Life preserver being tossed around grain bins Alex Nabaum

A farmer’s guide to surviving 2020: Part one in a series

Uncle Sam’s rescue payments give farmers extra time to reset marketing strategy, crop budgets for 2021.

Northern Illinois farmer Allyn Buhrow was so busy getting corn and soybean fields planted this spring, he hardly noticed the economic crash that began to crush ag demand around the world. At the time, the pandemic felt like just the latest in a long string of catastrophes.

“Even before COVID, it seemed like we were going from one crisis to another, first picking a fight with China, then prevent plant last spring, a big drop in basis where
we delivered corn for ethanol, and the river outlets closing,” he says.

USDA’s Coronavirus Food Assistance Program (CFAP) brought back memories for Buhrow. “It felt a lot like 20 years ago when I got out of college and signed up for direct payments,” he says.

USDA’s rescue payments may feel like a drop in the bucket compared to the big checks farmers write, but they just may give farmers the extra time they need to rejigger balance sheets, write up new marketing plans and reconfigure crop budgets for 2021. Make those changes now as there’s no guarantee ad hoc payments will continue in 2021, and a big crop this fall could weigh on prices for months to come.

Illustration by Tom LabaffIllustration of Trump and farmer in boat that is sinking bailing out water with buckets.

Government CFAP payments, along with smart marketing and cost-cutting, will help keep most farms afloat -- for now.

Like most farmers, Buhrow wants to make money from the marketplace. But he’s not turning Uncle Sam’s cash down.

“Payments from MFP [Market Facilitation Program] and prevent plant last year kept our revenue together,” he says. “We’ll cobble these new government payments together and put it toward land payments and operating costs.”

Buhrow estimates 15% to 20% of his gross income will come from government programs and ad hoc assistance this year.

Navigate the storm

COVID-19 is a serious storm, but it is, still, just another storm — and farmers have weathered many in recent years. Disciplined spending and smart marketing will carry savvy operators through the choppy seas of the current crisis.

Whether you’re getting CFAP payments or not, losses in exports and ethanol took a toll on cash flow this spring. Nebraska farmer Roric Paulman says his revenue took a hit when nearby ethanol plants shut down and feedlots cut cattle placings by half. “That was money we needed to pay the bills,” he says.

But Paulman, who farms with son Zach, knows every detail of his farm and what it will take to stay ahead. As the head of his operation, he makes frequent budget updates. His aggressive marketing and transparency with business partners keep the focus on profitability.

“If the market moves, it doesn’t distract us from what we’re doing,” Paulman says of the family’s 10,000-acre operation of corn, soybeans and popcorn, as well as dry edible beans and other specialty crops.

Paulman used to update budgets once a month; now he updates returns on investment as market conditions change. “This allows us to re-center ourselves often,” he says.

Even his banker has access to his ROI models and can look at his held inventory and its quality, and match that up against financial risks. Paulman also presents a detailed operational plan to loan committees. “We borrow money, but we’re transparent and that turns into accountability,” he says.

Jessica BraithwaitNebraska farmers Roric and son Zach Paulman

Nebraska farmers Roric and son Zach Paulman adjust crop budgets and marketing strategies as needed. “We cannot expect to have a deposit slip from the government to make us profitable,” Roric says.

Nate Franzén, president of the agribusiness division for First Dakota National Bank, says it’s important for growers to recognize when their previous plan needs to be revised. One of the most effective practices is for people to run a best-case, worst-case and most-likely scenario, and then compare to what’s actually happening.

“The folks who do this make much better, more timely decisions. They know where they’re at financially, and they’re tracking it as the environment around them changes,” he says.

Business sense

The long list of recent black swans means farmers should concentrate on what is controllable. “Focus your energy and effort into what you can control and what you can do to give yourself the best potential opportunity to work through the environment we’re in,” Franzén says.

Start with your balance sheet. It’s an objective measure of farm business growth, liquidity, solvency and your risk-bearing capacity. This net worth statement needs to be watched closely — not just through 2020 but also with an eye toward a more troublesome 2021.

Evaluate working capital, which has been dwindling in this downcycle. “If you have something that you can do today that can bolster your working capital position, you really need to look at that,” Franzén says.

Two more questions to ask yourself: Can you reduce debt? Should you deleverage your balance sheet?

“If you happened to grow on the front end of this pandemic, you might find yourself in a tough position if you took on new leverage,” Franzén says. Interest rates are at historic lows, so lock in firm rates if you haven’t done so yet.

Next in part two: How government aid impacts crop costs, cash rents and profitability.
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