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7 Proven Strategies to Overcome Low Commodity Prices

Posted by Scott Anderson on Apr 13, 2015 2:59:00 PM

I don’t need to tell you that farms are under a lot of financial pressure right now...

You’re well aware that there’s a huge supply of grain and a great harvest worldwide, and because of that...commodity prices are low. Real low.

But there’s hope...

There are ways to lean up your farming, and we’re about to show you how. We’ve compiled a list of seven proven strategies to help you come out on top, even when commodity prices are low.

At the very least, it’ll make your banker happy  :)

Commodity Prices Cash Bales


1) Preserve Working Capital:

Current assets minus current liabilities---that formula equals your working capital. It’s the most important figure that bankers use to know if a farmer will be able to cash flow their operation.

Debt on the books is a liability. Your cash today, not including your equipment, is an asset.

The idea is to put yourself in a good position, that is, on top of a fluffy financial cushion.


2) Reduce capital expenditures:

This includes any new machinery purchases or other shiny things.

There are really good deals out there. But the farmer needs to ignore those deals unless the cost of restoring the old is greater than buying the new.


3) Pay your taxes:

Farmers like to offset tax liability by capital expenditures and prepaying inputs.

You might get next year’s fertilizer now, but that means next year you won’t have any expenses, and you can say hello to a ton of tax liability.

When you have income, pay the tax bill. It’s worth it in the long run, and you’ll protect yourself against the tag-team of taxes and low commodity prices.


4) Restructure debt with longer-term loans:

Currently, there are lots of short-term loans available, but they are at a variable rate and they come with large annual payments which will put pressure on cash flow.

You can extend your payment plan on machinery. This decreases each year’s payments, leading to the most important thing during a low-priced commodity storm: increased cash flow.


5) Lock in interest rates on debt, and restructure if possible:

It’s a low interest rate environment right now. So your task is simple: take advantage of low long-term interest rates by locking them in for good.

This might take you an afternoon of phone calls, but believe me...it will be well worth it.


6) Reduce family living expenses:

Family living expenses for farms have skyrocketed based on high commodity prices from years past. Beach trips, snowmobiles, and new trucks are great, but too much high-expense living is devastating for the farm.

So hold off on large family purchases for now.

As Dave Ramsey says: “Today I will do what others won’t, so tomorrow I can do what others can’t.” (Click to Tweet)


7) Understand your farm break-evens, and make sure every field is profitable:

This is where Cash Cow Farmer becomes your best friend. You’ll need to know your production costs on every field: how many acres to produce soybeans as opposed to wheat or corn, and so on.

Also, remember that farmers don’t sell acres: they sell bushels. So you need to know your break-even cost per bushel, which is exactly what Cash Cow is made to help you do.

You can even input your family expenses, literally tracking the financial state of your entire farm.


You can get through it

For the short-term, the golden years in farming are over. Commodity prices are not in our favor. We need to focus on the business side of farming and make sure we’re going to make money, or at least not lose it.

At the end of the day, the lean farmer wins. And, as Mr. 100-Dollar Bill himself said, “If you fail to plan, you are planning to fail.” (Click to Tweet)

Are you struggling to gain financial momentum during the tough pricing season? Sign up for a 30-day free trial for Cash Cow Farmer today and let us help you make it out.

Topics: Farm Business Tools

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