With increased volatility and anxiety about low commodity futures prices and wide cash basis prices, we wanted to share with you a management checklist from Dr. David M. Kohl, Professor Emeritus in Agricultural and Applied Economics at Virginia Tech. Hopefully, this will set a plan in action to get your “house in order” before planting season.
Do you know your cost of production? What are your true break-even levels?
Don’t forget about items like equipment payments, taxes, etc., being off by a few dollars and cents can make all the difference in the current Ag economy.
Use your cost of production figures to determine your break-even point. Being optimistic is great, but being REALISTIC will save you a lot of headaches.
Do you have a modest family living expense?
Do the math! Have you limited unnecessary expenses? Be honest with yourself.
Have you shed non-productive and/or non-economical assets?
Do you have a farm that’s not making a profit? It may be time to give up the cash rent and move on. Take an inventory of your machinery and equipment; are you utilizing all of it? Is it possible doing a lease versus buying outright may be a better fit? Maybe you can get by with the bare minimum. It’s time to cut the fat.
Do you have a written improvement plan? Do you practice the four corners of business success? Plan, strategize, execute, monitor.
Write it down!
Make a farm production plan, strategize the “what-ifs”, execute the best solutions, monitor your progress and be able to change the plan if/when needed.
Do you execute a grain marketing plan? Understand your risk tolerance. Do you sweat the small stuff?
Waiting to sell grain until year end is not a marketing plan. What is the best grain marketing plan for your operation? Paper contracts or physical contracts? Should you forward sell? How much?
Risk tolerance is about your readiness and aptitude to assume risk. Can you handle the swings in the market? Do you have the tools to execute contracts based on your grain marketing plan? There are numerous tools available to you; from more complex to more basic. Don’t be afraid to ask for help!
Do you have a handle on your record keeping?
Do you produce financial statements throughout the year, or only once a year when your bank asks? Don’t be a fly-by-night record keeper! Knowing your financial position at any given time will allow you to adjust your business and/or marketing plan if or when it’s needed.
Are you preparing for the next generation?
This transition generally takes place over several years. The incoming generation needs to establish a firm financial foundation as well as learning to manage the operation. The transition process must be well thought out and applied carefully, given the potential financial consequences to all involved. Plan ahead.
This blog post was originally written by Maggie Bietz , VP of Ag and Business Banking with First National Bank and Trust Company in Clinton, Illinois. TS Ag Finance and First National Bank and Trust Company both live under the TS Banking Group umbrella. To see the original post, click here.