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Help for overspenders

If your spending for farm inputs is starting to exceed your income, farm financial experts say there are ways to constrain it. Here are their tips.

  1. Make a long-term business plan

    The best way to ward off spending problems is to have a long-term business plan, according to Marc Knisely, CEO for Farm Credit Services of Minnesota Valley. The plan should outline projected income, expenses, cash flows and capital spending needs for replacement or expansion.

    “You control spending by making sure you have a plan you are working from rather than just spending out of your checkbook as funds are available,” he says. “If you don't have a business plan, it is easy to overspend, whether operational or capital assets.”

    The plan should extend five years, and you should review and update it regularly to avoid mid-year corrections. And it should include contingencies for disasters, Knisely adds. “Always make sure your plan contains enough margin so that a 25% yield reduction, like some people will face this year, won't be the end of the world.”

  2. Keep good financial records

    Records such as income statements, cash flow statements, profit and loss statements, and forecasts are critical to managing spending and assessing the financial health of your operation. You should spend a few minutes each month reviewing year-to-date statements and comparing them to income projections.

  3. Study the averages

    Comparing your costs of production with averages for the state can help determine if you are overspending. These records are available in most states through your local ag extension service or commodity groups. Look for records that break out costs between high and low profit producers to see if you are doing well or poorly, advises Mike Duffy, agricultural economist with Iowa State University.

    “Our studies of profitable grain-producing farms show that, in general, the high-profit farms do everything just a little better,” Duffy explains. “They have more attention to detail. The amount spent for seed, chemicals and fertilizer is a little lower. Yields are a little higher, and so forth.” He says knowing your fields and adjusting inputs and practices to specific field conditions are management issues that are important to lower spending.

  4. Carefully evaluate new technologies

    “Some of them will truly make more money,” Duffy says. “But others are simply whistles and bells that increase costs but not the bottom line.”

  5. Farm for your circumstances, not the neighbors

    “Too often we worry more about what the neighbors will think rather than what will work best for us,” Duffy adds. “We all want to be accepted. Some want to be admired. But there can be trade-offs between those goals and keeping costs low for your fields and circumstances.”

  6. Form a machinery alliance

    Machinery is one of the highest input costs in row-crop production. Forming a machinery alliance with other growers can reduce this cost without sacrificing competitiveness, offers Howard Siegrist, ag extension agent with Ohio State University, Licking County. “For example, one grower could own a 24-row planter, another one a 40-ft. drill and a third person could have a couple 12-row corn heads,” Siegrist suggests. “Or they could go in together to buy one big machine.”

    Look for an alliance that complements your areas of expertise to cut on services you'd otherwise have to hire out. “For example, one of the partners may be good in purchasing,” Siegrist explains. “Maybe another is strong mechanically or in field operations. So look strategically at what kinds of alliances you can make. And it may not be the grower next door but one 20 miles away.”

  7. Custom hire technology

    If you want the benefits of new technology but don't have enough acres to justify the expense of owning, you should consider custom hiring as a way to secure specialized equipment, Siegrist adds.

  8. Grow specialty crops

    Farmers can get more value out of their crops by growing crops that command a premium, Siegrist says. “For example non-GM soybeans can command a $0.30 to $0.40/bu. premium over non-GM soybeans in our area,” he says. “So those kinds of opportunities are critical and exist in every community through grain merchandisers or certified crop advisors.”

  9. Be a prudent buyer of biotechnology

    Siegrist says farmers need to be more aware of the pests and disease problems in their fields and more informed about the disease resistance and tolerance that specific hybrids and brands carry to prevent overspending on technology. And he says some pest control programs such as Liberty Link or Lightning do not carry a surcharge. He advises that you “take the initiative to ask questions and secure the information you need to make a wise choice.”

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