Control the controllable
November 26, 2014
Agriculture is a unique industry. We are manufacturing a product and have very little control over the end price.
The global market has become so large and volatile that it has become very clear that we as producers in South Dakota have very little control in determining these prices. Instead of getting frustrated by this and focusing on the things you can't control, your time would be far better spent focusing on controlling the things you can. As we all know, 2015 is going to be a year with tighter margins than we have had the past few years, so a few suggestions of things we can control would be:
1) Expense management – Look at areas where you can cut expenses without sacrificing yield and income potential. As you look at areas to cut expenses for 2015, I would propose not making significant cuts to your genetic or agronomy practices. Rather, focus on reducing family living expenses, delay or decrease capital purchases, and quit outsourcing. By quit outsourcing, I mean you should look at doing some of the things yourself again that you found it easier to pay someone for the past few years (e.g. building fence, repairs, trucking, etc.).
2) Know your numbers – You NEED to know YOUR costs before making 2015 production decisions! You need to run break-even projections and cash flow projections using both direct expenses as well as your specific overhead expenses before making decisions such as changing crop rotation, adding or getting rid of land, buying or selling assets, and culling/expanding cattle herds. Without doing this, how can you know if you are making a good decision or a bad one?
3) Manage your tax liability, don't postpone it – Don't let your tax man be your marketing and agronomy advisor! Understand that taxes are a consequence of making money and need to be managed, so there needs to be room in your cash flow to pay taxes. Doing everything you can to avoid taxes often leads to making poor management decisions that don't alleviate the tax liability, they just simply defer it. Meet with your tax advisor often before making big decisions.
4) Make and follow a marketing plan – You MUST have a marketing plan of when, where, and how you plan to sell your grain and livestock products. At this point in the year, you should know exactly what your costs are into your 2014 grain and market livestock. Anything that is unpriced you need to plan for when and for what you need to sell it, and how to protect that price from going down. If you can sell it or lock in a price for more than you have into it, that is called selling at a profit, which is a good thing! The same recommendation can be made for 2015, at this point, you know nearly all of your costs, and by making a conservative estimate on yield and price, you can start marketing the 2015 crop. As you are pre-paying for your inputs in the next month wouldn't it make sense to hedge that decision by pricing the output?
Recommended Stories For You
If you would like help with any of the above suggestions, the instructors from the South Dakota Center for Farm Management can help. Please contact us at 605-995-7196 or firstname.lastname@example.org