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How to Pinch Pennies in 2016

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How to Pinch Pennies in 2016

Vince Bailey
Vince Bailey

The crowds were noticeably thinner for the first day of the Indiana/Illinois Farm Show at the State Fairgrounds, as producers are facing tighter profit margins for the coming year. At the HAT Pinching Pennies seminar, Vince Bailey with Farm Credit Services said we are on the downside of a super cycle, “There have been about 3 super cycles in the last 50 to 70 years with this one starting in about 2006. In this cycle, we have had the greatest wealth building in agriculture we have ever seen.” He added that, when you have a significant upswing in agriculture, you typically have a significant downswing on the backside as well.

Bailey urged producers to focus on their balance sheet and decide how they plan to  position their operation for the next few years, “If you think prices are going to move back higher in the next few years, then you need to decide how to position your operation to withstand a few years of loss.” But on the other side of the fence, “If you see commodity prices moving into a prolonged period of lower prices, you have to get your cost of production much lower.” Bailey believes this latter scenario is more likely.

Two key components in bringing your costs down, said Bailey, is reducing land rent costs and reducing family living expenses, “Over the past 10 years, family living costs have increased at a faster rate than crop production costs; this is because the profit margins have been so good.”  He said reducing fixed costs like land rent or family living costs are difficult and may require some adjustments to the size of the operation.

At the seminar, Mike Silver from Kokomo Grain said he believes there will be a window  of opportunity to sell corn and soybeans at higher prices between now and next summer, but he warns it will be a very narrow window and producers must be ready to act quickly.

Also on the program was Gerald Harrison from the Purdue Land Lease Team. He outlined options for land rent arrangements that producers may want to consider.

The Wednesday seminar at the show will feature Hoosier Ag Today Meteorologist Ryan Martin with an outlook on 2016 weather and Dr. Chris Hurt from Purdue with his popular outlook program for 2016.