“What changes are you looking at in your operation for 2016?” If the 2014 and 2015 production years worked well, then maybe no changes are needed. If you struggled to pay all financial obligations or burned through capital reserves, then maybe a change is in order.
To be proactive, I am asking producers to start with closely examining at least three components of their operation for ways to manage costs more effectively and improve efficiencies in order to improve their profitability. That is not to say we need to cut costs but look at ways to improve efficiencies and produce that maximum economic yield.
That said, I think everything should be on the table for examination. That includes seed and seeding rates, fertilizer, herbicides, insecticides, fungicides, machinery, insurance, labor, land costs, and family living. Pick three inputs from that list or something in your own production scheme and explore ways to improve. If you can conquer three, then pick another three to work on.“Managing the Margins: 2016” is a Southeast Farm Press series providing information and strategies to manage the financial risks associated with farming in the Southeast. Click for more articles in this series.
Change is difficult, but it was Albert Einstein that said ‘If You Always Do What You Always Did, You Will Always Get What You Always Got.’
This is one of those years where producers will have to make a change either in their production or some other facet of their operation. Other areas of the operation to look at include how much family living the operation can support, do I need to refinance existing loans, and can I liquidate a lesser productive asset to reduce debt.
Who is the risk taker and decision maker in the operation? The quick answer is it is the producer! Producers sometimes need to remind themselves of that and make sure that they are the one making the critical decisions on the farm and are not abdicating that responsibility to someone else who does not have a financial stake in the operation.
I have noticed successful operations tend to gather information or recommendations from multiple sources whether it is Extension, consultants, lenders, farm suppliers or others and then make a decision. To be fair, it is only the producer who has the full overall picture of the operation and can make the informed decision.
Stress with added stress
At current commodity prices and expected costs of production, this looks to me to be a potentially stressful year. Farming has always been a somewhat stressful occupation. I encourage producers to be mindful of that stress and take breaks when working long hours, keep a check on your health, and talk to a trusted friend when needed.
The Cooperative Extension Service in each state is available to assist producers in farm, financial management as well as examining the finer points of your production system and can help you become more efficient. In Tennessee, the University of Tennessee Extension has a MANAGEment Information line at 1-800-345-0561 that producers can call for assistance or call your County Extension office.
In Tennessee, we have had above-average yields the last two years, but due to increased costs of production and lower commodity prices our net cash flow (gross income – expenses – debt payments – family living and income taxes) has decreased and in many instances gone negative.
Where have our returns been the last 10 years and projected to be this year? I have looked at The UT Extension crop budgets since 2006 and coupled that with the Tennessee state average yields and prices received as reported by the National Agricultural Statistics Service.
The graph shows what soybeans look like. I think this is a fair representation of Tennessee profitability on soybeans. For the most part, we achieved a positive cash flow after variable, fixed, and land (25 percent of gross income) were taken out.
Some years, 2009, 2011-2013, were fairly profitable. The other years were slightly above all costs with 2015 having a negative return along with a negative projection for 2016. In that time period, our budgeted production costs have doubled. However, that is more a result of the realization that weed resistant issues exist and can be expensive to combat and try to control. I also want to point out that we have been in similar situations like this year and have managed to survive and rebound.
From the chart, 2007 and 2008 were not much above the $0 line and rebounded in 2009. The 2010 production year was about breakeven then led into several years of profits. So, we have been here before, however, to survive this year, adjustments will need to be closely looked at.