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Follow analysis and plan to profits

Chris Cogdill was more than satisfied with his farm records. He personally wrote down every figure by hand and kept up with all the income and expenses. He had the books in order and he was on top of the business. Or so he thought.

"When Mama told me about the South Carolina Farm Management Association's business records program, I didn't think I was interested," he says. "Now I realize there were expenses that I wasn't even thinking about. Things like nonproductive assets that could be turned into cash. I've learned a lot about running a business over the last couple of years, from budgets to which crops to plant to marketing. You really can't make the best business decisions if you don't keep complete records and stay on top of those figures."

Cogdill finds time every winter to attend one or more seminars on debt management, business management and marketing offered through the association. All have stimulated improvements in his business.

"One of the main benefits to me has been learning how to do fundamental and technical market analysis and then make marketing decisions based on the facts," Cogdill says. "Once you have all your records in order, it's not hard to see what you have to get for your corn or cotton or soybeans to make a little profit. Then it's up to you to go ahead and sell at least a part of your crop as soon as you can get the price you need. If you don't have good records and a target price, you don't know where you're going and you don't know when you get there."

Cogdill keeps a series of charts for each commodity he grows. The charts show yearly and up-to-date supply and demand figures. As new figures come out, Cogdill looks back over past years to find similar supply and demand numbers. He then checks the prices commodities were selling for during those past, similar years. These historical records also show him whether prices went up or down based on these similar figures, and give him a good guess as to which way prices are now likely to move.

"It's not foolproof, but at least these figures are easy to get and they help me set some marketing targets," Cogdill says. "I use these figures to decide when to make cash sales or put on hedges."

This Summerton, S. C., farmer watches local cash prices and basis throughout the year. When the basis is favorable, he sells cash corn. With his fundamental and technical market analysis data in hand, he confers with a market advisor over the Internet every day to make other marketing decisions.

"I go to business management and marketing seminars in the winter when I've got time to study my own figures and plan ahead," he says. "I need to have a plan in place, with some target prices established, before we get so busy in the spring and summer, when prices are most likely to start going up and down. We need to be prepared with a pricing objective so we know when to pull the trigger. That's the key. Set your target price and then pull the trigger when you can get that price. My target price is going to be different from the next person's because my business expenses are not going to be the same as his."

Instructors in these marketing seminars insist that each participant use their own, realistic figures in their farm business analyses. They allocate all expenses and study the distribution of expenses into family living expenses, taxes, operating expenses and other categories. If an expense area is taking too much income, the farmer has two options: generate more income or reduce expenses in that area.

"We discovered we were paying off our land and equipment debt too fast," Cogdill says. "That's the way we've always tried to run this business, pay off debt as fast as we can. But Scott Mickey helped us see that we might be better off if we restructured our debt so we were not forced to repay the debt so fast. We used the money we freed up to finance a larger grain handling facility that we needed. Now we can handle the debt for everything even in a drought year when our income is going to be cut."

In a good year, when there is extra cash, Cogdill decides whether to commit additional funds to paying down principal or to put that money into other investments, including stocks.

Like other farmers who have attended these seminars, Cogdill has identified equipment he is no longer using that can be sold to generate cash. He has also studied crop budgets and income projections and altered his crop mix.

"We're selling some old tractors and a couple of trucks that we can't justify keeping," he says. "The seminars made us realize that we can't justify having equipment sitting around under shelters not making us any money. We're selling anything we're not using. If you know of anyone looking for two corn savers, let us know."

An analysis of crop budgets showed that, at current prices and historical yields, Cogdill was making as much profit per acre on corn as he was on cotton, with significantly less labor and capital expenditures. Based on that information, he decided to drop cotton from the crop mix for this year. Since he believes cotton prices could turn around, however, he is not yet ready to sell his cotton picker and other equipment.

"We've made some sound business decisions because of the figures we've been able to put together since we got involved with the association," Cogdill says. "One of them was not to plant cotton this year. But we have not given up completely on cotton. If it looks like we can generate more profit on cotton than corn, we'll be ready to get back into cotton. If it doesn't turn around soon, we'll be ready to sell the cotton equipment."

Cogdill also says that getting all of his records on the computer has greatly reduced the time he has to spend in the office. He spends his newfound time in the fields. That decision has already helped identify a money-losing decision that has since been corrected.

"Since propane was so expensive this year, we decided to let our corn dry down in the field," he says. "We figured we'd save a lot of money by not having to dry the corn. What I didn't think about was how all of our corn, no matter how we spread out the varieties, got ready at the same time this year because of the drought. We lost a lot of corn because of shattering off the header because it was so dry. I never would have noticed that if I had been sitting in the office taking care of records like I used to. Even with the low price of corn and the high price of propane, we would have been better off if we had started picking earlier and drying some of the corn. I believe we would have made up for what we spent in propane by harvesting more corn."

Although he initially avoided finding the time to improve his records system and to attend business management and marketing seminars, Chris Cogdill admits he is glad he listened to his mother.

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