October 31, 2016
After another year of down commodity prices and tight margins, farmers and ranchers across the U.S. are looking at ways to tighten their collective belts. It isn't something that's necessarily fun, or easy to talk about, especially for my fellow millennials, the next generation of producers who haven't quite been around long enough to remember when times were tough.
Still, it's something that producers need to discuss, especially if they’re considering or in the middle of expansion, or are passing on the operation to the next generation. As you'll read about in the December Nebraska Farmer, data plays a key role here, not just on the production costs side, but when managing finances and marketing too. If you don't measure, you can't manage — and that's truer now than ever before.
With that in mind, here are four things producers can do this winter to tighten their belts for 2017:
1. Watch your capital expenses. It can be a challenge to define which capital expenses this refers to, because every farming and ranching operation is different, and capital investment decisions change every year. And it doesn't mean cutting expenses and not spending money altogether.
"It's a matter of being disciplined, buying what we need and what can return an investment, as opposed to what can be fun or looks good," says Tina Barrett, director of Nebraska Farm Business Inc. "It might be a new feature that you need to make sure you're going to use to get the most return out of. Yield monitors, GPS and mapping data are an example; most people don't use this technology to its fullest potential. We're spending money on things that we know could use to improve efficiency, but if we don't take steps to implement the data, we're not realizing a return."
2. Position yourself to take advantage of opportunities. This is broad-speaking, but on a more specific note, if you're considering expansion, it might be worthwhile to take a look at your balance sheet and consider whether refinancing is a good idea. "We talk about refinancing for those that are struggling, but it's not necessarily a bad idea for those that are interested in expansion," Barrett says.
Refinancing may be an opportunity to restructure debt and income working capital to help make upgrades in equipment or land when those opportunities present themselves. "There could be assets for sale [and] opportunities available to producers who have cash available to take advantage of new upgrades like land or equipment if their debt is positioned correctly," Barrett adds. "The downside would be that we're stretching that debt out longer, so we're paying interest longer. It's a matter of balancing, having cash available and having the option to make those choices when they arise."
3. Make sure you're spending money on inputs that bring a return on investment. Of course, input costs can't be cut in certain areas, like fertility and herbicide programs. Growers know that taking the ax to their nitrogen and weed control programs would be severely detrimental to yields, but what about those extra inputs applied when corn was $7 and soybeans were $15? That's not to say those inputs didn't result in a yield increase, but it's important to consider the game has changed.
"If something costs $20 per acre and we made an extra 4 bushels when corn was $6, we saw a return of $24 per acre. Now we're looking at a return of $12 to $16, so that 4-bushel increase is costing us now," says Barrett. "You have to ask yourself, 'Is it still making sense to do that with lower commodity prices?'"
4. Be willing to farm based on data. Getting through down economic times might mean thinking differently. As you'll read about in an upcoming print magazine of Nebraska Farmer, thinking your way through this can mean using data to build confidence in your decision-making and take the emotion out of management.
"I think it's going to take some real tough thinking about everything — whether it's production, or financial or family living, any of those things that are going to affect the operation," says Barrett. "We may need to get out of that comfort zone. We may need to stop farming based on experience and start looking at what data and research are telling us and try something a little different, if we're hoping to get a different result."
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