Actions for Tough Times |
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| Farmers did not get into their current financial situation overnight or
even a single year. For some it is due to the low commodity prices. Others had not fully
recovered from the mid-80s. But for many this was just the catalyst that brought the
situation to their undeniable attention. The question, for many farmers, is "what can I do about it?" For every difficult question there is a quick answer … but quite often it is wrong. At this time many of the decisions for 1999 have been made and committed to, but that does not mean you can wait until next year to react. Following are some possible considerations regardless of your financial conditions. First, accurate short run and long run analysis and evaluation of alternative responses depends on a good set of financial as well as production records. Ask your Extension Specialist and Ag Lender for suggestions and assistance in developing and using records. If you don't already use both computerized records and a spreadsheet program you are operating at a handicap. Age is not a factor. As my father used to tell me, "you won't learn any younger." Many of the best computer users I know did not start before they were 60. Look at your farms financial performance over time and developing trends. Financial ratios are the tools for a farm business health checkup, just as thermometers, blood pressures, and x-rays are diagnostic tools for your physical health. One unique problem however is that farmers aggressively attempt to distort this picture on a cash basis in order to reduce income taxes. Adjustments must be made to an accrual basis in order to have consistent and meaningful values for both current and trend analysis. Look at family living expenses. Can they be reduced? Likewise, consider your cash flow. Most parents love for their children to come into the operation, but is there sufficient income to sustain more than one family. If the senior partners are eligible for retirement, would now be possible? If not, can the other partners find employment elsewhere, perhaps even raising their standard of living? Can spouses obtain gainful employment, after transportation and childcare costs, and possibly procure medical and other benefits for the family? Look at your debt structure. Long-term assets should use long-term financing. Don't try to push too hard and place yourself in a bind. Likewise, if you haven't done so already, look for opportunities to refinance loans at lower interest rates. Check into guaranteed loans and new innovative loans from the State Department of Agriculture for value added, sustainable ag or other new options to see if you may qualify. Also don't overlook the value and desirability of loans against life insurance policies. Deal with problems immediately and be prepared when you talk with your lenders. Don't go in with only your pocket notebook. Your loan officer can be your best intercessor and ally. No one wants you to succeed anymore than they do. Remember, their jobs, reputations and community standings are on the line too during tough agricultural times. Next remember that cash is King. Make sure everything pays its own way and prepare and update enterprise budgets often. Some things that were once profitable may no longer be. Just because something appears profitable on paper it does not guarantee that it will be in the real world, but if it does not pay on paper the odds are it won't in practice. What about selling seldom used equipment. This can generate some immediate cash flow but be sure it is not items essential to timely operation of the farm. Also consider the possible tax consequences of their sale. If you can sell items they can also be taken off your insurance. Insurance is another area for close examination. Do you have items insured that you no longer own or whose value is so low you can afford to assume the risk if you drop their coverage? Can you increase your deductible and save money. However, don't forget to maintain the required coverage on items that are used as collateral on loans. Look at records and enterprise budgets to identify the largest 4 or 5 areas of expenditures and look at ways to decrease them without sacrificing profits. Maximum yields most often are not the most profitable. Can you take more soil tests and apply fertilizer accordingly, or can you distribute limited fertilizer dollars on the more responsive fields rather than using the old rules of thumb? What about livestock feed costs? Can you save a few dollars on minerals or identify less costly byproducts as feed inputs? How often do you run least-cost feed ration programs and do you use forage analysis? What about labor costs? Are they too high? Conversely, are you spending all your time in manual labor when you should hire a little part-time labor and free yourself to do some more profitable "pencil pushing?" Most modern professionals such as teachers, doctors, lawyers, accountants, and bankers are required to complete continuing education classes each year to maintain their license or professional standings. Farmers are also professionals. I realize much of the information presented at University Extension meetings may be dry and redundant, but if you learn one new technique at one program that can save or make you $2 or $3 more per acre or animal produced, the volume adds up in a hurry. If you multiply that figure by 5 or 10 years you can be talking about real money. You won't learn it if you are not there. Likewise, don't overlook opportunities to take classes offered at area vo-tech schools. Finally, if push comes to shove, would you be better off taking a couple of years sabbatical from farming and renting your land out until prices recover. This may be the best way to retain ownership of your farmland. Remember, at times like these pencils, paper and calculators are profitable resources. In the process, be objective and honest with yourself, but keep your perspective. Plan a few days to get away from the farm and relax to clear your head and remember what is really most important. For more information on this or other subjects visit the University
Extension Center in your county, call me, Dr. Don Smith, at (660) 727-3339, or visit the
Clark County University of Missouri Extension Internet Web Site at http://outreach.missouri.edu/clark/ for
publications online. University of Missouri Extension programs and services are open to
all and most are free or at a nominal charge ### |
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