Trim The Fat From The 2014 Budget

Don't over commit especially on long-term debt

Published on: Nov 20, 2013

David Erickson sees this winter as an opportunity to trim the fat.

The Altona farmer wagers that most have been operating with some extremely lush margins the past few years. With analysts predicting average corn prices below $5 for 2014, that's likely to change.

"This will provide us the opportunity to examine and reduce or eliminate unnecessary expenses," Erickson notes.

First off, don't overcommit, especially on long-term debt. If a machinery purchase is necessary, look to handle it in small bites or try to pay cash if possible, Erickson says.

University of Illinois ag economist Gary Schnitkey concurs that farmers will do well to dial down machinery purchases as profit margins thin. During this period of profitability, Illinois farmers were spending on average more than $100/acre on machinery, according to Farm Business Farm Management data. Schnitkey notes prior to 2006, the average was between $40-$50/acre.

Farmers will do well to dial down machinery purchases as profit margins thin. During this period of profitability, Illinois farmers were spending on average more than $100/acre on machinery, according to Farm Business Farm Management data. Prior to 2006, the average was between $40-$50/acre.
Farmers will do well to dial down machinery purchases as profit margins thin. During this period of profitability, Illinois farmers were spending on average more than $100/acre on machinery, according to Farm Business Farm Management data. Prior to 2006, the average was between $40-$50/acre.

Re-evaluate extras
Lately, sales reps have had an easy time pitching their products. With these extreme crop prices, 1-2 bushels pretty well paid for most "extras."

Erickson reminds farmers that $4 corn may require 3-4 bushels to pay for the same sort of extras. When approached with such opportunities, he recommends carefully weighing the possible return against the cost.

"This market should cause us to question our thinking on break-even in the future," he adds. "In the coming years, will we be willing to put that money in a break-even opportunity rather than pay down debt?"

That said, Erickson reminds folks that basic agronomics and livestock management practices are not "extras."