We have now past the midway point for the 2023 calendar year. We are carefully and optimistically watching our crops develop as well as keeping tabs on global events. It has been another wild year with crazy weather and its effects around the country, from areas of drought and high heat, to areas where excessive moisture has produced standing water and flood warnings. The upheaval in Eastern Europe, Russia’s ongoing attempt to take over Ukraine, continues to create a variety of issues around the globe. With all the issues taking place, we are seeing variability and fluctuation in commodity prices, both positive and negative, and we can sometimes get dizzy thinking about all of the “what ifs.” When this happens, we choose not to want to think about it, and it simply creates management decision paralysis. We need to eat this elephant one bite at a time, and possibly request some assistance from the right individuals. Make sure you have the right information to make the best decisions that can be made to prepare for the rest of the season and year.
This is a good time to take a few steps to ensure you are on the right track for risk mitigation.
- Have you scouted your crops to estimate yield, barring any late-season weather-related disasters? Does this match your marketing plan, or do adjustments need to be made? For livestock, do you have the feed necessary on hand/or being produced? Does additional feed need to be purchased? What options are available to lock in prices and supplies that allow for profit?
- Review your marketing plan and determine if any changes need to be made. Is it time to look at additional hedging or spreads opportunities to help mitigate price/marketing risk?
- Do you have labor available and can you afford what is needed? Is mechanization required to cut back on labor, and does it pay to do so?
- Have you run cash flow estimates for where you believe you will be at the end of the year? Do you need to make adjustments, prepare for tax management strategies before the end of the year, cut back on expenses, increase sales of culls, other inventory to access cash, etc.?
Although the above-mentioned situations are things that we normally think about, we typically don’t give the thought each of those deserves as we get overrun with daily tasks on the farm. However, a mid-year check to mitigate risk may offer the opportunity for the farm or ranch to increase its cash flow. There are a number of resources available to assist farms and ranches in understanding the decisions to be made, and possibly even performing a true analysis of the farm financials. You should begin by contacting your local farm management/agribusiness Extension staff, legal and tax professionals, and others. But it must start with a plan, the farm/ranch goals, objectives, and knowing your numbers. If you do not have a way to collect the “numbers,” including production, income, costs, etc. or able to produce an easy way to review the information, you may be making decisions based on information that is incomplete at best.
With the variables presently at play today, it’s time to take a deep dive into what shocks your farm/ranch enterprise(s) can handle to determine the farm’s economic stability and sustainability. But without knowing the farms’ “numbers” the owner/operator will not know how to appropriately plan for potential changes.
Reach out to your local Cooperative Extension service and your legal and tax professional. Additional resources and tools can be found through your local Cooperative Extension website, and at ruraltax.org (www.ruraltax.org), Center for Farm Financial Management (https://www.cffm.umn.edu), National Council of Agricultural Employers (NCAE) (https://www.ncaeonline.org).