Farming has changed quite a bit over the years, but one fact remains the same: A farmer must have good farm management skills in order to succeed. If you’re new to the industry, have recently inherited land you intend to manage or are an accomplished rancher, there are tasks you must undertake and knowledge you need to understand.
According to the U.S. Department of Agriculture, there are about 2.01 million farms in the United States, which take up about 895 million acres of land. The number of farms and the impact that the industry has on the rest of the world makes understanding farm management all the more essential.
Because a farm is a business, practicing reasonable procedures and having a plan for the future can make or break your production and distribution success. Here are the guidelines for managing your land in an efficient and effective way.
What to know about running a farm
Before you can fully operate your farm, you must understand exactly what farm management entails. Here are some components farm managers are in charge of:
- Sustainability: Like any other business, farms must earn a profit. Hence there is attention on coming up with a plan to ensure sustainable farm profits both in the short and long term.
- Mechanization: Whether you and your family operate the farm alone or you have employees, farm managers must also decide which machines are beneficial to invest in and operate throughout the year.
- Farm planning: Because farm resources can be limited, farmers must have a plan on how to use those assets. This includes deciding what crops to plant, choosing technologies to implement and creating a budget so you’re not stretching yourself and your systems too thinly.
Farm planning is pivotal for your farm family to grow successfully and flourish in the market. It establishes a plan for when you’re setting up your farm to eventually pass your land down to your children, and everything in between.
Although day-to-day operations are important, nothing can happen without first setting up a farm blueprint — a broad spectrum of components including your farm family’s values and goals, a business plan, a succession plan and a course of action for dealing with the unexpected. Follow these steps to create your whole-farm plan:
1. Take stock of your family: Look at the history of your family and its farm, and identify what goals you all have for the future. Decide who will be in charge of the various aspects of your farm.
2. Analyze the business: Check out the available or existing land, labor, capital, resources, profitability, business structure, operating procedures and employee management. Once you have this data, create a business plan for your farm to stick with.
3. Make a budget: By building an operating budget, you’ll pay more attention to expenses, sales revenues, labor prices and your overall income. Common expenses include equipment, tools, food and other livestock and crop production supplies. And, don’t forget about crop insurance which protects farmers from financial loss due to unforeseen events.
4. Plan for retirement: This may seem unnecessary right now, but knowing what the future has in store for your farm may help your current operations run smoothly. Ensure that the members of your family will have the proper care needed to eventually retire comfortably.
5. Create a transition strategy: According to the National Institute of Food and Agriculture, almost 96% of farms in the United States are family owned and operated. That means that your farm will most likely be passed down through generations, which requires a plan.
6. Plan for the unexpected: Face the future with confidence by having conversations about the what-if circumstances that could potentially hurt your agriculture production and farming success.
Let’s dive deeper into some important aspects of your farm management strategy.
How to create a business plan for your farm
Before any crops are planted in your field, you must have a business plan to follow. Avoid putting the cart before the horse by knowing where your money is going and what cash is coming in. Farm business management requires detailed knowledge and records of all operations within your farm business. That means finding a bank to partner with your farm family is extremely important.
Given the numerous decisions that ranchers must balance, a bank can take some of the pressure off of your shoulders by helping you select the appropriate business checking accounts and the level of interest you’d like to earn on that account.
At Bank Midwest, we know how important convenience is to farm managers, which is why we offer flexible and easy-to-use online banking services.
Farm marketing plan
To finalize and balance your farm business plan, you also need a farm marketing plan as well. A strong marketing plan can help you further understand your break-even costs, profits and goals, all by using tools for easier communication with your bank.
To better manage your price risks and level up your agribusiness:
- Decide what products you’re going to sell.
- Determine the price of those crops and where you’ll sell them.
- Discover who your target market is.
- Pay attention to your competition.
- Streamline your operations to fit within your predetermined budget.
Remember, farms are like any other business: They need a business and marketing plan to grow and produce products properly. But what other aspects impact farm management? Learn how rising interest rates affect farm families and production agriculture.
What rising interest rates mean for farmers
National interest rates are determined by the U.S. Federal Reserve (Fed) in an attempt to combat rising inflation for everyday Americans. Although lower inflation is beneficial, increased benchmark interest rates hugely impact farmers across the country.
Some of the most common side effects of high-interest rates for ranchers include:
- Higher loan prices: Most farmers need farm or ag loans to get their businesses up and running. Although interest rates on farm loans are decided outside of the agricultural sector, lending rates can be higher due to national interest rate increases.
- Investment decisions: Business investments like land, buildings, machinery and equipment may be halted due to the rate of return being lower than the interest rate being charged. When you’re making a tough financial decision like this, a business and marketing plan comes in handy.
- Increased cover crop prices: Similar to most purchases in the business world, with rising interest rates come higher prices on goods. In a farm manager’s case, that means the initial purchase price of seeds and fertilizer will be higher when the benchmark interest rates go up.
Although you can’t control the rising prices of goods, you can plan for the next generation of farmers. It’s never too early to start succession planning.
Creating a plan for the next generation
Succession planning may be an emotional process for you and your family. It’s exciting for your child or family member to take over the operational reins, but it can also be a difficult transition for the current farm manager. Having a succession plan can ensure the health and well-being of all family members involved and make it easier when the time comes.
Here are some tips to transition ownership smoothly:
- Discuss early: Children of farm managers most likely grow up knowing they’ll eventually take over, but that doesn’t mean you should wait until that moment comes. Start talking and planning for the hand-off well in advance to ensure your family’s ducks are in a row.
- Organize information: Don’t leave your child to sort through all of your documents and data. Make sure that everything is sorted and ready for them when they take over.
- Bring in a third party: Although your family farm operates as a business, it can be hard to make important decisions regarding those who are closest to you. Take some of the pressure off of your shoulders by having a third party for guidance.
At Bank Midwest, we know that farm business management is a massive responsibility — that’s why it’s one of our areas of expertise. We can provide advice on day-to-day operations, like farm safety tips to minimize insurance premiums, or we can guide you in the right direction regarding your agricultural finances.
Ready to get to work? Contact one of our ag professionals near you.