What you can do about potential farm net losses in 2015

What you can do about potential farm net losses in 2015

5 things farm managers should consider now to avoid steep farm losses in 2015

With the high likelihood of farm net losses this year, many farmers have been asking our agriculture finance specialists, "What can I do about 2015?" to impact any projected farm losses. It's a broad question, but it's the right question to be asking.

Related: 6 ag economic indicators to watch now

The best thing is that by asking "What can I do," you're focusing on how you can take action, to positively impact your year as much as possible. You're not just sitting back, hoping that something will change, or wishing that the situation was different. You're seeking farm financial advice, looking at your options, and making decisions. It's a proactive approach.

5 things farm managers should consider now to avoid steep farm losses in 2015

Here are five areas to consider as you ask yourself and your ag financial advisors: "What can I do about farm losses in 2015?"

1. Get creative with your crop plan. In the past several years for crop farms, maximizing return has often meant planting corn and maximizing yield. However, with lower corn prices in 2015, there can be instances when a lower-cost crop has the potential for a better margin than high corn yields, because corn requires such high input investments.

Alternatively, corn farmers might consider raising corn varieties that have a premium attached to the price. It's important to explore all options, not just traditional corn and soybeans.

2. Maintain an open line of communication, particularly with your lenders and creditors. Most of them already know that the farm financial outlook for 2015 isn't very promising. When you keep them informed about your farm business' financial situation, you're helping to ease the uncertainty and angst they may be feeling.

3. Evaluate opportunities to invest upfront for long-term savings. There may be improvements that you can invest in now, and reap the benefit in savings over the next few years. Always run feasibility studies to compare costs and to determine the amount and period of savings before deciding.

Some ideas are:
• Spread manure rather than use commercial fertilizer
• Engage in preventative equipment maintenance instead of buying new equipment or risking downtime
• Invest in smart technology and data management

Know your numbers, do your books >>

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4. Know your numbers. Without accurate financial information and strong knowledge of their farm business' numbers, farmers can sometimes be surprised by poor profitability or balance sheet outcomes.

Nothing makes a bad situation worse than being unaware of the bad situation. Your ag banker doesn't like those surprises, either. There's not a lot of margin for error right now, so don't create one with bad data.

Related: Managing in a downturn: Advice from a Silicon Valley giant

Regularly review your farm financial statements and projections. Ensure the information matches your expectations and your farm books. Base your projections on solid, reasonable expectations.

5. Keep your books up to date. Compare historical information with farm business projections so you can anticipate any changes to your expected results. When you're aware of potential problems before they happen, there's time for problem-solving. But if a problem catches you by surprise, then the only option is damage control. For farms that need to boost their information systems, it may be time to investigate software or other options to help manage farm data. For farm businesses that already have data management in place, then it's a matter of allocating time and effort to those processes, so the information stays highly accurate.

Read the new Spring issue of our free Smart Series publication to get 10 farm bookkeeping tips from a CPA, ideas on preparing the farm's next leader, how one operation is preparing for the complexities of the future, how weather could affect the markets this summer, and four areas to consider in preparing for planting.

The opinions of Darren Frye are not necessarily those of Farm Futures or the Penton Farm Progress Group.

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