10 tips for beginning farmers to ride out market uncertainty

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 By LUKE FRITZ

BUTLER, Pa. — Recently I was on a farm visit in Butler County. The farm producer was acknowledging the fact that he has experienced only good years so far in his farming career.

Being a somewhat beginner farmer, and only farming on his own for nine years, he is not sure what to expect if the farm economy worsens.

Highs and lows

It is true that the agricultural sector was generally one of very few bright spots during the economic downturn that affected most other sectors of the economy since late 2008.

Grain prices have been quite high for the last few years until 2014. Dairy and livestock producers have enjoyed high prices for their products for 18 months or so now.

Now prices for the livestock industry are projected to possibly climb higher, but dairy is expected to decline similar to the decline experienced in the grain market.

The fact is that some operations will find it very difficult to break even.

Uncertainty

All of this leads me back to the conversation with the young farmer that day. He wondered what actions he should take to be prepared in the event his cash flow declines and his input or production costs increase.

He wondered what the other guys do, the experienced guys who continue to make money even in an agricultural downturn.

I explained that it takes years for some to master good management practices. Even then, they will say they are learning every day, as the target keeps moving.

I also explained to the producer that I am not an economist or a farm business expert, by any means, but that I would give him 10 things that seem to work for many successful farm operations.

  1. Consistency – Be consistent and master one enterprise before starting another, diversification is great but it can hurt as much as help financially, stay with what you know.
  2. Maximize Assets – Use assets completely for their useful life, then replace them if needed. This could be a silo or a tractor, the point is the better operations make those assets pay for themselves over and over.
  3. New Technology – GPS guidance systems, variable rate planting, fertilizer rates and yield monitors. The list could go on and on, however be careful, it is all expensive. Adopt new technology slowly; make sure it will do what you need it to do and not what you want it to do.
  4. Communication – Good communication is key to a successful operation. Good communication with other members of the operation as well as lenders and accountants will go a long way.
  5. Debt – Successful operations monitor their debt load very carefully. Most could rattle off their debt to asset ratio in an instant. Only incur debt if it will make money.
  6. Capital Improvements – Improvements to real estate are routine. If the barn roof is leaking or the barn needs painted, they complete those projects before it becomes a big expensive project.
  7. Equipment – Only purchase equipment for an immediate return, this is especially true when break-even returns may be the norm.
  8. Risk Management – Control or limit your risk, there are several tools available to help producers limit risk today. Risk tolerance from operation to operation may be quite different.
  9. Attention to Details – While something may seem small or insignificant, a lot of little details are involved in planting or harvesting a crop timely. Regarding buying or selling farm inventory or assets, watch the pennies, the dollars will take care of themselves. Routinely every year complete a balance sheet to chart the growth of an operation.
  10. Hard Work – Make no mistake, farming today is not as labor intensive as it was 50 years ago, but successful operators must be willing to work hard and work smart to ensure a profit and growth of an operation. There is no substitute for hard work. Ask any successful farmer.

(The author is the county executive director for the USDA Farm Service Agency in Butler, Beaver and Allegheny counties in western Pennsylvania.)

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2 COMMENTS

  1. Mr. Luke–darn good guidelines; thanks for giving our “up and comers’ some of life’s lessons in a good read.

    My belief is that they will do ok, since they have so many resources available to them. Heck, just think about this ‘puter we’re on. Back in the day, weather reports were made by the turning of maple leaves in a breeze or a hazy ice crystal ring around the moon. Now–just punch in “radar weather” on a computer and you have more technology than Gen. Eisenhower had to launch D-Day.

    #5-Debt is a biggie. Don’t be foolish and over extend yourself. Just remember: the best farm equipment is, more often than not, the one fully paid for!

    Finally, keep a sharp eye on trends in the market you’re in. There are so many variables these days which affect your bottom line.

    Most of all–keep the farmer’s #1 attitude: HOPE.

  2. I remember when the economic downturn happened around 2008, and how expensive dairy and grains got. I was in high school, and a lot of teachers were advising that agriculture was a needed profession. It’s difficult for sure, but the people I knew that went into it found it to be a fulfilling career. Thanks for sharing.

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