Survivor's guide to low commodity prices: Cost cutting

Survivor's guide to low commodity prices: Cost cutting

Survivor's guide, part one: Focus on cost cutting in your farm business as crop revenue will remain tight in 2015

This is the first part in a four-part series running this week on FarmFutures.com. See links to the series at the end of this story.

Brian Kemp fine-tuned his planter this year to better control seed placement on his Iowa farm. In addition, his fertilizer may be rationed, too, as he focuses on cost cutting in a year when crop revenue will be tight.

Related: Innovative ways to cut 2016 crop costs

Kemp and hundreds of farmers like him are taking hard looks at their operations to find savings without reducing production or jeopardizing cash flow.

The solutions vary from farm to farm, but the goal is the same: reduce costs.

Iowa farmer Brian Kemp says he focuses on managing all aspect of his farm operations to control costs, as low crop prices may be the new reality.

"We can focus on our management practices, our fertilizer, our seed, our chemicals," he says. "We can make sure we are putting an adequate amount of nitrogen out there, but not too much. When times get tough, management gets more creative."

For farmers looking to cut costs, a number of ideas were offered in Farm Futures' most recent survey, where respondents said they will control seed and fertilizer applications, buy used equipment instead of new, upgrade and repair existing equipment, and set up crop share rents instead of cash whenever possible.

The survey also shows farmers are more worried about debt now, although most appear well positioned to survive low crop prices. Of the nearly 1,300 farmers surveyed in March, 44% said paying back debt was a concern. That number has continued a steady rise since crop prices peaked in 2012, when only 28% of growers said they were worried.

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Less than 2% of the farms surveyed met the classic definition of being financially "vulnerable." That is, they reported both losing money and a debt-to-asset ratio topping 40% — traditionally the benchmark of worry for lenders. While the percentage of farms has risen, it remains a tiny fraction of U.S. operations so far.

Worries about costs and debt are partly responsible for a 6-year-old, 24-row planter on Brian Marshall's farm getting an upgrade this spring, with sensors to monitor seed application. The changes are less costly than buying a new machine. There are even newer monitoring systems available, but Marshall said they were not in this year's budget.

"We keep putting new parts on it," says the Missouri corn and soybean farmer. "That is what we are putting our money toward this year."

Related: The habits of profitable farming

Marshall says regular on-farm repairs have allowed him and his father, Dennis, to rely on aging equipment to run their 4,000-acre operation. Their newest tractor is 10 years old but runs fine, and the one that pulls the planter is 14.

Business consultants and academics agree that Kemp's and Marshall's approach makes sense and will be necessary in the current economic climate. They also advise farmers to take advantage of low-interest operating loans, while being cautious to prevent high debt loads.

In addition, farmers should stay in contact with landlords and lenders to keep them apprised of their financial situation, and use springtime price rallies to sell any remaining corn, soybeans or other crops still in the bin.


Survivor's guide to low commodity prices: Cost cuttingPart one (current entry)
Survivor's guide to low commodity prices: Communicate with partnersPart two
Survivor's guide to low commodity prices: Free up cashPart three
Survivor's guide to low commodity prices: Survey saysPart four


TAGS: USDA
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