Farm Management Minute: Review Your Marketing Plan
June 6, 2016
With planting season pretty much wrapped up and some critical USDA crop reports to be released at the end of June, now is the time to look over your marketing plans. If you recall, the planting intentions report was published by USDA on March 31st, 2016 and indicated much higher corn acres than one year ago, steady soybean acreage, and sharply lower spring wheat numbers. Now, keep in mind this report is based on a nationwide survey of farm operators during early March. Since then, there have been substantial changes in weather conditions and grain prices. Given the wet conditions in many areas, more corn acres may have been shifted to soybeans. There could also be subtler changes to your production goals such as increased fertilizer rates with the recent rally in grain prices.
Every operation has some type of marketing plan as a means to generate cash flow. They can range from simple break-even worksheets to complicated formula with several pricing targets. There are also plenty of advisors, marketing clubs, web-sites, blogs, etc. that can generate an overload of information and opposing points of view. My personal opinion is that marketing has never been easy but, with tight and/or negative profit margins and volatile market moves, those plans can be a little more difficult to execute. However, those producers with a solid handle on their numbers can greatly alleviate some of those stressful decisions. During this past winter, many cash flows were prepared for either your lender or yourself, and it likely was not a good outcome. That is why I highly recommend revisiting those numbers during June and make adjustments as necessary.
One of the major findings in not only the SD Annual Report but also the broader Midwest ag states was a significant drop in working capital in 2015. This term is defined as the difference between current assets and current liabilities. A key benchmark in analyzing farm operations is maintaining a ratio of at least twice as many current assets to current liabilities. One way to strengthen this ratio is to generate more revenue which is heavily dependent on marketing grains/livestock at a profitable level. As I stated earlier, each farm operator has likely altered their cropping plans in some fashion over the past three months, so invest some time re-evaluating earlier projections in order to take advantage of potential marketing opportunities. The planted acreage and quarterly stocks report will be released on June 30th which, along with key weather forecasts, usually produces some wild market swings.
For more information on the benefits of enrolling in the SD Center Farm/Ranch Management program, please contact me at firstname.lastname@example.org or 1-605-299-6760.