Feast for the Famine

By Betsy Jensen, NCTC Farm Business Management Instructor

One of the biggest surprises with the 2007 crop year was the profits, despite the fact that most of the durum and spring wheat was sold $10 too early. The projections for 2008 are also profitable and it is time for farmers to position themselves to “Feast for the Famine.”

The famine conditions will once again arrive to farmers’ income statements, and how you manage your cash during the feast can help you manage those lean years.  Ron Dvergsten, Dean of Management Education at Northland Community and Technical College recommends that farmers continue to manage the expense side. “Farmers do have some control over expenses, and mini-budgeting can help manage those expenses.” When profits are large, it can be easy to lose track of expenses, and pennies should still be pinched, even in the feasting years.

Dvergsten also recommends improving some efficiencies. Machinery expenses are one of the most variable expenses in the farm business management database. “If your machinery expenses are out of line, get someone to help you analyze your machinery to determine if they are truly farm expenses” says Dvergsten. “Killer toys such as snowmobiles and race cars are one thing that can end up on balance sheets and distort the machinery expenses.” When trying to compare your numbers to averages, always make sure to clean up your numbers.   Is your machinery investment appropriate for the size of your farm and your gross income? It is always nice to have new paint on the farm, but just because you have the cash to spend, doesn’t mean you have to spend it. 

The feasting years may also be the time to look at rotational changes. Are there alternative crops that are worth trying? Corn has been gaining acreage in the Northern Plains and contracts for specialty crops are quite favorable. The cash flow may have some room for rotation experimentation, and if those crops prove profitable, they may be able to support you in those lean years.  You may need to keep those rotation plans a secret from Dad or Grandpa who will insist they tried those crops way back when, but change can be good for your operation.

A final recommendation from Dvergsten is to pay down some smaller loans. “Try to pay off smaller loans with monthly payments or leases to free up cash for future years.”  Cash will be tight some time in the future, and eliminating some of the debt payments will help avoid the need for refinancing, or even turning operating debt into a term debt.  How you position yourself during the profitable years will go a long ways in determining how well your farm handles the lean years.   The famine will return, but enjoy the feast while you can.