Helping families cope with stress – II
AKRON – In order to remain profitable in a time of a slowed economy, at least one ag lender in this northeast Plymouth County community said that farm producers need good marketing, good record keeping and a good business plan.
But, said Connie Blake, vice president of First National Bank, “good marketing is key. Producers do an outstanding job of growing crops or livestock, but are just too busy to do the marketing.
“They get busy calving, or (working) in the field thereby missing opportunities. Marketing needs to be a number one priority.”
Blake understands that life is busy. It is sad that off-farm jobs are required for one or two farm family members in order to cash flow, he said. Still, attention needs to be given to marketing. A good rule of thumb to remember is that “you will never go broke if you can sell for a profit. How can you argue with that?”
To be profitable, knowing one’s costs is vital, which means keeping good records. “Those figures need to be on paper, or a computer program, just not in your head,” Blake said.
Which method producers use for record keeping isn’t so critical, Blake said, as long as it works. Blake did recommend Better Farm Accounting, designed by Professor Herbert Howell, long-time Extension farm management specialist at Iowa State University.
It has recently been revised by Dr. William Edwards, professor of economics at ISU. The orange-covered record book can be purchased at any Extension office for $9.
Good record keeping involves not just the farm expenses, but also family living expenses, Blake noted. “It all plays together when farming is really your job,” said Blake. “Just like a wage earner needs to budget from paycheck to paycheck, so does a farmer.
“Sure, unexpected expenses do arise, but record keeping does show where the money goes.”
It’s also important to teach the children to set up budgets, she said. Once they start getting a paycheck and paying some of their own expenses, they’ll need to know how to budget so that when their car insurance comes due they have the money to pay for it.
She has seen in her 36 years of banking, that record keeping skills, or lack of, are passed down from generation to generation.
“Having a good business plan will help you capitalize on what you do best,” she said.
Diversification can be a good thing, Blake said, while at other times it may not be. Be cautious when jumping into things.
“When hog prices are good, that is not a time to expand,” she said, “(because) the gravy will be off by the time you are geared up to sell.”
Last year was a very good year for some producers. It was a time to boost liquidity. In the past one needed 15 percent working capital, in today’s environment 33 percent is required. It is a good idea not to spend all one has, but instead to retain some income back to build a nest egg.
“Oftentimes farmers will go purchase new equipment to avoid paying taxes,” said Blake. “While it may be a good investment, are you sure you will have money to make next year’s payment?” It may be in one’s best interest, she said, to repair or overhaul machinery instead of replacing it at this time.
With higher input and lower prices, 2009 can be a tough year. The reckoning year will be 2010. Farmers need to pay particular attention to making a profit.
This includes, she added, being realistic when filling out financial statements at the bank. When calculating prices for grain and livestock, use an averaged predicted price for the year. Value land at price paid, not what it could sell for at today’s inflated prices.
She also advises that producers shop for inputs this year. It isn’t an easy thing to do, when one has a sense of loyalty to a supplier. Inputs are going to vary greatly depending on when suppliers purchased their product. By shopping around for the lowest price, expenses can be controlled.
Beginning farmers, or those diversifying into a new area, Blake’s advice is to start small. “Begin with just a half dozen stock cows, not 30. Build gradually over the years.”
“It really is a difficult time right now,” said Blake, “but with hard work, maintaining good records, selling when a profit can be realized, farmers should be able to weather these tough times.”
Contact Renae Vander Schaaf by e-mail at email@example.com.
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