As you continue to make marketing decisions this year, you'll want to keep an eye on your breakeven price. Our ag finance department has watched average breakevens trend upward for the past three years straight – a total 44% rise for corn and 26% increase for soybeans!
A few different pieces have bumped breakevens up. Overall, farmers are paying more for cash rent. There's also more expense from depreciation as you have invested profits into updated or additional equipment.
Debt payments have risen from recent land purchases. And farmers have taken advantage of low interest rates over the past few years, using more financing to make purchases.
Higher breakevens mean tighter profit margins for most farmers. They also mean it's more important to have a proactive marketing plan and risk management strategies in place.
Our ag finance specialists calculate all your costs into your breakeven – family living expenses, energy costs, the fuel you put in your trucks. They build in replacement costs for your equipment line because you'll probably want to buy a new piece of machinery someday. Your main source of revenue is selling your grain, so you need to know that it can cover all of your costs.
Many farmers have reinvested profits into their businesses. This is good – but can impact your short-term cash flow.
Depending on what happens with yields and prices over the next few years, it could become tough to keep funding these investments. You'll want to be deliberate about watching your operation's finances carefully.
As you're doing your strategic planning, get the help of an expert who can run various scenarios on your financials based on different commodity prices and yields. Find out what has the most impact on your breakevens. Have a backup plan for what you would do if you ever got into a negative cash flow situation.
Knowing your breakeven – and using it to make risk management decisions – shows what it's going to take to "make it" this year. Do you know your numbers?
Darren Frye grew up on an innovative, integrated Illinois farm. He began trading commodities in 1982 and started his first business in 1987, specializing in fertilizer distribution and crop consulting. In 1994, he started a consulting business, Water Street Solutions to help Midwest farmers achieve success through financial analysis, insurance, commodity marketing, and legacy planning. The mission of Finance First is to get you to look at spreadsheets and see opportunity, to see your business for what it can be, and to help you build your agricultural legacy. Contact Darren at firstname.lastname@example.org.
Powered by iNet Solutions Group ©2011 All Rights Reserved.