By: Blaine Carey, Program Director
With spring quickly approaching comes another calving and cropping season that normally produces an abundance of optimism. That doesn’t seem as prevalent these days, as there has been a steady dose of sobering discussions over break-evens, cash flows, working capital and other farm economics the past few months. It appears most producers and ag lenders have a good grasp on the situation, especially if a detailed cash flow projection was compiled in early 2024.
Once a cashflow has been completed for the year, it should become a goal list, as well as a working document, and compared to your actual income and expense. So, instead of filing that cash flow and placing it in some obscure location, keep it available during the year. As you are aware, it is difficult to estimate crop prices and yields six months from now, and the livestock sector is just as challenging. Nevertheless, cash flow projection does provide an indication of how much working capital is needed to sustain your operation. Depending on when your major sources of revenue are realized, I would highly suggest “penciling-in” the actual results and comparing them to your projections. As the year unfolds, having this information readily available may help you adjust your marketing decisions, as well as your capital purchases. Most lenders and producers tend to be fairly conservative on the income side, so there may be some extra cushion if you have been able to exceed the early projections. On the flip side, if revenue is not meeting expectations, it is better to be aware of this situation than to ignore it.
Hopefully you were a little generous on the expense side of the ledger when compiling your projections. As for crop input estimates, I think the best time to re-visit your numbers is sometime around mid-June. By then, planted acres have been finalized and most of the costs have been incurred. This timeline will also provide an opportunity to re-figure break-evens ahead of the USDA Quarterly Stocks and Planted Acreage report, both of which have a tendency to provide some big swings in commodity prices. Having a good knowledge of production expenses is an important part of controlling costs in an environment of tight margins. Overhead costs are a little more difficult to trim, but it is relatively easy to track year-to-date expenditures and compare them to projections.
These same tracking methods need to be utilized by livestock producers, even with livestock risk protection or other marketing in place to track your goals of income. Lastly, if family living expenses are being regularly tracked, it is easy to determine whether you are sticking to your budget. I realize it’s not practical to check this every month, but it would be a good idea to take a good look on a quarterly basis. This will allow you to adjust spending money in one area if there are unforeseen problems appearing in another.
So, the first step is to dig out that 2024 cash flow projection and get ready to update it as needed. This is no time to bury your head in sand! If you haven’t devoted much time to understanding your financial condition, now would be a great time to enroll in our program. Please contact me at either (605) 350-4132 or [email protected] if you would like more information about the SD Center Farm and Ranch Management.
