Real-time Financial Data Key to Helping Farmers Impacted by Inflation
Farm Management Technology Provides Rolling Forecasts Throughout Season
Inflation of 7.5% is wreaking havoc in nearly every sector as the U.S. economy is battered by continuing supply chain issues, labor shortages, and geopolitical tensions. The impact on the agriculture industry, which even in normal times is sensitive to economic pressures, is significant.
With inflation driving up prices of everything from fuel to equipment and fertilizer, farmers need to find ways to control costs so they can turn a profit. Most farms were profitable in 2021, but economic pressures will make 2022 trickier, so now is the time to make adjustments.
Nationally, net farm income – a key measure of profitability – grew approximately 25% in 2021 over 2020, according to the U.S. Department of Agriculture. However, it is expected to contract by about 5% in 2022, though it will still surpass the inflation-adjusted average from 2000 to 2020.
A major driver of inflation that is impacting farmers is a 40% increase in the cost of gasoline from January 2021 to January 2022, and the ripple effects of high fuel costs are driving up costs for inputs and overhead items across the board, especially fertilizer.
Careful Farm Management
For farmers, economic volatility like today’s high inflation requires careful farm management, including locking in prices of crops and inputs, containing costs wherever possible, and using technology like the AgriBuilder farm management solution to generate real-time financial data.
Forecasting based on locked-in prices negotiated ahead of the season gives a farmer assurance as to where the break-even point will be. But forecasts don’t anticipate changes that can happen mid-season that may impact yields, prices and overhead costs.
AgriBuilder provides running projections based on new data every month, updating the season’s forecast and enabling the farmer to make mid-season adjustments where possible to ensure a profit. These projections combine actual monthly results with forecasts for the subsequent future months, which farmers have not traditionally done. This creates a rolling forecast that gives the farmer real-time financial data and enables rapid decision making.
AgriBuilder was developed to fill a need in the agriculture industry for a single-entry system that enabled farm management and accounting on one software platform. It was built on the Xero accounting platform and Figured farm management program.
Inflation Hitting Overhead Costs
Inflation is hitting overhead costs particularly hard, including fuel prices, equipment repairs, utilities, payroll, and supplies, making it difficult to forecast 2022 costs. So, using a technology tool like AgriBuilder can help farmers get through difficult years like this one and preserve as much profitability as possible.
For most farmers, the best way to control costs is to identify them up front and take certain actions, including:
- Investigate how AgriBuilder can help your farm operation if you’re not already using it.
- Lock in prices for fertilizer and fuel ahead of the season wherever possible. Likewise, lock in prices for your crops wherever possible. Could you get another 50 cents a bushel if you wait to sell on the open market? Maybe. But maybe not. Locking in gives you a guarantee that you can plan for and benchmark expenses against.
- Focus on forecasting. Get a break-even figure for every crop, which will tell you where to lock in prices.
If you would like to start a conversation about how AgriBuilder and accurate forecasting can help you manage your farm, contact your Adams Brown advisor.