Control Farm Expenses to Reduce Financial and Operational Risks

Warren Buffett, known as the Oracle of Omaha, has famously said that ‘Risk comes from not knowing what you are doing.’ Now, we are pretty sure that farmers, our customers, know very well what they are doing: in fact, many of them have been farming for generations so there is no way that the statement can be literally true. If we treat the statement as something of a warning, it becomes a bold guideline to better performance.

Pain is being felt wherever crops are grown. You don’t have to look far to find headlines such as USDA Expected To Cut Their 2024 Net Farm Income Forecast. For example, corn is around $4.14/bushel (CME prices, September 18, 2024). Soybeans are about $10.19 (Revised 2024 Illinois Crop Budgets, June 25, 2024). As a reference, according to projections from the University of Illinois, the breakeven prices including land cost are about $4.98/bushel for corn and $12.10/bushel for soybeans. No matter how the numbers are sliced and diced, farmers are losing money.

Taken to a macro level, the picture isn’t any better. On September 5, 2024, the USDA published its most recent estimate of Farm Sector Profits forecast. The news was not good: the revised estimate before inflation adjustments was $140 billion, some 4.4% lower than in 2023. Adjusted for inflation, the decline compared to 2023 is worse – $10.2 billion or 6.8% below 2023 levels. Inflation-adjusted net farm income, which is a broad measure of actual profitability, will decline in 2024 by $10.2 billion, or almost 7% from 2023 levels – and a staggering 27.6% below record 2022 results. With prices low and costs running high, making money is a challenge, clearly. Real median farm household income also declined in 2024: no question farmers – and the entire farm economy – have been feeling the pinch.

Non-farming businesses can look at their overall financial performance and target cost reductions when margins get tight. In 2024 a wide range of companies from multiple sectors have been in the news leading with stories about cutting expenses: consumer businesses like Nike and Levis, tech giants like PayPal and Cisco, logistics companies like UPS and massive aerospace companies like Boeing. We see this all the time. In all these cases, pressure on margins, declining revenues or just plain desire to increase profits through productivity improvement are the reasons companies act.

"Even when the times are tough in farming, if you have good financial records. And if you can hit print and send that out, that's the key to keep your farming going."
_{Julie Rose — Rose Farms}

We all know that farming is different. Farmers don’t compete with each other in the traditional sense; they compete with externalities that impact results: weather, climate risks, currency risks, energy costs fueling input prices, exports from other countries, geopolitical uncertainty, and more. Another key difference is that as an industry, agriculture remains the least digitized production sector, meaning that often farmers don’t have the technology or systems that can help them identify and best manage those things that they can control: their direct and indirect costs.

At Traction we think the fastest way to larger farm profits and the key to dealing with market volatility is by using actual, farm-specific accounting data. This shines a bright light on not only what a farmer is doing in the field, but also on the costs associated with each activity, and their impact on financial and operational results.

This allows us to:

• Track your field activities, inventory movements, fuel costs, and spray records.
• Calculate your true cost of production, per field and crop.
• Equip you to make real-time, data-infused decisions and adjustments based on the expected financial impact or outlook.
• Provide you with the tools to measure results.

All of which brings us back to the Oracle of Omaha. Knowing what you’re doing means you can quantify what it costs to grow and sell a crop. This ensures you are in a solid position to reduce risk and make money.

No one can make the risks of farming disappear. We can help you manage them better. We’d love to talk to you, learn more about your farm, and show you how.