BY IAN DOIG • GRAPHICS COURTESY OF VECTEEZY.COM
The tight farm financial picture that has evolved over the last three crop years has many farmers adjusting capital, operational and agronomic practices. The aim is to push up the profit margin while cutting costs. GrainsWest spoke with three agricultural advisors about such dollar-saving tactics.
RETHINKING SOIL SAMPLING
A proponent of multiple-depth soil sampling, Jack Payne is a crop supplies regional grow team advisor with Federated Co-operatives. He said there are two economically beneficial reasons to go beyond single-depth sampling of the first six inches of soil.
“Firstly, single-depth samples can underestimate leached nitrate and sulphate levels in the soil,” he said. “If these are overlooked, a grower could find themselves over-applying nitrogen.” As well as not meeting 4R nutrient stewardship guidelines, in barley, the result can be lodging and protein levels that are too high for malting grades.
“Secondly, single-depth sampling can overlook hidden salinity,” said Payne. “This is salinity that is not visible as crusting at the soil surface. In the case of over-fertilizing, it could save a grower in the range of $25 per acre or more depending on fertilizer prices.”
BALANCING THE SOIL BANK ACCOUNT
Last spring was the most price-sensitive year Matt Gosling has experienced in his 16-year agronomy career and he doesn’t believe 2020 will be materially different. A founding partner of Premium Ag Solutions, he had several operational suggestions aimed at reducing financial risk. “The used equipment market is saturated, so if you’re over-equipped, now might be a good time to restructure some loans, equipment lineups and questionable land rents,” he said.
“There is no Cinderella crop heading into 2020, and those are rarely worth chasing, especially if they are new to the farm,” he said. “A diverse crop rotation that has early maturing crops helps maximize capital costs and reduce risk. Loading a rotation with late-maturing crops is a risky gamble if you’re maximizing machinery capital.”
Focusing on agronomics, he emphasized understanding soil systems is critical.
“As an agronomist, we have always considered ourselves the most affordable input on a farm.” He estimated typical year-round agronomy services cost around three to six per cent of variable costs, based on $175/ac.
“Treating your soil like a bank account is a simple way you can reduce costs without sacrificing yield from a nutritional standpoint,” he said. “And unless you have your macro-nutrients performing in a well-balanced system, wandering into micronutrient territory is a risky gamble.”
Like Payne, he noted the value of accurate soil testing, especially in assessing nitrogen needs. “On a single-rate management practice, taking cores in an area of poor-producing soil will give you a false reading, typically a high one, so the recommendation will be for less nitrogen. This will cost a grower a lot in missed margin, especially in a great year.”
Nitrogen is one of farming’s biggest variable-cost line items. Spoon-feeding it to crops through the growing season is something to consider, but logistics can trump risk mitigation, said Gosling. In a short growing season, nitrogen and herbicide applications are typically best done at similar growth stages. “So, you either need to be over-equipped or rely on custom application, which comes at a cost.”
In terms of phosphorus, much of southern Alberta has missed yield expectations for three to four years, he said. Farmers whose phosphorus application rates have been aggressive may have unintentionally been applying a phosphorus build rate. Cutting the rate back from 40-50 lbs/ac actual, one could easily get by with 20-30 lbs/ac, he said. A saving of $6.50-$13/ac at $0.65/lb phosphorous is possible.
Citing the bank account metaphor, he suggested another cost saver when budgets are tight may be to skip potassium and sulphur, provided soil testing indicates a solid existing balance.
TWEAKING FARM FINANCES
Given the current difficult financial times, farm management consultant Denise Filipchuck of Filipchuck Management recommends farmers check their working capital and cash flow situation. “Every farm situation is unique and a strategy that considers the goals and vision of the farm and the family members, in addition to other financial indicators, will yield the best results for your business,” she said.
Short-term credit requirements should be measured against the options available to service these requirements. “Be mindful of the type of credit available and if this will sufficiently meet your needs without sacrificing profit,” she said. “Consider your actual working capital and the timing of marketability.” The aim is to maintain flexibility in case delivery must be delayed or to store inventory in anticipation of a stronger market.
Completing a monthly cash flow worksheet outlining cash inflows and outflows may improve profitability and provide financial clarity. “Knowing your cash flow situation at least 12 to 18 months in advance provides you with the information you need to assess your cash situation and deal with timing issues in advance,” said Filipchuck. This allows the alignment of loan payments and the creation of a marketing plan that aligns with one’s commitments. It can also make it easier to identify and deal with cash flow surpluses and shortfalls. She suggested starting with a whole-farm historical and forecast analysis of cash inflows and outflows, drilling down to the month-by-month level.
Doing debt management may likewise improve profitability, overall financial health, and relationships with creditors, said Filipchuck. “Utilizing the right credit facilities for your farm gives you maximum flexibility at minimum cost and will improve profitability by reducing interest costs and aid in better grain marketing.” She said the difference in interest costs between various credit options can easily be one per cent and often two per cent or more. Adjusting debt servicing by reducing interest can potentially save tens of thousands of dollars.
“Having a solid understanding of the farm’s overall financial situation will enable you to make decisions and manage your business with confidence and peace of mind while significantly improving relationships with creditors and reducing stress for you and your family,” said Filipchuck.