Help for farmers navigating turbulent economic times
Riding into uncharted territory: Farm families navigate turbulent economic times
These are the wildest times Francis Gervais has seen in 30-plus years of farming. The Currie, Minn., farmer doesn't know what the future holds, but he has a plan of action. "Farmers need to get in better financial shape to weather the storm that may be coming," he says. "Grain prices went up in a hurry and they can go down in a hurry, too."
To build solid financial footing, Gervais uses benchmark performance information provided by Extension educator Rob Holcomb. As Gervais gears up for what lies ahead, Holcomb and other Extension agricultural business management experts are busy helping farm families implement strategies to deal with fluctuating balance sheets, escalating fertilizer prices, squeezed livestock margins and more.
Murray County farmer Francis Gervais weathers volatile economic times by closely analyzing finances and tracking expenses, while also trying to pay down debt.
Read the headlines about record crop prices and you might think life is stress-free on the farm. Think again. Farming is a petroleum-based business and costs for fertilizer, fuel and inputs have skyrocketed. Globalization has farmers riding a roller coaster of change, where events on the other side of the planet can put money into their pockets or siphon it on a daily basis.
The anxiety of entering uncharted territory has increased because the traditional buffer provided by the farm bill is weakening. "Costs have zoomed high above the target prices set by the farm bill," says Kent Olson, Extension economist and farm management and policy issues expert. "If prices drop, crop farmers will hit the floor of much higher production costs before they hit the safety net. Nobody expects that to happen this year or next, but farming is a high-risk business."
The input side of the equation continues to receive much scrutiny. "Farmers are looking for ways to use high-priced fertilizer efficiently, use inputs like manure they may already have and reduce the number of trips they take across the field burning $4.50 (a gallon) diesel," says Extension crops educator Dave Nicolai. He sees producers eagerly consuming research-based information from Extension to help them evaluate various inputs and provide maximum economic yield.
Gervais agrees. "With the amount of money at risk these days, it is more important than ever to analyze finances and track expenses," he says. This analysis has prompted Gervais to place priority on reducing debt on his corn, soybean and beef farm.
Controlling the cost of inputs is even more important to livestock farmers. Their major input is feed, and high crop prices have meant losses on many operations. "With feed accounting for 70 percent of the cost of raising pigs, pork producers are searching for ways to minimize production costs and remain in business," says Mark Whitney, Extension swine specialist.
The scope of the financial numbers involved in today's farm economy may have changed, but basic farm business strategy hasn't, Holcomb says. "I may sound like a broken record, but the key things are for farmers to know their cost of production, be careful about debt loads, watch what input costs are and take advantage of opportunities to lock in a profit. You can't go broke taking a profit."
Advice for weathering volatile times
Paying attention to the "boring areas" of business health is even more critical during uncertain times, says Olson.
The so-called boring areas are comprised of technical measures like liquidity, solvency, repayment capacity, profitability and costs. Olson advises farmers to focus on the following fundamentals to help make better decisions during unsteady times:
- Closely scrutinize individual financial numbers, even if some factors are uncertain. This will improve purchasing decisions as well as decisions about participation in the Average Crop Revenue Election (ACRE) option in the new farm bill.
- Benchmark your individual financial performance number against other farms. The University of Minnesota Center for Farm Financial Management provides a treasure trove of data on the state's farms at www.finbin.umn.edu.
For more information on Extension's Agricultural Businesses Management programs, visit www.extension.umn.edu/AgBusiness
Stress management for the farm family
Francis and Loretta Gervais, shown with two of their children, Mark and Mary, look to financial management information provided by Extension to help keep their farm healthy for the next generation.
Sharon Danes expects to be busy. The Extension family economist is an expert at helping family businesses deal with change, and she sees great changes ahead in the farming industry. Crop prices, input costs and land rents are hitting record level highs.
"Farm families are entering a 'no man's land' and don't know what to expect next," Danes says. "They need help handling change and the stress that comes along with it."
While Extension agricultural business management educators are helping farm families sort through financial questions, Danes specializes in helping them cope with communication and stress management issues.
Here are a few ways you can access resources highlighting Danes' expertise:
- Check out the series of fact sheets Danes adapted for Minnesotans experiencing trauma, "Getting Through Tough Times," at www.extension.umn.edu/ResourceManagement/ToughTimes.html
- Visit the University's Rural Minnesota Life website at http://cehd.umn.edu/fsos/Centers/RuralMNLife/. The site, which is focused on family business and family vitality, features interactive worksheets, publications, and streaming-audio Powerpoint presentations by Danes.