Opinion: Planning Farm Profitability in 2019
December 7, 2018 Anyone who reads this title will probably think: “well, isn’t this the case every year?” And yes, indeed, profitability is always important, writes Reinder Prins on PrecisionAg.com, and the bottom line is the main driver for decisions every cropping season. Coming off a season like we’ve seen in 2018 however, profitability in 2019 might be key to survival for many growers. As many publications (e.g., Forbes) have written recently, farm bankruptcies are on the rise and falling commodity prices and rising interest rates are to blame.
Grain prices have been falling since 2012 and have caused farm revenues to drop by 50%, while the recent trade tensions have had an add-on effect for some crops, especially soybeans. A 50% drop in revenue would be devastating for most businesses; but for farmers even more so as input costs have not ceased to increase and opportunities to generate alternative revenue are not readily available to most growers. Many growers have experienced extreme weather events in 2018, such as the prolonged drought currently seen in Australia or the hurricanes we saw earlier this year in the eastern states of the U.S. Some of these growers have not had an income for multiple seasons, which is very hard to manage financially, even for those that were well-prepared.
Most farm businesses are not able to reduce their risk by making the significant operational cost reductions needed either, as fuel, seed, chemical, and fertilizer prices tend to rise instead of fall, and the amount of inputs needed cannot be lowered dramatically either without having an immediate impact on yield. Interest is another cost that has started to rise now that the Federal Reserve has been raising its interest rates for the past three years. During seven years of low interest rates, many growers increased their overheads by purchasing new machinery and land. Now that interest rates are increasing steadily, many growers are starting to feel the pinch.
So, what can growers do to ensure they survive and thrive? And, equally important, what can service providers do to help their clients stay in business and ensure they stay in business themselves? To put it in one word: communicate. Everyone working in or with agriculture knows that times are tough at the moment and that many growers are operating on extremely tight margins. Nobody likes to see even a single grower go out of business and providers are almost always willing to help growers find solutions, as long as they are aware of the specific challenges growers might be facing.
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