina Barrett says is "like driving without a rearview mirror." "You can do it, but you're really missing a big component of that drive," says Barrett, who is director of Nebraska Farm Business Inc., which offers consulting services and helps farmers and ranchers with financial analysis. "You certainly need to look forward, but the rearview mirror, or data, is a huge part of that total package of management that you're missing out on."

What data should you keep track of? Mills keeps track of each line item for each enterprise, counting up the costs for different enterprises as they progress through the production cycle. This includes shifts in commodity prices and land values, as well as losses due to weather events and how they affect the total value of those assets.

In addition, Mills keeps a close watch on financial ratios like operating expense to revenue to not only monitor his own financial situation, but also benchmark himself and see how far along he is in reaching his goal of being in the top 20% of producers in terms of cost of production.

Before an enterprise changes and the commodity is sold or retained, Mills conducts an enterprise analysis on a series of logical decisions for that enterprise and whether it will make money. For example, if he decides to retain a calf to background after weaning, that means analyzing the cost of keeping the calf and feeding him until spring compared to selling him at the sale barn. The same is true for storing corn in the bin rather than selling at harvest.

"Through data collection, you have to ask, 'Should I have sold, or could I have kept that corn and dried it?'" Mills explains. "If I store the corn, I need to know how much propane I used and how many kilowatts of energy it took. Then I have to allocate depreciation off the bins and dryer."

But there are costs other than physical costs associated with storing that grain that should be considered as well, Barrett adds —  and that includes income tax savings. There may be advantages to selling before Dec. 31 if the farm is showing a loss for the tax year. Depending on the tax brackets, a tax savings of 30 to 40 cents per bushel could be realized to offset a marketing move by selling before the end of the year. Of course, this all depends on the farmer's unique situation.

While it's important to consider the tax implications of management decisions, it's important to not let taxes be the sole reason for decisions. For example, it's important to keep track of capital investments like equipment. In years leading up to 2015, capital investments in the ag sector have increased, correlating with Section 179 tax deductions. And Barrett says that's not necessarily a good thing. "We are seeing producers with equipment debt to service and no depreciation expense because that cost has been used. This is creating a cash flow crunch just when profitability has dropped off,'" Barrett says. "We're going to have to have some discipline across the board in all areas of spending."

For Mills, this means knowing the cost per unit of production on the capital investment and whether or not that investment resulted in a return. "Every dollar I invest has to increase my revenue or decrease cost — that's in good times, too. It's not just in tight times," he says. "For example, the reason I added grain bins during the good years was so I would be positioned to survive the downtimes."