Plant Financial Seeds for a Better 2017

A few minutes of planning now can save a bundle of money in 2017.

A few minutes of planning now can save a bundle of money in 2017. The money you save with a little paperwork and planning today will let you enjoy a weekend in town tomorrow.

“My advice to farmers as we close out 2016 is going to be manage your business more than you manage your taxes,” said Lloyd C. Pickell, P.A., E.A., Manheim, Pennsylvania. Pickell does financial work for farmers across Lancaster County and nearby areas.

Part of the challenge of 2016 is weak commodity prices. Another is the counterproductive spring weather that set everyone back. “We had a lousy spring,” Pickell said. Conditions were cold and wet at planting. As spring turned into summer, rains were spotty and fields that were planted did not look good. In short, 2016 promises to be a short cropping year.

Livestock markets are in flux, too. After a couple of good years in the cattle market, it appears feeder and finished cattle prices are headed lower, leaving many producers considering options.

Direct marketing?

“My advice is always to come up with a real marketing strategy and stick to it,” said Matt LeRoux, agricultural marketing specialist with Cornell Extension in Tompkins County, New York. Figure out production costs and labor expenses, and compute returns.

At times like these, the direct marketer has a real advantage in the market over the producer who simply ships cattle to auction and takes market price. Prices at farmers markets and restaurants tend to be less sensitive to the fluctuations of the commodity market.

It does require work, LeRoux said. Yet those in the direct marketing arena seem to be able to survive the broader market’s ups and downs, leaving livestock producers wondering if they would not be better off selling quarters and halves direct to consumers or to local restaurants.

Cornell did a study in the Ithaca area of New York and came up with shocking results. Although the college town is one of the most locavore-friendly places in America, less than 2 percent of the beef sold in the city comes from local farms. That means that 98 percent of the demand for local meat is going unfilled.

This flies in the face of some direct marketers who report demand is flat or even declining. LeRoux begs to differ. “Much of those figures can be credited to the same pie being sliced into smaller slices,” he said.

“Could a number of new beef producers show up in town and set up market? Absolutely!” LeRoux said. They all can be successful if they develop a profitable marketing strategy. “It’s about what you want to do as a manager,” he added.

There is one big pitfall. “Never run away from direct marketing) during the good times and then try to get back into direct marketing when prices drop,” LeRoux said. “Get into the market, manage your pricing, stick to your strategy. Don’t try to dip in and dip out of the market.”

Even if your business plan is steady, it pays to review marketing efforts.

Jenny Carleo, Rutgers Extension agricultural and resource management agent for Cape May County, New Jersey, works with producers. Her advice parallels that of LeRoux: “Find out where your markets are first – where you will be able to sell your product. Then choose to grow those crops rather than the other way around.”

Headquartered at Cape May Court House, Carleo works with an array of high-value producers, including high-profile sod farms with markets as demanding as National Football League fields. For those sod producers, it is important to identify the Kentucky bluegrasses and fescues that will be in demand in 2017, 2018 and beyond.

Watch expenses

No matter your focus, it pays to monitor the checkbook. “Watch your expenses,” Pickell said. In addition to accounting work, Pickell sits on the board of directors of a local bank. “When our customers get into trouble, it is usually debt-related,” he said.

He tells his clients not to buy expensive equipment right now. “Pay attention to your business and your situation,” he said.

This is a good time to review your tax situation. Pickell sees nothing new on the horizon in the way of tax laws. “It’s an election year,” he said. “Things are pretty well set.” Politicians are more interested in stumping for votes at this time of year than they are in making adjustments to the Internal Revenue Code.

The New Jersey Farmland Tax Assessment closed on Aug. 1 (as it does every year), giving producers until late next July to make sure they have the minimum income needed to qualify for the state program. And incomes may not be fat going into 2017.

“A lot of dairy farmers are not going to have a lot of income tax to pay,” Pickell said. Beef producers are hurting, too.

Pickell said he has noticed a lot of farmers in different enterprise categories are having a difficult year. Dairy producers, in particular, are struggling after good years in 2013 and 2014. Beef operations, while coming back some from an awful first half, still need tight management if they are to finish at break-even or better. One way to show profits in 2017 is to make cattle happy feeders.

Plan for livestock

Animals don’t like change, especially in their feed ration. Abrupt changes in feed rations typically are accompanied by drop-off in performance – either milk production or average daily rate of gain.

Make a solid estimate of how much haylage, corn silage and grain are on the farm. Figure out whether you have to carry the herd through the winter and well into early summer. Animals will protest if you cut their corn silage ration from 50 pounds to 30 pounds in April because you didn’t discover you are running out of corn silage until too late.

Keep in mind that the next chance you will have to put up your own feedstuff is the first cutting of hay in late May or early June. While pushing a pencil, work up figures for haylage, corn silage and grain.

Start by checking how much silage is in the silo today. Count the number of bales of hay in the loft or round bales out by the fence line.

Once early spring comes, it will be too late to get haylage or corn silage on the cheap. Contracting for it today almost assures a better price. Depending on your storage setup, you can take immediate delivery or allow the mill or neighbor to keep the feed until you require it. If number crunching indicates a shortfall, one possibility is to rebalance your feed ration now. Another option is to switch up the ration, giving small grain haylage to heifers and saving good alfalfa for the milking string.

As the year draws to a close, beef producers are having a better time of it than in the first several months of 2016. Even well-established beef producers were losing up to $400 a head in the first half of the year. Fortunately, that has changed.

Those who were able to grow a cover crop for green manure can augment livestock manure and condition their soil. In many areas with high-value acreage, producers do not have the luxury of growing a winter cover crop and then plowing it under.

In Cape May County, for example, producers might want to look at a winter wheat or winter rye crop that can be harvested to produce income.

Manage cash flow

“We’re trying to help farmers with income and expense tracking,” Carleo said. Often it is too late in the slow winter months to recreate accurately what happened in the heat of the production and marketing cycle.

“Things get hectic,” Carleo said. With customers demanding product, the focus turns to loading trucks and moving inventory. “Some farmers have problems tracking inventory on things like nursery crops,” Carleo said.

At that point, even tracking income figures get shunted aside in favor of meeting immediate production needs.

Carleo cautioned against getting overwhelmed by the seasonal physical workload and abandoning record-keeping. To help producers, she is trying to come up with a mobile app that will allow a farmer to enter data at the point where the truck is being loaded or wherever the check gets handed over in payment.

With income in hand, a farmer then needs to decide what to do with the seasonal influx of cash so the operation will be best positioned for success in 2017.

Pickell is a firm believer in debt reduction. “If you have debt, you have given yourself no flexibility,” he said. “Either have a line of credit available (at a bank or Farm Credit) or have good cash reserves on hand.”

He is so focused on debt reduction that he advises clients to forego funding retirement programs in favor of debt reduction. While first to admit that his advice may be counter to what other financial advisors might offer, Pickell is firm in his belief that a producer can always catch up on retirement contributions down the road.

While it is not orthodox, he makes the simple point that an operation that is in a solid cash position is in a much better position to survive to retirement than one that is debt-ridden.

“Retirement funds are good,” Pickell said. “But I am a firm believer that if you have debt, you need to deal with that first. The operations that survive bad times are the ones without a lot of debt.”

Debt robs a farmer of flexibility. Having a line of credit or cash on hand bridges tough times.

Pickell said the current squeeze is “one of those cyclical things,” adding that the weather this year did not help the situation. In a couple more years, as weaker producers leave the business and demand firms, he sees a return to better times.

“I want my people to concentrate on managing their business,” Pickell said. “When the good times come back, you will be positioned to take advantage of them.”