Three Financial Tools for Navigating the ’24 Crop Year

As a producer in a time of extreme market volatility, high interest rates, rising costs due to inflation, and the threat of war at every turn, it is hard to feel anything but helpless. Below are three tools you can use to help you navigate the ups and downs of the 2024 growing season.

Breakeven

Establishing your breakeven or cost of production early in the growing year is vital in being able to make sound marketing, purchasing, and management decisions. Breakeven in its simplest form is total cost/estimated yield = Breakeven price. Breakeven price should be down to the cent and not rounded off to the nearest half or quarter dollar.

The more real time and historical data you can use in calculating your breakeven, the better information you will have when it comes to making financial decisions in 2024. Expenses that are often overlooked in the breakeven price are family living and depreciation. Breaking down the cost of production PER field (enterprises analysis) will prove useful throughout the year as conditions change in certain areas (i.e. drought, storms, timely rains) and help you adjust both your total cost and estimated yield throughout the season. Recalculating your breakeven monthly is best practice to keep up with ever changing conditions in the weather, grain markets, and cost of production. 

Cash Flow Variance Analysis

Farming is a business. Establishing a monthly cash flow at the beginning of the new year is good business practice. But beyond that is monitoring that cash flow throughout the year. The cash flow is your projected budget for the year, costs should be broken down in the estimated or known month they will be paid. This helps estimate funding needed and the sources. The estimated months that grain will be sold should also be broken down within the cash flow. Once this is established it should be revisited monthly and compared to the actual costs incurred and revenue received in that month. If there is a wide variance between the actual and the projected cash flow amounts, action needs to be taken. Variances in the cash flow may be due to a timing issue of when an expense was actually paid, or revenue was realized. It could also be from something unforeseen that has now affected your overall budget and essentially your breakeven. Monitoring your cash flow and the variance from month to month will help you make more informed management decisions. 

Written Marketing Plan

Once your cash flow and cost of production has been established, it’s time to use this information to market your grain. Whether you utilize a marketing company or develop and execute your own marketing plan, the best practice is to have that plan in writing. This way it can be revisited throughout the year and the plan can be tweaked to meet the ever-changing environment of commodity prices. Having the plan in writing adds an additional step of accountability that will help you evaluate and execute the plan when the opportunity arises.

2024 is shaping up to be another wild ride in the farming sector. Utilizing these three tools can help give you the confidence you need to make sound financial and management decisions for your operation. As always if you want more information about these tools and many others that can help benefit your Agribusiness, please feel free to reach out to a Bruning Bank Loan Officer at your location.