“Certain things can be changed for improvement, but farmers have little or no control over other challenges in their operations.”
Parry Briggs from Frontier Farm Credit emphasized that point at the 580 WIBW Farm Profit Seminar in Alma.
“With so many challenges in today’s world, focus on what you can control,” Briggs insisted. “It is your operation, so take ownership by putting yourself in a position where you are making the right decisions.
“Be intentional about managing your business,” he encouraged.
Today’s successful producers have a dozen like characteristics separating them from financially problematic farmers.
They are, according to Briggs, “adaptable, business oriented, connected, determined, efficient, evolving, informed, innovative, planners, proactive, resilient and strategic.”
Charts from Virginia Tech University revealed differences between proactive producers and reactive operators.
Those among the top 40 percent, the speaker said, “make incremental improvements.” They sell crops at higher market prices, pay lower cash rents, and keep fertilizer bills down.
“These farmers utilize a systems approach, have sound financial management and modest living expenses,” Briggs said.
At the opposite end, reactive producers, the bottom 30 percent of farmers, “lack financial skills,” Briggs pointed out.
Many have a “minimize taxes” mentality so that with marginal resources they’re devaluing machinery, equipment, and buildings.
“These reactive producers often think they know it all, or feel like they’re victims of the system,” Briggs said.
Living and maintenance costs are high for their families, but “demographics are cycling them out,” the financial official recognized.
Profit can be increased by becoming a low-cost producer. “The low hanging fruit has been picked and only goes so far,” Briggs exclaimed. “It’s important to reduce input costs.
“This can be accomplished by curtailing, postponing or downscaling capital purchases such as vehicles and machinery,” he advised.
Bigger changes relate to the four “Rs” of overhead and fixed costs, Briggs explained.
He recommended farmers “re-amortize owned land, refinance machinery, renegotiate rental land and re-access living expenses.”
Analyzing and adjusting fixed costs of crop production could reduce the gap by $50 to $100 an acre, Briggs calculated.
It’s essential to build a team to help make management decisions. “Know your strengths and weaknesses as an operator and manager and align those with a team of experts,” Briggs insisted.
Included could be a crop insurance agent, commodity broker or merchandizer, input expert and the ag lender.
“Don’t overlook the internal team,” Briggs demanded. “Communication between partners is key, spouses, family members and others who might be a part of the operation.”
In today’s farming economy, lenders are an essential part of management. “Communicate early and often,” Briggs urged. “Have a plan during meetings, yet be flexible and open to ideas. Remember everyone wants success.”
Many producers don’t even know if their farm is profitable, or what the breakeven point is, according to the speaker.
“Know the economics of your business,” Briggs recommended. This starts by reviewing costs of production for crop and livestock in the past year.
“From that, budget and plan for the future,” he clarified. “Focus on specific costs and use budgets to project financial position for the year’s end. But, make sure to update projections regularly.”
Marketing is still the final line for farm profits. “Formalize a marketing strategy, execute it, post the plan and hold team members accountable,” Briggs ordered. “Intentions are never always right, but they do help identify opportunities.
“Always remember, marketing goals are not getting the highest price,” he said.
Successful marketing plans incorporate budgets, help with in-season financial projections, consider cash-flow needs and involve timing and management tools.
Farmers should think about their business strategically and execute plans for higher profitability.
Briggs told producers to carefully manage both risks and investments, while considering long term goals including estate and transition plans.
In summary, the financial advisor said, “Focus on what you can control and plan around what you cannot.
“Better margins will return, but stay disciplined. Opportunities will come, so be prepared for them.”