Controlling Cash Flow Tips to Help You Stabilize Your Farm’s Cash Flow Year-round
You may be the sole and undisputed person in charge of your farm, but you still have a boss. And she can be tough to handle.
Her name is Mother Nature.
Environmental factors beyond your control impact everything you plant, harvest, buy and sell. Wet seasons, droughts, late springs and early winters – all of these things can affect your operations, and subsequently, your bank accounts.
As a result, cash flow management is paramount in farming. You need to know when money is coming in, when you’ll need to spend it and how much you’ll need. And if there are shortfalls, it’s critical that you have alternative funding streams – such as lines of credit – at the ready, a phone call away.
“Cash flow is always a timing issue, no matter the industry,” says Mark Lemke, an advisor with The Shealy Group. “But in farming, timing is even more important because there are so many factors that are out of your control.”
The biggest grain farming operations can harvest enough grain to support consistent sales year-round, but smaller operations don’t have that luxury. If you run a smaller farm, the key to maintaining positive cash flow is to try to time your expenses, such as purchasing seed, to coincide with when you have the money available to make the purchase. It’s a difficult schedule to keep because maximizing your sales requires selling when commodity prices are at their peak, which doesn’t always coincide with the need to make large purchases.
“In the fall, commodity prices are at their lowest because it’s harvest time,” Lemke says. “Prices are usually at their highest in mid-summer. It would be great to hold off and sell your grain the following June or July, but that doesn’t really work because you have to buy more seed in the spring.”
There is no magic formula for stabilizing your farm’s cash flow. It’s an ongoing balancing act that requires frequent monitoring of where your money is coming from and where it’s going. But there are some strategies that can make the job easier.
Take advantage of discounts when possible
Don’t let the calendar serve as your only reminder that it’s time to make a purchase. Just because you need seed in the spring doesn’t mean you must place your order in late winter or spring, when seed prices may be at their highest due to demand. Instead, consider prepaying on your purchase or ordering early, Lemke says.
“If you can order when demand is down, you might be able to take advantage of price discounts,” he says. “Any time you can reduce your expenses, it’s going to help your cash flow.”
Become a better marketer
Grain is one of the nation’s staple commodities. Thousands of farms sell it, and thousands of companies buy it. You need to find a way to stand out from the crowd, particularly if you run a smaller farm with a limited marketing budget.
“Learn how to market your grain in a more effective manner, or find someone with expertise who can help you do that,” Lemke says. “It’s a battle out there – the commodity markets are more volatile than the stock market. You’re going to need help to make headway in the marketplace.”
Pay attention to global conditions
Conditions in other parts of the world can influence and limit what you can buy and sell. Pay attention to the factors affecting agriculture in other parts of the world to ensure you are prepared for possible global implications.
“The largest factor affecting price has always been the weather here in the U.S.,” Lemke says. “But if Brazil has a bumper crop of soybeans, or China decides it doesn’t want to buy our wheat, those things impact our farming operations here, including the timing of what you can purchase, what you can sell and for how much.”