AG FINANCIAL PLANNING PREPARED BY PAUL C HAY, EXTENSION EDUCATOR

Transcription

1 The points on these slides are my thoughts and explanations of ideas gleaned from presentations by Michael Boehlje, Purdue University Ag Economist: Tina Barrett, Nebraska Farm Business Association: Kansas City Federal Reserve Bank Economic Review and other publications: Larry Kopsa, York, Nebraska CPA Ag Newsletter and BLOG.

2 Maintain Cash Reserves Working Capital is the first sign of a decaying financial picture. Financial officers are already reporting eroding working capital positions. With current prices and costs we could burn $50 to $100 per acre in working capitol per year.

3 Control Costs The extra s in every area need to be part of the cost control picture. These include fertilizer, fungicides, insecticides, feed, mineral, rent, family living, etc. Bigger items have been seed, equipment, equipment repair for rough operators, overly aggressive rents. Focus on cost per bushel and/or cost per pound versus cost per acre and feed cost per year.

4 Extend Debt Repayment Recent land, building and major equipment purchases have been paid for with a pretty aggressive repayment schedule. Even if you don t need to adjust these right now, it would be wise to at least discuss possibility with your lender.

5 Buy Inputs Right There are always opportunities. If we keep our working capital position in order we will be in place to consider options. We need to carefully analyze these opportunities with Financial Planning Glasses.

6 Manage Price Risks Crop Insurance protection allows you to forward market 30-40% of your future production. I believe that is a good choice if prices allow for a sale above the cost of production, even if the margin is slim. Market the remainder of the grain in increments starting with harvest sales, selling the peak out of bins, commercial stored grain and then farm stored grain. This should be complete a month ahead of harvest. I believe that forward pricing livestock inputs is a better approach than trying to price the livestock, except those under contract.

7 Farm Program Elections Hopefully you used a robust election model like the Texas A&M Decision Aid Model to make the best risk management decision for your farm. The Farm Bill is done for the next years. I would normally remove this point of discussion except that CRP, CSP, Crop Insurance, Conservation program options and Special funded programs always offer opportunities for income and cost-share.

8 Update Production Skills Along Highway 4, West of Campbell in March 2015, I saw a 3 foot deep road ditch completely filled with soil. It is sad that the permanent damage to that farm occurred because that traditional farmer had not updated their production skills to no-till methods which protect the land, increase yields and reduce costs.

9 Diversify, Livestock, Service, Off-farm Income Additional income and reduced risk can come from contracting crops or livestock. Think of these in broad terms. Could add a contracted swine or poultry building. Could add grazing to your corn acres and even care for cattle and not own any. According to your skills and equipment a service repair, or sampling, or scouting service could be done. You can farm quite a few acres with minimal equipment tractor, planter, sprayer while maintaining a full time job.

10 Off load overburdened debt or better manage the debt. Both landlords and tenants are going to see reductions in returns on land in the coming years. The old standard was 6.5% return. This was 4% return to the land owner in cash after taxes and expenses and 2.5% return in property value gain. Both of these values are going to be strained. We have increased costs, increased taxes, lower grain prices and perhaps a stagnant land market.

11 Communicate with Lender & Succession Planning Open and honest discussion will likely lead to much better results Business Succession planning for the operation is a must. Adding uncertain and differing family thoughts in the middle of the economic downturn could spell disaster.