From Saskatoon Homepage:
The President of an Iowa based agricultural consulting company says farmers should be ''bulletproofing'' their balance sheets during good economic times.
Moe Russell says the first step is to build your working capital.
"Working capital is the first shock absorber to get a farming operation through financial bumps on the road."
Russell's recommended goal for working capital is 50 per cent. For example, if a farm brings in $1 million a year---a comfortable working capital is $500,000.
He adds farm profitability is not about size and location. It is about lower operating costs and getting the best price from the market as possible.
"(That means) getting in the top-third of the price range of the commodity you are growing. If you are not getting there, hire somebody to help you get there because the money laying on the table between the top-third and the bottom third is awesome."
Russell says it is important to remember the historical cycles in agriculture. Higher prices lead to larger production which eventually creates lower prices.
"The most dangerous time in a hog's life is when he is fat. Quite frankly, we are fat in agriculture. Our margins are at a 40-year high right now and that is when mistakes are made."
Russell was a featured speaker this week at the Agri-Trend Farm Forum Event in Saskatoon.
When I used to be in the advice business, I recommended that working capital be at 100% and equipment purchases be made with cash. Tough road to get there, but very stable once accomplished.
The President of an Iowa based agricultural consulting company says farmers should be ''bulletproofing'' their balance sheets during good economic times.
Moe Russell says the first step is to build your working capital.
"Working capital is the first shock absorber to get a farming operation through financial bumps on the road."
Russell's recommended goal for working capital is 50 per cent. For example, if a farm brings in $1 million a year---a comfortable working capital is $500,000.
He adds farm profitability is not about size and location. It is about lower operating costs and getting the best price from the market as possible.
"(That means) getting in the top-third of the price range of the commodity you are growing. If you are not getting there, hire somebody to help you get there because the money laying on the table between the top-third and the bottom third is awesome."
Russell says it is important to remember the historical cycles in agriculture. Higher prices lead to larger production which eventually creates lower prices.
"The most dangerous time in a hog's life is when he is fat. Quite frankly, we are fat in agriculture. Our margins are at a 40-year high right now and that is when mistakes are made."
Russell was a featured speaker this week at the Agri-Trend Farm Forum Event in Saskatoon.
When I used to be in the advice business, I recommended that working capital be at 100% and equipment purchases be made with cash. Tough road to get there, but very stable once accomplished.
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