Northwest FCS News
The economic reset is in place for most commodities and agribusinesses. A wide range of practices have been suggested by academics, consultants and others to successfully navigate the down cycle. Recently, more than 800 producers used anonymous “clicker” technology to relate practices they use in their operations. As suggested by your peers, the following practices may be helpful as you navigate the reset as well.
The number-one practice listed by 41 percent of the 800 individuals was reducing operating costs. Historically, when cutting operating costs, a good strategy to use is a ranking of the largest five expenses. Some suggest cutting these costs, whether they are crop inputs, feed, repairs or others, by 3 to 5 percent each. Frequently, reducing costs requires implementing proactive practices such as soil testing, feed analysis or regular machinery maintenance. One area where cuts can almost always be found is in the “miscellaneous” category. If this expense category exceeds 10 percent of your total costs, the individual items listed under the category need to be scrutinized.
The next item suggested for potential cuts is capital expenditures. Usually, these investments can be separated into one of two categories: farm and non-farm. Those that fall under the non-farm category are often not essential items for sustainability such as a boat, trucks, travel trailers, etc. During the favorable economic cycles, these types of purchases seem to expand, sometimes at an alarming rate. Today, they need to be scaled back considerably. Additionally, capital expenditures for the farm will also require prioritization. A good way to start is to examine the depreciation list and maintenance records. This allows you to better prioritize and determine what is essential and what can be postponed. It is important to consider your tax strategy in conjunction with this analysis.
Interestingly, only 9 percent of the 800 producers stated they examined family living cost for reductions. Further, one participant out of 20 indicated that no family living adjustments were needed. These businesses were most likely still making profits, or were, at least, comfortable with cash flow. In general, this category has significant potential for reductions.
Reducing costs and employing proactive practices may not be easy, but many of your producer peers are in a similar position. Using sound records and tracking systems, one can make adjustments to substantially increase efficiency and improve the operation. Whether it is from the big five expenses or several different places, reducing costs will be one of these critical, proactive practices. Regardless of the proactive practices you chose to employ, scrutinizing the various components of your operation for adjustments will be an extremely critical practice for sustainability.