Farm Horizons • Feb. 6, 2017 • Page 15
have yet to see a farm go broke because they had to pay income tax.
We tend to focus on selling the crop as a way to be profitable, and it is important. However, it is not the only concern for profitability.
One of the big issues for crop production the past two years is that the revenue has been going down, while input costs have remained steady. Fuel is the one expense that went down, and now fertilizer costs are moving down. Land rents have been very slow to move down, primarily because there is enough demand for land. We, as farmers and landlords, need to realize that not all acres are equal. We need to be able to identify this and set land rents accordingly.
The internet has given us many more avenues to research items and to buy inputs cheaper. You may find your favorite chemical $ 1 or $ 2 cheaper online or out of state, but if you factor in transportation costs and increased liability for chemical storage, did you save anything? If you buy the majority of your inputs based strictly on a per-gallon price, do you expect the local retailers to provide the same service to you as the farms that purchased from the retailer?
I am all for saving a buck or two, but I also recognize that the service intangibles that I receive have a value. Businesses need to recognize this and tell people that if they didn’ t buy it there, they don’ t have advice for that product. I know this is sometimes a fine line between business responsibility and good stewardship, but we need to identify it. If you find a good deal for an input or a supply that you need, then go ahead.
Understand that your lenders are watching what you do. If you submit a cash flow that is acceptable to the lender and the next time your lender sees you, you are driving a new truck or pulling a new boat that was not in the projection, you need to understand that this raises big red flags and he / she will start to question what else you are doing that has not been communicated.
You need to have regular conversations with your lender, and once a year to renew the operating loan is not a regular conversation.
Make it a point in 2017 to stop and have a chat with your lender, and give him a quick update on what is going on at your farm. Have you finished planting? How is the crop looking? What is the milk tank average and SCC for the month? What is going well, and what has been a challenge? What are you thinking about implementing?
Your farm does not operate in a vacuum; you have competition. In a commodity market, the winner is the one who can produce it the cheapest and market it for the most. How do you compare with your competition?