Grain farmers will have a challenging year, according to most forecasts. A large crop last year and weak world demand for grain has diminished the chance of significantly higher grain prices for the short term.
Farmers will try to reduce costs, but profit margins may be tight.
Chris Bruynis of Ohio State University’s Ag Managers Team has offered suggestions to farmers for a year of lower grain prices and lower profit margins. I have adapted some of these suggestions here.
• Complete a financial analysis.
Knowing where the business stands financially will be critical in developing a plan to survive. This will provide insight into how drastic the measures need to be.
Good financial capacity will allow farm families to borrow new money, restructure debt, or even make interest-only payments on some loans.
• Lower costs.
Items such as cash rent, input costs, operating costs, and equipment depreciation should be considered. Strategies to lower input costs can include setting realistic yield goals, selecting lower-priced inputs, and making sure the input generates more income than its cost.
• Improve grain marketing skills.
Strategies vary depending on farm storage, crop insurance participation, and total bushels for sale. Farms with 20,000 bushels to sell have fewer pricing opportunities compared to 200,000-bushel farms, especially since many contracts are made in 5,000-bushel increments.
Regardless of constraints, it is critical to set price targets that are realistic and based on the farm’s true cost of production. Also, the ability to use marketing tools such as option contracts, hedge-to-arrive contracts, etc., and to understand the risk exposure created or protected by each, will be important.
• Increase profitable enterprises.
Most farmers are creatures of habit and do not easily abandon crop rotations or shift to new crops. Farmers will need to closely evaluate increasing acres of one crop over another.
• Reduce unproductive assets.
Growing crops on marginal soils or rented ground with high rates may be good candidates for removal from the portfolio. Farmers need to weigh the loss from farming these properties compared to the fixed costs that will be spread over the remaining acres to determine if this is a good decision.
Other ideas could include selling unused and underutilized equipment. However, be careful to examine the tax liability of the sale of these assets so that it does not consume the income generated from the sale.
• Add additional revenue streams.
These can come from a few sources, but the most common is the addition of off-farm employment for one or more of the adults. This lowers the need for the farm to generate money for all of the family’s expenses and health-care costs.
Other ideas would be the addition of agritourism/agritainment enterprises. Make sure you have studied these options thoroughly to predict the positive cash inflow they may generate.
• Talk to your lender.
Lenders want the enterprise to succeed and will work toward that end. More options will be available the earlier the farmer discusses the situation with a lender.
• Cooperation among neighbors.
Years ago, farmers understood that by pooling resources, they could generate increased profits. This was evident by the number of supply and marketing cooperatives that once dotted the countryside.
Is it time to create farming arrangements that bulk purchase inputs, own equipment, produce greater marketing opportunities, etc., to maximize income? What about each farmer specializing in a farming practice such as planting, spraying and harvesting, and working together to capitalize on the specialized strength of each other?
• Work toward full employment.
This is not to suggest that grain farmers are not fully employed. However, there are plenty of examples where farmers have added enterprises to their portfolio to best utilize their equipment and hired labor.
Examples include excavating, construction, painting, livestock, machine shop, and custom hire. There is even an example of a farmer that is a Big Ten basketball referee during the winter when row crop harvest is finished.
Farmers have been through tough times before. Grain crop farmers experienced a similar situation in the early 1980s, when profit margins became tight after a very profitable period in the late 1970s.
The nation’s farm balance sheet is in much better shape relative to the 1980s, but that does not relieve the responsibility of operators to make management decisions necessary to keep it there.
Lentz is extension educator for agriculture and natural resources for The Ohio State University Extension Service in Hancock County. He can be reached at 419-422-3851 or via email at
Lentz can be heard with Vaun Wickerham on weekdays at 6:35 a.m. on WFIN, at 5:43 a.m. on WKXA-FM, and at 5:28 a.m. at 106.3 The Fox.