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Prepare for the pinch of 2023

As the 2022 harvest comes to a close, farmers across the nation are breathing a collective sigh of relief. But don’t get too comfortable because it’s time to start planning for next year. 

“This time of year is also a really good time to have discussions with the experts they work with on the farm,” says Chad Hart, Iowa State University Extension economist.   

What are the experts saying? 

In short, fasten your seatbelt because 2023 will be a bumpy ride. 

Pinching Pennies

In 2023 we will continue this journey into uncharted waters because there’s really not been an economic time like this if you add up all the factors,” says Jim Knuth, senior vice president of business development at Farm Credit Services of America.

He is advising producers to carefully consider their cost structure, to maintain adequate working capital for their operation, and to not prepay low-interest debt.

Knuth also encourages farmers to look at their operation holistically, know what prices they need to break even, and understand their crop insurance options. 

“We believe 2023 may present more risk and more volatility,” he says. “This means your crop insurance and risk management decisions will be more important than ever.”

Knuth says these factors are important when considering capital purchases or expanding your operation. He cautions that most over-extension mistakes are made at the top of cycles.  

“We’re just trying to preach good financial acumen, which leads to good decision-making,” he says. 

According to Hart, farmers should expect the financial pinch to increase in 2023 as input costs continue to go up and prices come down.  

He encourages producers to meet with their broker or marketing service and develop a marketing plan to ensure they capture profitable prices for commodities.  

“A lot of farmers tell me they have a plan,” Hart says. “Oftentimes they thought about a plan, but they never really implemented it.” 

Hart says having a plan you are comfortable with, using tools you understand, is key.

Six Financial Rules of Thumb for 2023

Jim Knuth, senior vice president of business development at Farm Credit Services of America, notes six financial tips farmers should consider heading into next year.

  1. Preserve working capital. Keep adequate cash on hand for your operation. Working capital is your short-term risk-bearing ability.
  2. Maintain low-interest debt. If you took out a loan in recent years at a low, fixed rate, now is not the time to pay it off. Remember new debt will come at a higher cost.
  3. Be mindful of your cost structure. As you consider capital purchases or expansion, keep in mind how new debt will impact the overall leverage of your operation.
  4. Understand your break evens. Knuth says a high-margin environment won’t last forever. Know your costs and break evens. They will be different in 2023.
  5. Look at your financial situation holistically. The best business decisions are made when farmers think about their operation on a holistic basis first. Then you can get down to individual farm or equipment decisions. 
  6. Consider your risk management tools. Understand your options and develop the best risk management plan for your operation.

From the Ground Up

Experts agree early decision-making can set growers up for success in 2023 and save money.

November is likely your last chance to get soil samples before the winter freeze, says Tryston Beyrer, crop nutrition lead for western North America with Mosaic.  

“That’s really going to be valuable this year to understand how variable their soils are to make site-specific decisions,” Beyrer says. He says farmers can save money by taking samples and ensuring macro- and micronutrients are being applied in areas that need them the most.  

Now is also a good time to review harvest data and meet with an agronomist to see how to get more out of your acres, according to Beyrer. He warns as much as 60% of crop yield is determined by soil fertility, and if you don’t study soil samples you risk “leaving bushels on the table.” 

Beyrer advises growers to look at a variety of metrics such as soil pH and levels of nitrogen, phosphorus, potassium, sulfur, zinc, manganese, and boron.

He also encourages farmers to lock in their fertilizer supply now and take advantage of the discounts suppliers often offer this time of year.  

“Many of those suppliers are trying to source their fertilizer prior to the end of the year just like the grower,” Beyrer says.

Selecting Seed

While digging into your soil nutrition, you also want to order your seeds as soon as possible. 

Eric Scherder, U.S. crop protection launch leader for Corteva Agriscience, says the sooner you decide what seed you want for the next planting season, the more likely you are to get not only that particular seed, but also the seed treatment and trait in that genetic package.  

“The minute you pull the crop off a field, whatever the crop is, the clock starts on the crop decisions you will make for the next growing season,” he says.

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