However, before producers begin blaming themselves for being responsible that their cash flow plans falling apart, they should recall other years in which plans went awry, said Betsy Jensen, farm business management instructor at Northland Community and Technical College in East Grand Forks, Minnesota.
Jensen spoke to farmers virtually about “How to Take a Fall: Adapting When Nothing Goes as Planned,” during an online Minnesota Association of Wheat Growers September marketing seminar on Wednesday, Sept. 15.
Although drought this year reduced farmers’ yields, in other years, quality issues such as falling numbers and test weight resulted in crop damage that reduced farmers’ cash flow, Jensen noted.
“There are a lot of things that can cause our plans to fall apart,” she said.
Besides having quality losses in other years, unexpected financial challenges farmers have faced in the past include unbudgeted hiring of custom combiners, bugs, disease and other crop input expenses and unanticipated family expenses, she said.
Before farmers panic about their financial situation, they should determine whether their cash flow is as bad as they believe it is, Jensen said.
For example, wheat yields of 45 bushels per acre, sold at a price of $8 per bushel would produce a total of $360 per acre, which is not drastically lower than yields of 70 bushels per acre, sold at a price of $5.50 per bushel; the latter would have produced a total of $385 per acre, which is only $25 per acre more than the former, Jensen said.
Producers who determined that they did have a poor financial year can work to avoid repeating it by keeping cash on hand, she said.
“If you have cash on hand, it’s the best way to avoid a fall to begin with,” Jensen said. “We want to make as much of a cushion as possible,” she said, noting that, though, prepaying loans is tempting, farmers shouldn’t do so.
Farmers also should resist making decisions for the future based on their memory of this year. While forward contracting may not have worked out in 2021, that doesn’t mean farmers should never again forward contract, Jensen said.
“I think there is a lot of risk in not forward contacting,” she said. ”This is not something I’m backing away from.”
However, farmers should not consider “rolling contracts,” Jensen advised. “I think this is one of the worst ideas I have seen in my entire life.
“Sell 2021 (crop) during the 2021 crop year, and start selling 2022 for next fall delivery,” she said.
It will help farmers have peace of mind if they talk with their lenders about their financial plans, and they also should determine what level of crop insurance coverage they need.
“If more crop insurance helps you sleep at night, it may be worth it,” she said.
Meanwhile, talking to someone such as a lender, accountant or farm partner about the losses is important.
“Finding solutions usually requires some external insight and ideas,” Jensen said. The changes do not have to be drastic if the farm has been successful in the long run, she said.