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There is a certain chill that has run through most commodity sectors this fall and it’s not just the weather. Uncertainty in trade, commodity prices, political stability – on top of the current weather challenges are all weighing on the minds of farmers in all sectors. Whether you are a grain, potato or livestock producer, the road ahead may be different but the action items from a financial standpoint are all the same.
Farmers who can grasp their current financial position and adapt their farm’s current and future needs, allows them to be better situated than their peers to take advantage of opportunities in the future.
Here are three of the questions to ask yourself as you plan for 2020:
What does my cash flow look like over the next 12 months? The best time to establish your next year’s cashflow in a seasonal business such as grain or cattle farming is in the fall once your crop is in the bin or calves are weaned. Between your inventory, your operating line and any government payments such as crop insurance or AgriStability, you need to have enough to cover any outstanding expenses from this year and get you to this time next year. If you think you will be short, you need to start planning now. There are other options such as trade credit and cash advances that can be utilized, but your banker needs to be involved in the discussion as early as possible. It shows them you are thinking about the problem and proactively looking for a solution. Even if harvest isn’t complete or cattle are still out on pasture, now is the right time to start these discussions.
Is our farm profitable? The budgeting process is not complete unless you go back and look at how your actual numbers compared to what your winter budget for the year expected. If you are consistently missing your targets year after year it may be time to take a closer look at your budgeting process and why you are struggling to hit the targets you set out for yourself. A farmer’s ability to achieve expectations and properly budget for their operation is a valuable skill and shows your understanding of the financial health of your business to your banker and other business partners.
What is the worst case scenario for 2020? Despite the hope that 2020 will be the best year in farming ever, there is a good chance it could be another challenging year. There are lots of different tools available to producers to reduce their exposure and financial loss, but if you don’t know how they work, and more importantly do or don’t work together, you could be spending money and still leaving yourself exposed.
The benefit of engaging in a formal planning process is that you can talk through and create a road map for your farm’s future, thinking about the implications of different decisions, possible outcomes and foreseeable roadblocks. MNP has a variety of tools to help you understand the financial health of your business, plan for the future and reduce the uncertainty. We can’t change the weather, but we can still plan accordingly. Time to get ready for 2020.
Peter Manness, PAg, is a Farm Management Consultant with MNP’s Brandon office. You can reach him at [email protected] or follow him on Twitter or Linked In.
Related Topics:Dairy; Farmers; Livestock
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