Improve Your Farm’s Profits with Financial Planning

As harvest ends, focus on next year’s crop planning by understanding break-even costs and budgeting inputs. This will boost profitability and enhance your negotiating power.

October 18, 2024 03:59 PM, Farm Journal

Improve Your Farm's Profits With Financial Planning - AgWeb

By Heather Gieseke

When harvest winds down, it’s tempting to look forward to a few weeks of rest. Not so fast.

Your next step should be financially planning next year’s crop to get a jump-start on profitability estimates. Many farmers are quick to look back at what the markets have done or the sales they made and use that as a strategy for the year ahead, which is exactly what you shouldn’t do.

A healthy strategy starts with understanding your break-even costs and budgeting your inputs. Getting specific about your seed and crop health plans, and budgeting those in advance of making purchase and crop sales decisions, can elevate your negotiating skills and save you more than you realize in the months to come.

Put Pen to Paper

Transportation, drying, storage costs or opportunities, tillage passes and hired help are often the most overlooked factors in a break-even analysis, not to mention expanding your markets. Whether it’s with pen and paper, an Excel sheet or another software tool, having a detailed financial plan aligned with your storage and delivery capabilities ahead of input purchases just might be the single most important task you do for your farm operation.

• Get down to the field level. To start, analyze what’s happening on each individual field. What’s the reality of pest control, fertility, seed, labor and fuel expenses?
  Think about your transportation costs. Where do you typically deliver that field’s grain? Are you selling enough bushels prior to harvest to manage your storage capabilities, or are you still in the trap of selling grain over the scale or storing it at the elevator?

• Project profits. Determine what profit you realistically hope to achieve. Then narrow your budgets for purchasing decisions and establish marketing targets aligned with your break-even costs and projected income numbers.

For grain sales, are you paying attention to cash prices only? Strategic basis and futures decisions can be a big opportunity to improve revenue, so set targets for each. Are you exploring all your markets or just the most logistically convenient?

For inputs purchases, if you come to the negotiating table equipped with 2024’s numbers and a budget for 2025, you will be far more impactful than haggling a few dollars here and there.

Be Diligent

This kind of discipline on your break-even and profitability goals will make purchase decisions and marketing your grain less emotional and overall less stressful. Remember, the most important decision you make for next year might depend on the calculations you make before you sit down to Thanksgiving dinner.