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2016 is going to be tough…now what?

Jared A Hofer
Mitchell Technical Institute
farm design
Getty Images/iStockphoto | iStockphoto

If you have been attending any producer meetings, talking to suppliers or lenders, or reading articles (including mine, sorry), you know that 2016 is going to be a challenging year. Now that you know that, what will you do about it?

The first thing you need to do is know your numbers. You need to know first what happened in 2015. Did you make or lose money? Was one crop or livestock enterprise more profitable than another? Once you have quantified these things, you need to identify where you need improvement or where you can better capitalize. If 2015 was not very profitable, doing the exact same thing and expecting different results in 2016 is not likely your best alternative. Next, you need to put together a realistic 2016 budget/cash flow projection. By realistic, I mean using conservative, attainable yields and prices. This is not the place to be overly optimistic. The same process needs to be done on the expense side.

Once the projection is complete, you will likely see that the cash outflows exceed the inflows. Addressing this will require action on your part! This does not mean just borrowing more money, it means you will need to actively work on minimizing your cash outflows. To do this, you will need to learn (or relearn) the difference between wants and needs. Once you know the difference, you will use this logic to make reductions to family living expenses, capital purchases, and overall expenses.

ALL farm expenses need review. This includes your inputs: seed, chemical, fertilizer, custom application, crop insurance, fuel, repairs, land costs and custom application along with overhead expenses like labor, farm insurance, interest, property taxes, and professional fees. This means you need to have conversations with every one of your vendors of these products to see what can be done to effectively reduce your costs.

On the other side of the coin, you also need to focus on maximizing every possible way to generate revenue. One simple way to do this is by simply knowing your breakevens and becoming a better marketer. Every penny is vitally important. You can also determine if you have any unproductive assets that can be sold (boats, lake cabins, extra pickups or tractors). These assets are cash drains when cash flow is strong and absolutely kill you when cash flows are tight. Finally, is there any custom work or perhaps off-farm work you could do to bring in additional cash flow?

At this point you are sick of me telling you every week that it will be a challenging year, but what I write is true and I continue to belabor these points because they are extremely important. We know things will turn around eventually, but how you manage this year will likely determine if you will be around when things do finally turn around. So the best advice I can give you is know your numbers and use them to make good decisions. Our farm management program at Mitchell Technical Institute does not have all of the answers, but we do have instructors that will help you with everything listed above. If you would like to visit with one of these instructors, please contact us at 995-7196 or sdcfrm@mitchelltech.edu


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