Commodity prices are low and the outlook for significant increases is dim. So remaining profitable is the challenge growers will face in 2015.
In the long run, you cannot operate an enterprise at a loss. It wasn’t that long ago (pre-ethanol), that we always hoped for making a profit, but it wasn’t guaranteed. In 2015, a Central Illinois producer looking back through time at prices and yields will realize that they will likely have about a 1 in 5 chance of losing money in a share lease and a more significant chance of doing so with higher cash rents.
Cash is King. Bad times come and go with technology advances, weather and the volatility of the market. According to the Farm Business Farm Management Association (FBFM), there is a wide variation in the ability of farmers to meet cash obligations. Some producers are flush with cash. Others aren’t (for a variety of reasons, which include too many machinery purchases). If the next few years are tough, cash will be king. Conserve your cash where you can. Save it for the rainy day. Some of your competitors are going to be in better cash position than you.
There are areas of expense that you should avoid cutting. Cutting costs is the main line of defense that comes to mind. Be hesitant about cutting back on fertility, even if you are planting soybeans in 2015. After high yields in 2014, fertility levels could be low. Take a close look at the plant needs and fertilizer accordingly. This is a good time to do grid sample soil testing to know what is out there and where it is.
You have your yield and production records, so you should have a pretty good idea of what the crops have been removing and where your crops will need more nutrients, especially if you have a yield monitor. This is not the time to skimp OR over apply on your fertilizer.
Don’t cut back on your Federal Crop Insurance either. Consider taking out maximum coverage. Be defensive. Make sure your liability coverage is adequate. There will be little margin for error.
If your soybean yields have fallen short in recent years, evaluate what pests and diseases may be impacting yield. Even slight yield losses are a silent detriment to your bottom line. After the high yields of 2014, it’s easy to forget the significant water damage we incurred. Revisit your yield maps and look for easy fixes in drainage first, then evaluate tackling areas that are harder to solve.
Be hesitant to break into your farmland equity, until you absolutely find it necessary after you’ve ruled out about all other sources for cash. Without an employer work medical plan, make sure that medical costs don’t undo the operation. Be absolutely sure the farm is not trying to support too many people.
Remember to conserve your cash, don’t cut back on fertility, and protect your yield. Be prudent in your purchases and you will come out okay.
Kevin is a farm manager and trust officer at First Financial Bank at the Neil Street branch in Champaign, Illinois. Prior to coming to the bank, he served as a Farm Management Educator for the University of Illinois Extension and advised farm land owners and farmers in his private consulting business. Kevin received his Master of Education from the University of Missouri and a bachelor’s degree in Agriculture Business from Truman State University.