Tight Margins Fuel Farmers’ Risk Management Decisions
01-27-2017 in Commodities
WEST DES MOINES, Iowa – January 27, 2017 – If history is any guide of agriculture’s economic cycle, the risk management strategies farmers realize during a downturn in prices will greatly impact their ability to capture the next movement of consumer demand, according to experts from the Coalition to Support Iowa’s Farmers (CSIF) recent ‘Farming for the Future Conference’ in Ames.
A panel of farm business and financial planning experts outlined risk management strategies throughout the day-long event to nearly 100 farmers in attendance.
According to Dr. Alejandro Plastina, Department of Economics Assistant Professor at Iowa State University, the most important step farmers can take to actively manage risk during periods of low profit margins is to calculate their break-even prices.
“If you don’t know your break-even prices, then you aren’t able to develop a marketing plan,” said Plastina. “You need a marketing plan with set prices and date targets in order to be able to spread out the risk of marketing and to secure lock-in margins whenever possible.”
Other short-term strategies farmers can implement to manage low or negative profit margins include reducing the scale of operation, maintaining cash reserves within the farm or the family, revising production costs and diversifying income through off-farm employment or custom work.
Building a Legacy for Future Generations
Revising the farm’s growth strategy during a decline in net farm income presents unique challenges for farms undergoing succession planning. Young and beginning farmers often have different needs when it comes to income stabilization.
Don Timmins, CPA and managing partner of Timmins, Jacobsen, & Strawhacker, LLP, says some of these needs may be met through careful entity selection. Depending on the farm and family dynamic, transitioning to a sole proprietorship, partnership, corporation or limited liability company can help the next generation build equity, transfer property or take advantage of tax benefits.
“What’s really important in selecting the right entity choice is discussing these options with your family,” said Timmins. “Communication is key.”
The Coalition to Support Iowa’s Farmers works beside Iowa farm families as they make important management decisions about growing the farm or bringing back the next generation.
“Our focus has always been to help Iowa’s farm families grow their farms successfully and responsibly,” said Brian Waddingham, executive director of the Coalition. “Livestock continues to play an important role in providing new opportunities for Iowa farmers to spread their risk and diversify, and through our services we can provide the information and resources farm families need to consider these options.”
CSIF is a non-profit organization that assists livestock farmers who want help interpreting rules and regulations, guidance on good site locations for barns, counsel on enhancing neighbor relations and tips on how to protect the environment at no cost. For more information, call 1-800-932-2436 or visit www.supportfarmers.com.
The Coalition to Support Iowa’s Farmers was created by farmers to help farmers raise livestock responsibly and successfully. It’s a joint partnership involving the Iowa Cattlemen’s Association, Iowa Iorn Growers Association, Iowa Egg Council, Iowa Farm Bureau Federation, Iowa Pork Producers Association, Iowa Soybean Association, Iowa Turkey Federation and Midwest Dairy Association.
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