Running your farm operation is more expensive now than ever. That’s why there are several things you can do as you plan your farm budget for 2023.
“Right now, everything a farming operation touches is inflated,” says Thomas Eatherly, Ag Business Advisor with Pinion. Even though you’re likely getting more money for your grain and livestock – you’re also having to pay a lot more for everything else.
“Even though commodity prices are at an all-time high and higher they’ve been in the past, it all comes down back to a farm’s profit margin,” says Eatherly. “Right now, the outlook is very thing for margin because the inability to lock in some of our biggest calls in a profitable range.”
He says your profit margins were likely leveled out by the rising cost of diesel fuel repairs.
“Fuel was a big one. As we all know and saw firsthand, fuel costs rose tremendously. And as we’re tying-out our numbers, overall, it looks like we will be around eight to 12 percent over budget. And then there’s obviously additional factors depending on what graphical location your operation is located, as far as irrigation, grain drying, and trucking. Those are all major costs that can affect those numbers throughout an operation.”
Interest rates, crop inputs and equipment repairs all came in over budget as well.
“Repairs, we originally budgeted about 15 to 20 percent overall increase of our budget year over year and it looks like we’re going to end up around 30 percent over due to supply chain shortages and cost of inflation,” according to Eatherly. “For the most part ,seed and fertilizer costs were locked in ahead of this year’s planting season. The bigger issues were the additional products that were added to the blends and availability of certain chemicals after we’d already started. And then we have interest rates. Cash flow needs are increasing due to demand for locking in prepays at decent prices. We think this is probably the most expensive crop we’ve had on record in a long time, so farmers need to understand what the opportunity cost is for borrowing money.”
Eatherly recommends several things that farmers can do right now to help protect themselves from the possibility of lower commodity prices or even higher expenses in 2023.
“We’re encouraging our growers to save their working capital and understand how they use their own money to operate off of,” Eatherly suggests. “Putting off some of those big capital expenditure projects until next year, save money on interest by not borrowing it, meaning that we’d like to operate on as much of our own money as possible.
“Don’t hire out any work that we can do ourselves,” adds Eatherly. “Farming is already an extremely hard and labor-intensive business, and we know that working smart and utilizing your assets will pay off. Take a profit if the market gives it to you, business owners cannot afford to strike out when the cost of growing crop is the highest we’ve seen in a long time. We want to encourage all of our farmers to really nail down their costs, look at their cash flow and make every dollar count.”
In addition, it is important to keep detailed records of your labor and expenses throughout the year. You may be surprised to find that the areas of your farm operation that generate the least amount of profit are costing you the most time and money to maintain.
Click BELOW to hear C.J. Miller’s news report on budget tips for Indiana farmers for 2023.
