Examine These Two Farm Expenses

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With many producers experiencing a margin squeeze, pay attention to these two expenses.

02.23.17    |    Risk Management
After several profitable years, the landscape for many producers has shifted. Today, growers are facing a substantial margin squeeze as commodity prices decline and input costs have not dropped as quickly.
 
So, in this time of tight margins and low prices, how can farmers adjust their fixed costs for long-term success? In our work with customers, we’ve identified two expenses farmers should focus on to make the biggest impact: labor and family expenses.
 
Assess labor expenses
 
One area to examine is employee and family labor expenses. It’s an area that can be difficult to trim, but the costs of overpaying for labor or not fully utilizing a workforce can be a drag on farmers’ earnings.
 
Identifying ways to improve production efficiency is one strategy for adjusting labor costs. For example, precision equipment has allowed farmers to reduce their labor needs while still operating efficiently.
 
Family labor is another aspect that farmers need to take into consideration. Is the operation making enough income to support the family members working on it? If not, some adjustments may be necessary. These conversations aren’t always easy, but as margins continue to tighten, they are worth pursuing.
 
While many farmers are looking to include the next generation, it may not be possible for these workers to draw full-time wages from the operation. We’ve seen some family members of customers take an off-farm job to help subsidize what they couldn't afford to pay out of the farm.

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Take control of family expenses
 
As farm profits come down with lower commodity prices, many farm families will need to take a closer look at their living expenses and adapt to living with less income.
 
One method for controlling the cost of family living expenses is to write yourself a check from the operation every month. Put it in an account that is separate from all operational expenses. This way, you can’t overspend, and you’ll have a better idea of how much your family spends every month.
 
As you are examining the above expenses, be sure to talk to your financial advisor or lender to better understand how these costs impact your balance. He or she is well-equipped to help you plan and answer any questions that may come up.

Evan Hahn, Vice President Credit - Agribusiness

Evan Hahn is Vice President Credit - Agribusiness and is based in Wooster, Ohio. He leads a team of credit analysts that serve agribusiness accounts by understanding their credit needs and providing credit analysis for Farm Credit Mid-America and customers.

More from this author: Managing Fixed Costs on Your Farm, Two Things You Must Know to Run a Successful Farm, Don’t Make These Four Mistakes With Your Farm’s Working Capital

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