November 1997
Prime Time for Farm Planning
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
In business, however, cash flow budgeting is considered short-term operational planning, according to Dan Manternach, president of Professional Farmers of America.
It's not strategic, and it's not tactical, says Manternach, who led a successful seminar for members of the Minnesota Association of Wheat Growers earlier this year, and who will keynote the North Dakota Grain Growers Association Convention in Bismarck December 10.
And contrary to popular belief, Manternach says strategies and tactics are not even interchangeable terms.
Rooted in military parlance, strategies refer to broad objectives for winning the war, while tactics refer to specific moves for executing the strategy.
Applied to farming, you need to set specific lifetime goals first, says Manternach. Then, think of strategic planning as deciding what you need to do to reach your lifetime goals, and tactical planning as deciding how you're going to execute each strategy.
STEP ONE:
Set your lifetime goals. Not just financial in nature, lifetime goals should include spiritual, health, and family/social goals, as well as business and financial goals.
Examples of strategic lifetime goals:
Continuous improvement as a husband/wife, father/ mother.
Staying physically, mentally and emotionally healthy.
Strong community reputation, strong Christian.
Cultivating friendships, making peace with enemies.
Achieving ability to maintain desired retirement lifestyle by age 65.
Ability to help children continue farming if they wish without compromising retirement security for you and spouse.
Minimizing potential estate taxes for heirs.
Increase net crop income to $50 per acre or better.
STEP TWO:
Develop the tactical plan for achieving each strategic goal, and actions to take place over one to three years. Example of a tactical plan for a hypothetical farm:
Strategy No. 1: Be farming 2,000 acres within five years
Tactic A: Rent at least another 160 acres yearly.
Tactic B: Hire seasonal help to push equipment around the clock during planting and harvest.
Tactic C: At 1,600-acre plateau, trade combine to upgrade tillage/planting equipment and switch to 3-year combine leasing.
Tactic D: Scout beyond local area for rental ground and purchase used equipment trailer if necessary.
Strategy No. 2: Increase net crop income to $50 per acre or better.
Tactic A: Handle first 400 acres of additional land with existing equipment, spreading fixed costs over more acres.
Tactic B: Review crop enterprises and input costs.
Tactic C: Have a marketing plan in place and properly execute it.
Tactic D: Invest in yield monitor for combine and begin adopting precision farming technology to increase efficiency.
Strategy No. 3: Get debt below 33% of asset value and 50% of equity
Tactic A: Stop feeding cattle. Limit use of facilities to custom feeding if possible, or simply shut down the feedlot.
Tactic B: Resist temptation to make major upgrades in lifestyle (such as new house or luxury vehicles, etc.) if successful at raising crop income to $50 per acre. Reward family and help to celebrate, but plow the rest into debt paydown.
Tactic C: Sell off unused equipment.
Tactic D: Encourage son to take off-season job to build savings for eventual purchase of operation.n
Plan For Market Transition
It's a good time to put a plan down on paper for your farm, if you haven't already. The midway point of the "market transition" is about a year away. The new farm bill means increased price volatility (which can be friend or foe), shorter price cycles, and fast shifts in cropping intentions. More land coming out of CRP, and a string of poor crop years are also key factors to consider in a farm plan.
How can you capitalize on these trends? Where can you cut costs without affecting profitability? Evaluating your options and implementing strategies best suited for your operation is what farm business planning is all about.
Your lender, county extension educator, market advisor, and local vocational ag instructor, are all farm planning resources to consider.
Another key resource that can assist in planning is the Farm Business Management program.
Farmers who enroll in the FBM program learn more about properly managing their farm finances, analyzing their farm enterprises, and farm planning.
Greg Kalinoski, one of about 20 FBM instructors in western Minnesota, says the program helps farmers answer three questions in forming a farm business plan:
1) Where am I? Your lifestyle, current balance sheet, record keeping system, financial condition, farm enterprises, and overall profitability are evaluated. "This first step basically looks at whether you're making a living at what you're doing," says Kalinoski.
2) Where do I want to be? At this step, you form a plan and set goals for yourself, your family, and your operation. "You look at what could be changed, or needs to be changed," he says.
3) How am I going to get there? Here, a map for implementing tasks and objectives is drawn. "It's making the correct crop and livestock decisions," says Kalinowski. "Putting it all together so you have a plan in place for the next year and the future. This is basically what your lenders want to know also, what your plan is down the road."
In western Minnesota, the FBM program is coordinated by Northland Technical College, Thief River Falls, Minn., ph. 218-681-0800 , or toll free 800-959-6282. The FBM program in North Dakota is coordinated by Joel Janke, ag education supervisor at the department of vocational education in Bismarck, phone 701-328-3167. The FBM program in South Dakota is coordinated by Gary Gray, program education representative, division of work force career preparation, ph. 605-773-4726.n