8 ways to trim your farm budget
A recent report shows a lot of signs point to a slide in farm income levels in the next 2 years. "Lower returns will require adjustments by farmers," says University of Illinois Extension ag economist Gary Schnitkey. "Machinery and other capital purchases likely will have to be reduced. In addition, cash rents may have to be reduced in certain situations to reflect the projected lower returns for 2013 and 2014."
Here, farmers & Agriculture.com Farm Business Talk members share their ideas on how to cut back on expenses to ease the blow of less income.
"How you handled the profits of the previous year is key. If that went to personal savings or spending, the backside of high prices is always tough," says veteran advisor sw363535. "If much of the profits realized are spent on deductible or deprecable expenses that enhance future production or lower future costs, handling the lower down years will be much easier."
It's a good idea to re-examine what you're paying to rent land -- or what you're getting from land you're renting. But, don't forget to take into account what could happen once more prosperous times return, warns one Farm Business Talk advisor.
"No interest payments are better than low interest payments and you have nobody 'helping' you make business decisions," says Farm Business Talk senior advisor kraft-t. "I'll bet you my 2013 crop will fully fund my 2014 crop and just may have some left for us to eat on."
Maintaining a strong cash and/or asset position is a good way to hedge against a downturn in profitability, says Farm Business Talk senior advisor Kay/NC. "It is always smart to build cash reserves today, in order to be able to bridge income gaps down the road," she says. "Having cash on hand to fall back on lets you enjoy some slack in the chain of debt."
Though it may be tempting to cut back on crop inputs, doing the opposite and shooting for the highest possible yields is something Farm Business Talk veteran advisor Shaggy98 is going to continue. "I don't skimp on inputs when commodity prices aren't as friendly," he says. "If we continue to do the same thing, we shouldn't be surprised when we continue to receive the same results."
Some machinery costs will be unavoidable, but Farm Business Talk senior contributor farmerguy89 says he's hoping to keep his machinery costs at a bare minimum. "Even if machinery is owned free and clear you still have repairs and insurance," adds senior contributor clayton58. "But the big one is depreciation/replacement cost."
Though there may be ample tax incentive to make big-ticket purchases at year's end if your income or other taxes are projected to rise next year (as was the case a year ago), it's better to avoid doing that this year, adds Farm Business Talk veteran advisor Jim Meade / Iowa City.
Not using all that machinery? Sell it! "I am dumping some baling equipment that I don't need anymore and my corn planter. Frees up a lot of capital to pay debt," says farmerguy89. "All I need is the no-till drill for planting."
Act now -- or soon -- to avoid losing out from an expected downturn in farm income. Here are some farmers' ideas.