The current farm economy landscape is affecting how farmers should look at fixed costs. As profit margins shrink and commodity prices go down, operations with high fixed costs could see prolonged periods of loss. Eventually, this can stress working capital and negatively impact operations if not adjusted quickly enough.
Evan Hahn, Vice President Credit-Agribusiness with Farm Credit Mid-America says farmers should begin assessing their fixed costs situation.
“Get the records straight. Having detailed, accurate farm records will help you make objective decisions,” Hahn said. “At Farm Credit, we encourage growers to keep an eye not only on their input costs but also on their fixed costs. This provides a fuller picture of operating costs and can help farmers determine if a fixed cost is positively or negatively affecting the bottom line.”
What are two fixed costs farmers can look at right away?
“This is an ideal time for farmers to analyze equipment utilization. Ask yourself: What equipment do I need to have? What is nice to have? And what am I not utilizing fully?,” Hahn said. “Land is another fixed cost that needs attention. When looking at land costs, begin with an honest assessment of the profitability of each acre. Land that doesn’t generate positive margins can stress an operation.”
Armed with acre-by-acre numbers, Hahn says farmers will be better prepared to negotiate rental rates with landlords to ensure their operation remains profitable as commodity prices lower.
AUDIO: The Ohio Ag Net’s Ty Higgins visits with Farm Credit Mid-America’s Evan Hahn about evaluating fixed costs on the farm.
For more financial tips, insights and perspectives from Farm Credit Mid-America visit e-farmcredit.com/insights