1) We don’t know how long this market will last. Despite China’s promises under the phase one trade deal, I think it’s fair to say that no one really expected it to buy 1 billion bushels of corn. Farmers have planted more acres this year, leaving soybeans in a historically difficult situation. Now, with the drought taking its toll, supply constraints are on the table. But will China continue to buy at this rate? While the experts we spoke to say these prices are likely to persist for another growing season, the picture is much more uncertain from year to year.
2) Stay disciplined. The uncertainty over how long this price environment will last means that farmers need to be careful. When demand for corn recovered to higher levels during the ethanol boom, some farmers abandoned their marketing plans. Always chasing the top of the market, many never made it and lost a lot of profits when the market fell. Almost every banker, economist and analyst we interviewed stressed the importance of sticking to your marketing plan and selling grain when profitable opportunities arise.
3) Higher input costs are coming. Land expenses are one of the most important items in a farmer’s budget each year. Commodity prices started to rise last fall and, in most cases, have not been factored into rent negotiations. Expect them to play a role this year and start talking to your landowner now to make sure they understand the impact on your business. Plan for more expensive fertilizers and chemicals, as these have been hit by both high demand and supply chain disruptions. Input costs are rising rapidly but falling slowly. Start planning it now.
4) Think about what you can do to increase returns. Yes, that may be largely out of your hands this season, but what we’ve heard in our reports is that many farmers have switched or are moving to variable rate application for inputs. It will help to reduce this input tab and increase efficiency. David Hula, who holds the world record for corn yields, suggests investing in technology that even facilitates emergence, which he says is key to yields. Others say they are replenishing micronutrients or considering sustainable farming practices that could earn a carbon credit or two, but are really profitable in their ability to increase yield potential.
5) Reduce your debt and build working capital. It might sound clichÃ©, but it’s true: money is king. When the tide rises in prices, having adequate cash reserves will help. Farmers have largely depleted their reserves in the last twist of the low income years. Now is the time to rebuild it. Keep expenses under control and put some of those profits into savings. Taking steps to lower your debt load also improves your breakeven prices, so when corn and soybeans sell for much less at the grain elevator, there’s a better chance you can come up with a plan that works.
6) Invest wisely. Most of our experts have suggested building working capital rather than buying land or new equipment, but if you are planning on making a large purchase, think carefully about the impact this will have on your cash flow for five or more. ten years. If it increases efficiency, like grain elevators, or helps increase yields, that is much easier to justify. Avoid the trap of buying something new and shiny just to lower the tax bill. Sometimes it can be difficult to calculate a return on your investment for a new technology, but make sure that it has a purpose and brings something beneficial to the operation.
I’m sure this list is far from exhaustive, and I can’t help but wonder, what are you doing on the farm to prepare your business for success? Let us know in the comments section, or by sharing your thoughts with me at firstname.lastname@example.org.
You can read more about the price outlook in the first article in this series, “Farm Revenue Driven by Chinese Demand, Drought Concerns” here: https://www.dtnpf.com/â¦
See our second article, âFarmers willing to spend money on crops if yield potential, return on investment is promisingâ here: https://www.dtnpf.com/â¦
The third installment in this series, âContact the landowner now to facilitate rent negotiationsâ, can be found here: https://www.dtnpf.com/â¦
The fourth article in this series, “Maximize Profit With Smart Grain Marketing”, can be found here: https://www.dtnpf.com/â¦
You can read more in the fifth plays in this series, âBoost Your Bottom Line by Building Cash Reserves, Investing in Income-Producing Assetsâ here: https://www.dtnpf.com/â¦
The final story, âHow to Get the Best Shot for Your Tech Buck,â can be read here: https://www.dtnpf.com/â¦
To see a Reporter’s Notebook video on the series, see https://www.dtnpf.com/â¦
Katie Dehlinger can be contacted at Katie.email@example.com
Follow her on Twitter @KatieD_DTN
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