In this very tight margin time of production agriculture, we as producers need to watch all income and expense with great diligence. As the 2017 South Dakota Annual report indicated, and neighboring state’s results also show, that gross farm income has steadily decreased. However, through tight budgeting and the cutting of expenses, the net farm income rose slightly. This trend has producers looking for tools to help them remain solvent through these tight economic times.
Changing the view of a cash flow as a form completed for the bank to obtain financing, into a budget or plan of action for the year is a good practice to help producers remain profitable. Although a budget is sometimes difficult to predict, it will help in determining risk. We must be very realistic during the budgeting process as many times we overestimate income and underestimate cost. Information for each operation’s budget is best if it comes from your own actual records from previous years. There are also many sample budgets available, and using county or state averages can give you tools to predict your ability to remain profitable.
All producers must determine how they use their resources of land, labor, capital, and management. These factors of production need to be used in the most profitable way possible. Using budgeting we can run many “what if” scenarios to determine our plan of action by experimenting with possible outcomes before committing actual resources. Also, identifying fixed and variable costs and other potential income that may be overlooked is important. The moral of the story being careful planning equals increased returns. Each operation needs to track income and expense in their operations throughout the year and be diligent in following their plan of action or budget for the year.
Cash flow monitoring is something our students in the South Dakota Center for Farm and Ranch Management program are moving forward with to keep better records by tracking income and expense to continue developing the best information to create each individual plan of action.