Careful Forecasting & Conservation Can Help Farmers Steer Through Crisis

Extreme heat and drought combined this year to devastate the Kansas fall crops, with some estimates putting the harvest at 20% to 40% below average. Farmers can make up some of their economic losses with crop insurance and federal agricultural relief program payments. But the critical question all farmers should ask is: “What about next year?”

Benefits from crop insurance and federal agricultural relief programs generally are based on the value of losses suffered in the current year compared with crop revenue from the previous years. Kansas farmers had a reasonably robust year in 2021, so the benefits they may be able to access to cover drought-related losses this year should be adequate. However, if next year brings continued drought, crop insurance and federal agricultural benefits would include this year’s yields, so they could be much lower.

The losses in crop yield are dramatic throughout the southern and central Midwest; with Oklahoma and Texas hit so hard that many farmers are plowing their fields under rather than spend the money to harvest the small amount of corn that grew. However, it remains to be seen whether the corn crops in Nebraska and the Dakotas will be healthier. The resulting corn shortage has pushed prices up more than 30% higher than last year, to approximately $8 per bushel, but that’s not enough to compensate for most farmers’ economic losses.

While the weather will always be a significant factor in agriculture, farmers need no longer consider themselves helpless in the face of nature’s whims. Instead, strategies can help farm owners manage their way through a crisis with the right decision-making.

Strategic Farm Management

  • Utilize technology tools to help you plan next year’s crops with real-time data from this years’ experience. Which fields required more water or more fertilizer? Which fields produced greater yield and less waste?
  • Changing your crop mix can be one management tactic that may help your bottom line. Calculating the estimated inputs and upfront costs of a crop transition is an area where the strength of a farm management technology platform, such as AgriBuilder, can help you see the cash flow implications of any plan you consider. The technology can run scenarios and calculate whether a switch would give you better financial results, providing income and cash flow forecasts for the entire season.
  • Another management tactic is to re-evaluate your capital improvement plans. What absolutely needs to be done now and what can be delayed? With inflation and interest rates climbing, now may not be the best time to add debt.
  • Sustainable farming may help cut costs if you can qualify these changes through the EQIP, CSP or RSPP programs at the FSA, to help cover some of the upfront costs associated with transitioning to these methods. Sometimes the costs are high, but they should be weighed against the multiyear income potential and the potential of being able to sell carbon credits as well as a possible conversion grant through FSA given the new federal funding in place.
    • The recently enacted Inflation Reduction Act committed $369 billion ($19.5 billion for farmers) in federal funding for programs that support clean energy and sustainable business practices. This represents a nine-fold increase in federal funding for environmental programs in the Ag sector and is the most significant economic commitment to environmental funding in U.S. history.


Changing Times

Farming risks have changed dramatically in the past decade, which has been no more apparent than during a crisis like the current drought. As a result, farm owners must engage in more sophisticated farm management and business management practices to remain profitable and to plan effectively for the future.

Contact your Adams Brown advisor to discuss how farm management technology and sustainable farming methods can help boost your profitability and cash flow during these uncertain times.