Farmers protect margins from agriculture slump

by | Sep 20, 2017

Farmers protect margins from agriculture slump

Nick Glanzer, market expert with Crop Insurance Solutions, talks about how you can protect your margins.

Farmers across Nebraska are feeling the pinch of a tough year. I know what it means to tighten your belt and make do with what you have. Fortunately, what goes down must go up. Looking forward to 2018, there are four ways you can start planning now to protect your profit margins.

The new Margin Protection Plan is an unprecedented crop insurance policy that’s now available for farmers across Nebraska and the Midwest.

The research I have done on Margin Protection shows that it pays more frequently and pays larger amounts than individual based Revenue or Yield plans. If a producer’s yields trend with a county this policy will pay out more over time than any other MPCI policy would. The research also shows that producers receive a real advantage when they purchase both a Margin Protection plan and a Revenue or Yield plan. Our tool we developed can show how it would’ve performed over the last 10 years.

Protect your margins

Most crop insurance policies protect yield and price. The new Margin Protection (MP) Plans will secure yield, price and margins. If the harvest margin is less than the trigger margin, you may be paid for your loss. Offering farmers up to 95 percent coverage, this policy can stand alone or work in combination with your current crop insurance plan.

Margin Protection plans are area-based, so coverage is based on the expected margins of an entire county. The closing date for Margin Protection plans is September 30, so there are only a few more days to sign up before the deadline.

As a crop insurance agent, I’m excited about the new Margin Protection option because it’s a great way for farmers to secure their margins. While MP plans have been around for a couple years, changes for the 2018 crop year have made it more applicable and more beneficial than ever.

Sharpen your skills

Use this time of economic downturn to sharpen your skills in accounting, marketing and the business of agriculture. Improving these areas of your farm operations will not only help you get through this rough year, but it will also protect your margins against future market instability.

Start enhancing your skills by performing a thorough audit of your farm operations. This will give you a complete picture of your financial status. Once you know the full financial story, you can make informed decisions about what to cut and where to devote resources.

In years where money is tight, you’ll know which loans are a priority and whether or not you’re able to borrow money. There are many resources available to help farmers work through their accounts, so don’t hesitate to reach out for help.

There’s a strategy for marketing your crops to get the biggest return on your investment. Devote some time to this aspect of your business to make smart decisions when it comes to on-farm storage, crop insurance and price opportunities when it comes time to sell.

Establish price goals each year. These target numbers should be realistic for your operation and cost of production. Research marketing tools, such as option contracts and hedge-to-arrive contracts. Taking advantage of these programs can help increase your farm’s margins.

Trim the fat

Your cost of production includes everything from what you pay in input costs to how much your equipment depreciates that year. Decreasing your cost of production will increase your profit margins. It may seem out of your control but there are small changes you can make to lower these expenses.

In some cases, lowering your expenses means choosing the cheaper option for a similar outcome. The opposite could also be true. You may end up buying new equipment that operates at a much higher efficiency level. Adjust your day-to-day operations to maximize your workflow. It’s common for farmers to rent land for their crops. If these rental costs are high, it might not be worth farming those acres.

All of these small changes can give your margins a much-needed boost in years of economic downturn. Whatever your situation is, keep an eye out for ways to cut back when the market is weak.

Seek new opportunities

When financial strain hits your farm, it’s easy to default to what’s known and what’s comfortable. If you stick with what you know, you’ll never be exposed to opportunities. Switching up your planting strategy or taking a risk might be the difference that leads to real growth in your farm’s margins.

Maybe instead of making changes to your farm operations, you explore outside projects. The extra work can help you earn extra income while you’re in a slump. Additional sources of revenue take the strain off of your farm by eliminating the need for it to generate all your household income. It also helps balance out operational costs.

Regardless of how the agriculture market is doing, it’s important to think things through before diving into something new. You might decide this year is a good time to expand your farm operations, or maybe you just have to keep your head down and wait for your next big break. Either way, don’t let the economic downturn prevent you from branching out and growing new opportunities that could give your margins a boost.

This year has been hard for the farmers and ranchers across Nebraska. As a crop insurance agent, I experience my friends’ and neighbors’ struggles first-hand. In spite of the challenges of 2017, there’s hope that 2018 will be better. Whether you’re protecting your margins, sharpening your skills, making cuts or seeking opportunities, there are steps you can take today that will protect you moving forward.