Proactive Farm Management Key to Weathering Economic Volatility

It’s been a volatile summer for farmers.

Commodity prices are dropping, after hitting all-time highs during the spring. Though they are still strong, producers who did not lock in prices at the highest point rightfully feel they left money on the table.

Record high input costs, which doubled from the first quarter of 2021 to the first quarter of 2022, have remained high with no break.

Interest rates are rising sharply, driving up the cost of borrowing.

High inflation and bleak economic news continue to point toward a looming recession, which hurts everyone.

Proactive Farm Management

Never has it been more important for farm owners to proactively manage their farms as businesses, with forward-looking strategies to maintain strong revenues and cash flow.

Even in the best of years, farming is a matter of making constant adjustments. Crops may not come in as well as expected, or there may be a bumper crop. The weather may not cooperate. Equipment must be maintained and upgraded. Input costs fluctuate (although these days they just seem to go in one direction – up). Crop prices fall with little warning.

Wheat is a good example this year. In central Kansas wheat was selling for more than $12 per bushel in the spring but is now selling at just over $8. Likewise, corn hit a high point of more than $9 per bushel in the spring but is pricing at just over $7 today.

Those are still good prices, but a farmer who didn’t lock in at $12 for wheat in the spring is just getting $8 today, giving up $4 per bushel. If you sell 100,000 bushels, you’ve forfeited $400,000 in revenue.

That’s painful. And it’s not proactively managing your business. The same farmer could have locked in 25% of the crop in May and gone into the summer with confidence that they would finish the year in the black.

Real-time Data

Using the right farm management technology, farmers can have at their fingertips real-time data to help them accurately forecast input costs and crop yields, as well as run what-if scenarios. If your input costs have increased by 75% this year and you’re expecting a similar yield from your wheat fields, what if you locked in a price for 50% of your crop in the spring? What if you planted milo instead of wheat?

These kinds of questions used to be just speculation. But with software that uses real-world historical data, along with current commodity price data, current input cost and previous-year yield data for every one of your fields, it’s no longer speculation. It’s proactive management of your farm.

Farmers with small or large operations can manage this way, but they need to have real-time data to help them make the right decisions. Today’s cloud-based farm management technology provides support for an overall management approach, with perpetual tracking, day-to-day operational management, break-even analysis, marketing data and other critical information.

Implementing AgriBuilder, a farm management solution that integrates with other widely used accounting platforms to yield real-time financial data can help. AgriBuilder also integrates with the computers that drive John Deere equipment, enabling users to upload such information as how much seed is going into the ground as the seed is being sown. A farmer needn’t wait till the end of the month when the seed bill is paid to figure out seed cost per acre; the software can provide that information at the end of the day, breaking it down field by field.

For many farm owners, making the transition from traditional management – which is entirely based on historical factors rather than forward-looking analysis – often is a matter of getting out of the old comfort zone. “Because we’ve never done it that way” is not a reason to resist adopting new farm management techniques and technology.

With cloud-based technology – which can be run from a cell phone, providing access to data even out in the middle of your fields – a farm owner can impute the total costs of running the farm operation against the crop prices that have been locked in for this year and get analysis of the net cost or net revenue per acre. This kind of data is a powerful factor in obtaining financing and making decisions about future operations.

If a farmer is participating in a carbon credit program, the software also can help determine the costs and benefits of expanding sustainable farm practices.

Farmers often get to the end of a season and see what they could have done differently to realize better results. Hindsight is always 20/20. But with the right farm management technology, you can get that vision earlier in the season to help you make the adjustments you need to be more successful.

Contact your Adams Brown advisor for a discussion on how technology can help you manage your farm more proactively.