Farm Management Minute: Inventory tracking important to success

Years ago when you were farming 3 or 4 quarters of ground and had a small enough cow herd where you knew the cows by name, you had a pretty good grasp of inventory numbers in your head. But as farm sizes have increased, yields have improved, and cattle herds have grown, it is much more difficult, if not impossible, to accurately track inventory in your head. Most farmers and ranchers will use the trusty pocket inventory book or notebook in the tractor or combine to track important things such as calves born or died, planting dates, load records, etc. This is a good practice, however it does not do a lot of good unless the numbers are accessed after the fact and used to compile data and make decisions. With the increased costs and thinner margins, it is more important than ever to accurately track farm inventory.

In our farm management program, we urge our participants to thoroughly track all livestock, feed, and grain inventory. The preferred method is to have an accurate starting inventory on January 1. This would ideally entail counting bales, measuring bins, weighing livestock or other things, as opposed to educated guesses, as it is imperative to start with accurate numbers. Once accurate beginning numbers are established, it needs to become your practice to track changes throughout the year. This can be easily done by tracking tons or bushels produced, sold or fed or the sale or purchase of livestock.

Participants in our program have historically used an inventory tracking book that will measure births, deaths, transfers, sales, and purchases of livestock and consumption, production, sales, and purchases of feed or grain. When these inflows and outflows are tracked accurately by unit, values can easily be assigned to the transactions to correctly track income and expense for an individual enterprise. By accurately tracking these number and keeping a “running total”, you can more accurately plan sales and purchases throughout the year. This will avoid any surprises of running out of feed or having full bins as harvest approaches. This process has become easier with the accuracy of yield monitor reporting or use of ag specific financial software programs that are designed to track inventory.

By accurately tracking the inventory, it will be much easier and more accurate to create the year-end or new beginning balances for the next year. Additionally, this will make the annual process of preparing a balance sheet with your financial institution much easier and will give them more comfort with the accuracy of the numbers. Participants in our program will take this data and work with our instructors to create reports down to the specific enterprise. By doing this, you can track both dollars and units and use them for benchmarking your operation for comparison to your peers as well as your own operation from prior years.

If you would like additional information on tracking inventory on your farm or ranch, please contact an instructor at the South Dakota Center for Farm/Ranch Management at 605-995-3098 or sdcfrm@mitchelltech.edu.