PRIMGHAR, Iowa — Again, this year I had the opportunity to speak at Crop Advantage Series meetings held in Northwest Iowa. These annual Iowa State University Extension and Outreach offerings are well-attended, and I want to review a quick summary of the Farm Management Specialist key points, as you finish-up Crop Year 2018 and plan for Crop Year 2019.
About a month ago, the annual ISU Extension and Outreach land survey results for 2018 were released. Average State of Iowa land prices declined slightly ($62 per acre or a decrease of 0.8 percent). This reduction was mostly insignificant; however, more significant is that 2018 represented the fourth year of the last five when land prices decreased.
The ISU Extension and Outreach survey was consistent with USDA and Chicago Federal Reserve Bank survey results. Factors believed most negative were lower commodity prices and slight increases to interest rates. Limited land supplies and stronger yields (stabilizing per acre revenues) were an offset to a further land price reduction. In summary, as interest rates increase and/or net farm income declines, land prices soften. This points to liquidity challenges and solvency deterioration, which combine to adversely impact ag bank loan statistics.
Current market prices leave cash flows below operating break-even for most producers. Without a doubt, the Market Facilitation Program’s one-time cash injection improved overall cash flow results, especially for pork and soybean producers. Now that the generally larger 2018 crop has been factored into the markets, it is important for the producer to turn careful attention to his/her marketing plan, and closely watch both market prices and basis moves for any 2018 crop bushels not sold.
Further, Crop Year 2019 expense management decisions must turn toward detailed enterprise results. This means by commodity, by farm, by lease, etc., an analysis of each individual enterprise direct contribution toward overall farm results. When tighter break-even margins exist, accurate recordkeeping is paramount to best management decisions. When projected revenues will not cover the variable expense, it is very credible to ask the tough questions: (a) How much is the direct cash/equity drain? and (b) Is this outcome consistent with overall long-term financial objectives? These are not easy questions to consider, but vital under the present circumstances.
Right now, it is likely that you are getting your fill of the negatives. I emphasize spending proactive time in your sphere of influence – the things you can control:
- Accurate recordkeeping – to support correct enterprise return-on-investment analysis;
- Capital readiness – plan the work; work the plan, e.g. financial, labor, etc.;
- Marketing — seek that nickel or dime, when the market or basis affords the opportunity; and
- Human resource management – whether it be spouse, business partner(s) or trusted experts and technicians, now is not the time to go-it-alone.
Farm decision making is complex; however, paralysis is not the answer to our current tight-margin environment. If you want help in analyzing your operation for best decisions, please do not hesitate to contact me or visit Ag Decision Maker (https://www.extension.iastate.edu/agdm/) to get started.
— Gary Wright, Farm and Agribusiness Management Specialist, Iowa State University Extension and Outreach
For more news from Iowa, click here.
