Conservatism is a pretty good trait for farming operations in 2019 as farmers wait for costs to come down and prices to improve. With high rental rates and other challenges, some corn farmers last experienced a profitable year in 2013 – five years ago. Based on corn and soybean prices, the farm economy is in a poor time, and it’s hard to justify some purchases, said David Bau, University of Minnesota Extension educator in ag business management.
When the pickup odometer is getting close to 200,000, the corn header is wearing out, and there’s 20 acres of farmland that is underperforming due to drown out, some farmers can and will eke another year out of their current equipment before purchasing another truck or a new header, or completing tiling.
“I don’t think right now a lot of farms have the economics they want to do a lot of those kinds of projects because of the tight cashflows,” said Bau. “Those things would be considered in the good times when you have money to pay out of your pocket instead of borrowing money.”
There are a lot of reasons why farmers might not want to borrow money right now – whether purchasing short-, intermediate- or long-term assets.
“Maybe they are slowing down their improvements on their lines of equipment, slowing down on their purchases, and if their income is low they don’t need the expensive equipment to offset tax liabilities,” he said. “I might want a new combine head, but my income is down so I don’t need the expense – so I don’t need to buy it right now.”
Farmers still need plans for short, medium and long-term purchases – even if those purchases are not made in 2019.
Bau encourages farmers to look at the cost/benefit analysis of almost everything they are going to purchase. For instance, if a piece of equipment allows harvest to go quicker, that could provide an opportunity to harvest more acres and split machine costs out over more land. Something that increases harvest capacity – the tractor and auger wagon that hauls from the combine to the truck, for example – could improve harvest efficiency to allow more acres harvested.
“When you are looking at a new expense or purchase, you have to look at what is the benefit of having that,” he said. “If my equipment is getting older, my repair costs are such that if I shut down during harvest for five days – that also is a big impact to my economics.
“If I had equipment that could get me across those fields faster and was less likely to break down, I might have some other benefits there.”
There are many ways to look at financial decisions, but it’s imperative to look at how the financial decisions promote a positive cashflow and a sustainable, growing net worth.
“The majority of the population has some borrowing, and interest costs are going up, and cash flows are tight,” he said. “They are not going to consider adding something else to a loan payment or another expense. They are not going to do that right now. They will hold off until the economics change a little bit.”
Bau wants to encourage everyone to attend free informative meetings on fair farm rental agreements for 2019 and beyond.
The workshops will be held weekly on Wednesdays starting Jan. 16 in Rochester followed by Waseca, Worthington, Willmar, Morris, Farmington and finishing in Lamberton on Feb. 27, 2019.
There will be two workshops each day at each location. The first session will start at 9:30 a.m. followed by an afternoon session starting at 1:30 p.m. In case of bad weather, the following Thursday is the snow date for each location.
Call the Farm Information Line 1-800-232-9077 or 507-372-3900 the day of workshop to see if the weather has caused a change in date from Wednesday to Thursday for any of the locations.
Check the Agricultural Business Management calendar on the web at: https://extension.umn.edu/business/ag-business-management-event-offerings for specific times and locations.