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Managing farm financials for success

Source: Wikimedia Commons

 

AUDIO: Steve Johnson, farm and agriculture business management specialist at ISU

High corn and soybean ending stocks suggest crop margins will remain extremely tight in 2018. A farm management specialist says farmers can achieve success this year by controlling the controllable.

Steve Johnson is a farm and agriculture business management specialist at Iowa State University (ISU). Johnson says farmers must first focus on what they can control.

“I’d start with costs and a good record keeping system. Keeping farms and fields separate, so I can determine, ‘Where am I making money? Is it corn, soybeans, corn-on-corn, rented or owned ground?’ Then making sure I do a good job of keeping those bushels associated with that crop year. In this case, 2017 bushels are associated with 2017 expenses,” Johnson said.

Johnson believes tight margins benefit farmers and allow them to focus on managing costs. Johnson suggests farmers assemble good team members, like farm financial officers and agriculture loan officers, to help them manage costs.

“The problem in agriculture is not an equity issue, it’s a cash flow issue,” Johnson said. “It’s reflected in working capital, current assets minus current liabilities. (When) margins are compressed, farmers are going to have to produce more bushels at lower prices to meet their cash flow needs. Financial and loan officers are not only managing your financial performance, but they’re also helping identify, early, some constraints coming due to working capital.”

Johnson also advises farmers to be cautious of new investments, especially capital expenditures.

“Interest rates are likely going to trend higher in 2018, with the likelihood the Federal Reserve will increase interest rates slowly as a means to manage inflation,” Johnson said. “I think we’re starting to see the earliest indications of inflation, and I think inflations, overall, are good for agriculture. They tend to lift our land values and commodity prices.”

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