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Veteran Advisor

How To Cope With Less Cash

Folks,

 

I know it's tough in farm country. For some, real tough. But, know that there is help. You don't have to try and battle this alone. You've never been expected to and right now there is a farm financial adviser just a few touch tones, clicks or miles away. Here are a few thoughts on how farmers are getting help this winter.

 

Full story: How To Cope With Less Cash On The Farm

 

 

Thanks,

 

Mike

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28 Replies
Veteran Advisor

Re: How To Cope With Less Cash

That's a sobering article, Mike, and has advice most of us would find unpalatable.

One thing I've noticed.  Farm families struggled for years.  Then came some boom times and the new truck, new car, better vacation, better food and so forth was welcome.  But no one wants to go back to the "bad old days" when we scrimped and saved and put off buying a new set of tires when the old ones still held air.

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Veteran Advisor

Re: How To Cope With Less Cash

Jim,

I’m not sure it’s time to go back the bad old days, but more of a laser focus on management is certainly a big difference.

Mike
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Honored Advisor

Re: How To Cope With Less Cash

When we have had our eyes closed to reality this long how will we ever gain a "laser" focus on the very things we deny.

 

The advances we advertise, sign up for, and praise are the very things we cannot financially afford.   

 

The paradox of agriculture insanity .....................

 

ie.... at $5 corn one can consider fertility maping.  At $3 one cannot afford anything beyond gps steering.  Yield mapping, grid sampling, variable rate planting or fertilizing all drive costs far to high to consider.

 

It is hard for an ag publication to make its living on advertising the latest advancement and still present a realistic article on this subject.... Thanks for finally trying.  But this article is far too soft on the subject.....

 

Technology has been a race to emerge ourselves straight from the high dive board.  Now we are hooked and now we will be skinned and filleted for assuming the product was going to be worth the investment.

 

 

This is a wreck in progress...... from the teenager who can't afford the smartphone they are addicted to............ to the consumer who wants that box delivered to the door and assumes no delivery costs from 200 miles away.

 

Expecting to bypass the basis by delivering direct......... Or making up for the loss of customers by servicing a bigger area...

 

Or thinking the yield will improve if we can see it in real time....  it will never improve enough to pay for the cost...

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Advisor

Re: How To Cope With Less Cash

I assume that many/most have some decent land equity but are stretched thin over rental acres that are losing money.

 

I'm not in the big time game and talk is cheap, but for many years I've been suggesting that those who aren't gold plated* might consider a multi-year strategic retreat- pulling back form the least attractive rental acres as the opportunity presents, not chasing anything but the very bet opportunities. That might still be an option but it was a better one 5 years ago.

 

I also suggested at various times that it might be time to roll some debt to the longer side and beef up working capital. Part of that discussion was about the immediate cost of that, given low short term rates. Again, that window might be closing for some.

 

Don't know, don't see Unc riding to the rescue this time, at least to a large extent. I could be wrong. Weather might.

 

*the hard part is recognizing that you're not, following a very fortuitous run.

 

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Veteran Advisor

Re: How To Cope With Less Cash

SW  - I find with interest your statement concerning a  ( FREE )  shipping policy -  that shoe will drop eventually ---

 

Reality  101 appears again  &  with the  '' looser ''  that once was the guy dropping a marker on the single digit, 6-8 row planter,  getting a second thought, maybe - can't be - can it ? ?     

 

 

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Advisor

erk

This hypothetical makes my head hurt because I can't figure an easy way out.

 

The operation has that $3M NW- $4.5 million in long/intermediate assets vs. $1.5M in term debt. It farms 5000 acres, obviously mostly rented. It requires $2M in short term operating money to put out that crop.

 

During flush times the operator made maximum use of 179 and has a still nice equipment line sized for 5000 acres, and a new grain handling center, similarly sized.

 

He enjoys little depreciation, which may not be a big deal if he's losing a lot of money but is if he's near breakeven because he's going to pay taxes on the first one or two hundred $K in losses (in real terms).

 

I guess if he downsizes he can sell equipment- which is mostly ordinary income- and manufacture a loss in that year to cover it. But of course he may still owe money on some of it.

 

In which case he'll be under utilizing the grain center but I guess there might be worse things.

 

Maybe pull back to just the few hundred owned acres, zero debt and apply for a commercial grain license to utilize the grain system?

