Try These Farm Management Practices to Maximize Profits

Alex Wilson

With the advancements in technology – ranging from newer and more efficient machinery, to being able to run your farm from your phone – farmers have more opportunities today than ever before to keep their costs low. Today’s young farmers, many of whom have attended a secondary school specializing in agriculture, have been exposed to these new technologies and are finding ways to implement them into their farm management programs. The next step, and one that is sometimes overlooked, is making proper and timely adjustments to the production process to limit unnecessary spending in the field.

Having a strategy of what to plant where is nothing new to farmers; they do it every year. Right after the current year harvest ends, they are already planning for next year’s crop. In Michigan, looking ahead to the 2018 crop year, there are no signs that crop prices are going to skyrocket, so making sound planning decisions with your inputs is more important than ever before. Margins are going to be tighter, so it is even more important than in past years to make smart decisions on seed type, fertilizer and spray combinations, and other necessary input costs. What works in one field may not work in another, and being able to proactively identify those situations and respond in a cost-effective manner is what separates a profitable farm from the rest.

A few examples of farm management practices that act as tax planning methods as well include buying newer equipment with better efficiencies, prepaying for seed, fertilizer, and spray, and controlling labor costs in the down months. With commodity prices where they are today, (and likely will remain for 2018), cash flow may not permit some of the above options. Buying new equipment at the end of the year to write off for tax purposes has been one of the most beneficial planning strategies for farmers in the past, but with commodity prices not being as strong recently and production costs rising, cash flow shortages have made this option more difficult.

Another way farmers plan for taxes is to prepay for expenses the year before they implement. Per the tax laws, you cannot deduct more than 50 percent of other operating expenses using prepaid plans. With cash flow difficulties that some farmers face, this option could also be harder to manage in future years.

However, other steps can be taken to maintain a profitable farm. Tracking inputs and keeping detailed records of when, how, and where you are putting inputs into the fields is key to keeping costs in check. Marketing your commodities to guarantee a certain price, instead of trying to guess when prices will be the highest, is another option to consider to make more with your crop yield. Finally, using results from the current year to make adjustments going forward will help preserve needed cash flow. Many software packages are available that help track these costs at the field level, which makes it easier to identify which fields are not performing up to par.

If you have any questions regarding methods used to track field input prices, please reach out to me or another member of Yeo & Yeo’s Agribusiness Services Group.

Alex Wilson

Alex Wilson

CPA

Alex Wilson, CPA, provides tax and management advisory services with an emphasis on construction companies and agribusiness. He is a member of the firm’s Construction Services Group and the Agribusiness Services Group. He is a senior accountant in Yeo & Yeo's Saginaw office. Contact Alex via email at alewil@yeoandyeo.com or call 989.793.9830.