There are a lot of things in farming that are beyond all of our control. Prices, weather, and global issues just to name a few items that we can’t begin to try to control. There are most certainly steps you can take to mitigate your risk and control as much as you can, but you have never have total control over certain things.
So when times such as these are upon us many begin to look for ways to change their farm operation in order to account for the lower prices. When you begin to consider changes you should start with what you can most easily control. The most uncontrollable items are listed in the first paragraph, so what can you control?
The most trendy topic going into 2016 was expense management. How to “get lean” along with- where and how to cut expenses. This is true, but lets break it down a bit further in terms of the “control factor.” We all know costs can be broken down into 2 categories, fixed and variable. Which one do you think is the most controllable? You got it – fixed costs! Fixed are specific to your operation and don’t vary with the market as much so you should be able to control those and whittle them down a bit easier. Items such as land rent, payroll, and repairs fall into this category. All of those could be cut/controlled a bit easier than fertilizer, seed, and chemical costs. Sometimes you just have to pay what the market demands for variable cost items and use as much as you have to in order to maintain the quality of your crop. So, look at fixed costs first when it comes to expenses as they are more controllable.
Now let’s talk about something that hasn’t been as trendy, but it is actually even easier to control – debt! Yes, that 4 letter word! More farmers should begin their quest for change here. Many are hanging their hats on deep expense cuts in order to make it through. I really hope they can stay on budget, but if something happens and they go over budget they could be in trouble. Debt is much more controllable. You will never (well you shouldn’t) have a debt come up that you didn’t know about. An expense you didn’t consider will come up almost every year without fail! Start by looking at your debt totals. How much is in Real Estate? Equipment? Other? What are the amortizations for each category of debts? Is something on an aggressive payback that you may could request to extend the amortization on to lower the payment until the markets improve? Could you combine some debts together to get some payment relief?
Believe me, I am all about paying back debt timely and on proper amortizations (conservative is my middle name…or maybe equity is…actually it is Lynn… anyways.) Sometimes you have to restructure debt temporarily to get some relief. These can be temporary fixes (and should be in my opinion) until you get where things aren’t as tight. Structuring debt can very much work to your advantage and once you have made the structure change you are done until the payment is due. No more worrying about it, and can now have laser focus on the budget along with hopefully a bit of wiggle room from the savings!
By making changes to what is most easily controlled effectively mitigates some of the risk in your plan and gives you a higher chance of a successful plan follow through!