5 Major Farm Income Set-backs to Avoid
With the spring weather approaching, preparations for crop inputs and seasonal labor are at the forefront. Every producer should try to reduce costs of production. Here is a list of major set-backs to avoid which reduce farm income:
- Lack of marketing plans. Either no plan, or waiting on pulling the trigger thinking price will go up loses money. Lack of forward contracting or no contracting decreases farm income.
- Decrease in milk price which is nothing new to dairy farmers. With this commodity being so volatile, you need to plan ahead. This can change from month to month.
- High rents. Weigh out how much it will take to put the crop in and get it to harvest. What is the maximum amount of rent you can handle and still have profit? Competing with the Joneses may not be profitable and may add stress to your financial health.
- Land values have been exaggerated in some counties. Do your research and get an appraisal. Ask the questions: What is the land worth vs. what is the land worth to me?; Does it help my bottom line?
- Most important – Know your working capital. This is an important number in the financing world. Working capital is what you have available after all your debts are paid. Many banks/financial institutions put increased weight on this figure when determining if you are eligible for a loan. Higher working capital and equity along with low costs of production should be the goal. Completing a year-end balance sheet is essential.
In closing, every producer should ask themselves the following questions:
- What am I doing well?
- What can I improve?
- Which products am I currently using that are working/improving my bottom line?
- Which one’s aren’t?
- Where can I make changes to improve my overall farm financial health?
Maybe you know some of the answers, for the ones you don’t, that is where you start the planning process to improve your financial position.