As we travel into 2016 it is no secret that margins for farmers will be very tight. It is my belief that with the proper management of inputs on a site specific scale, we can close the gap between profit and loss, and allow farmers to proceed into the next several growing seasons being able to focus more on marketing and financial strategies, knowing that they have hedged their risk on the inputs side. We all need to play to our strengths and produce to our capabilities not our expectations.

1. 9 Strategies to manage
margins
Subtitle

2. 9 Strategies to manage margins
▪ Major concern: cash flow / liquidity
▪ Solvency hit, but still strong
▪ Long term problem  strategy for 2-3 years

3. Strategies:
1. Protect your working capital
▪ Revise recent asset purchases
▪ Revise share of rented land
▪ Revise scale of operation and fixed costs over next 2-3 years
▪ Manage taxes: visit with tax advisor
– Deferred payment contracts
– S179
– Carry back operating losses to obtain tax refunds

4. Strategies:
2. Avoid cash shortages
▪ Plan for operating losses (renters)
▪ Secure operating loan/emergency loan terms
▪ Be very careful with new capital expenditures
▪ Maintain cash reserves and operating credit lines:
Cash Costs / Acre Soy after
corn
Corn after soy Corn after corn
Non-land (excl. labor) $185-$200 $320-$385 $360-$425
Land $225-$300 $225-$300 $225-$300
All Cash Costs $410-$500 $545-$685 $585-$725
Source: File A1-20, Ag Decision Maker

5. Strategies:
3. Diversify Income
▪ Add or don’t lose non-farm income
▪ Consider alternative sources of revenue with your assets: custom
work, snow removal, truck driving in fall & winter, ???

6. Strategies:
4. Revise production costs
▪ Revise production plans, especially for rented land (renegotiate
land rent?)
▪ Can you make changes that generate savings that offset
reductions in revenue?
▪  N 20 lbs per acre? Savings $10. If yield  smaller than 2.75 bu/acre
@ $3.60/bu, GO AHEAD! Otherwise, NO GO.
▪ Switch to seeds with fewer traits (+crop management)? Net
savings $25/acre. If yield  smaller than 6.95 bu/acre @ $3.60/bu,
GO AHEAD! Otherwise, NO GO.
▪ Seek volume discounts in seeds, chemicals, etc.
▪ Visit with agronomist: update your production skills, evaluate how
to control costs

7. Strategies:
5. Actively Manage Risks
▪ Know your break-even prices
▪ Design a marketing plan with price and date targets and stick to it
▪ Lock-in margins whenever possible
▪ Revise crop insurance (Explore ways to maintain protection while
lowering costs)
▪ Revise use of forward contracts & crop insurance to finance inputs

8. Strategies:
6. Revise family living expenses
▪ Revise family living expenditures:
– Vacation plans
– House remodeling plans
– Truck purchase
193 fully owned acres to afford $40,000 in living
expenses
340 fully owned acres to afford $70,000 in living
expenses

9. Strategies:
7. Secure repayment capacity
▪ Short repayment schedules reduce cash flow vs. long repayment
schedules
▪ Try to extend repayment schedules on equipment & real estate
loans (low interest rates)
▪ Work a plan with your lender(s) for 2016-2017

10. Strategies:
8. Revise Growth Strategy
Depending on your growth stage:
▪ Offload unproductive assets
▪ Downsize
▪ Slow down growth
▪ Beginning farmers: wait to buy land
▪ Align short term needs with long term growth goals

11. Strategies:
9. Know your ARC/PLC Payments
▪ Payments vary widely across counties and programs
▪ No PLC payments in 2014. Small payments likely in corn base
acres in 2015.
▪ If any 2014 ARC-CO Payments, use to cash flow
▪ Corn: higher yields in 2015 (exceptCRDs 8 & 9), and lower 5-y
OA yields (except for CRDs 5, 8, 9). Lower ARC-CO payments
(except for CRDs 8 & 9) even with lower prices.
▪ Soybeans: higher yields in 2015 (except for CRDs 4 & 7), but
higher 5-y OA yields (except for CRDs 1, 2 , 7). Higher ARC-CO
payments (except for CRDs 1-3).
Source: Iowa Farm Bureau Federation