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Veteran Advisor

Can I say something ?

I've lived thru the 80's......and trying to live thru now.

I didn't have fun going thru either.

fought with banker's in the 80's..........with some luck and being smarter than the banker, we got thru that, today, I don't know.

back then I worked with people on a volunteer basis to try to help.  Sometimes when you are under a lot of stress you just need

to talk to someone and get a different prespective.......used to try to come up with idea of assets available to farmers back then.

I've seen times when the banker had the papers in his hands....bought a little time, and did some "wacky" things that actually

turned cash flow around....I remember one family, that was the situation........a deal was made for hunting rights, a deal also

made for lumber rights (walnut trees), and a few other things.......in a month, the banker was friends again, and things were working.

 

today..........soo much different.

 

today, the cost of living is so much higher......not saying food is so much so, but the health insurance, the vehicles, etc.....

also more peer pressure on kids now to "fit in", with the right things.

 

many on here point to higher cash rents.........i'm sorry, I don't really feel that is the problem

 

the real things are input costs/operations costs............and prices received for commodities

 

we would have never dreamed farm equipment would cost what it does.............same with stacked corn seed +$300 a bag,

the herbicides, the fertilizer, every little thing.

 

then the commodities.........when the professional "advisors", tell you things are not right, and much of the blame is placed

on automated trade........

 

another thing is these 30 somethings have been feed a constant diet of high tech stuff, you have to keep up, etc.......

they were tought that in the colleges nowdays, and the ag media puts it out every day.......

when we say something is news, but really an advertisement, we have a problem.

 

today, the "kids" must have a fancy vehicle, fancy everything......even new houses.......they even have to go to ball games

and vacations.......i'm told "they are going to enjoy life"............yes i'll go along with that, but who's going to pay for it.

for many years, the little old bule hair ladys did.......but when they got wind of how much everyone was making, they

wanted a piece of the pie too.

 

sorry, I don't feel sorry for the input suppliers or implement dealers........they sell at their marked price......they have a mark up.......

me, I don't even have a chance.......

 

I see the coop big shots come out of the fancy restrant, having a big meal, and I have a good idea who paid for it......while

I dine in the pickup on some pickle and pimento lunch meat.........

 

sorry, I see who the real proclem is

 

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Honored Advisor

Re: Can I say something ?

I really appreciate nox going through these "out loud" thoughts as i have been for three weeks... I am advising on a couple of "where we go from here" senarios....

 

289 I come out of this mental exercise in the position you describe pretty often..... there have been several steps taken that are not easily reversed.  

 

It is too often I try to make it a nut shell so I can relay the message here is where I am today....... It is a graph -- left to right --- lets start out in 2004 left and 2020 right horizontal axis and let $$ be the vertical axis

 

10

9

8

7

6                                                                   x     x     x     c

5                                                                          c      c       x  c    c     c       c   

4                                                            x       c                            x       c      c 

3                                                 x           c                                           x      ?

2        x          x     x        x    

1          c          c     c       c     c    c

0

-------2004,    5     6      7    8    9    10    11   12    13   14   15     16     17     18     19     20  ----------------------------------

 

X= revenue generated

C= Cost incurred...

 

 

I see a lot of Blog advice that says "stop spending"...... great idea but totally out of focus.

 

The C represents costs incurred and is made up of direct expenses and fixed costs.    What I see in most scenarios is that half or more of the C expenditures  are committed to the fixed costs --- Those items that have been in full blown inflation format ever since 2008....----- land and lease, equipment, irrigation, seed, trucks, tractors, sprayers, harvest equipment, imbedded technology, required technology.   

 

The direct expenses are easy to change and have been doing their part......... fixed costs are often in locked in format and have grown to be a much higher % of C than realized.

 

The instant explosion of fixed costs come when acres or hours of use are reduced.  For whatever reason.

 

 

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Veteran Advisor

Re: How To Cope With Less Cash

Amen SW, I think we as farmers must learn to measure success in ways other than John Deere's latest and greatest equipment. We have a depression problem among a lot of farmers, and I believe the AG media is partly to blame. For too long they've portrayed successful farming operations with those who farm the most acres or those with the newest technology, whether those operations can make those acres and technology pay or not.  

 

 

IMO success is not measured in our lifetime - it's measured when this life is over, when your family, friends, community, and the All Mighty say "well done."

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