Back in June I wrote the crop could be a bit late but that it may be off to a good start. I further commented, “it may be fair to say that it’s not lost yet and that there’s some potential.”
For a lot of you, this has turned out to be quite the understatement. I’ve had numerous farmers from a wide range of Western Canada tell me that it’s the best crop they’ve ever had. For those of you who have only recently started farming, you might want to talk to a couple of more seasoned farmers to find out how special this year may actually be.
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It takes a lot of work to get it in the bin … but then what? There’s still work to do. Careful thought is needed to get the most benefit for the business and the family out of the crop.
Managing the marketplace will have the greatest impact on the potential benefit and should be your top priority.
Determine what the crop is conservatively worth by taking unpriced grain volume, applying a worst-case price to it, and adding it to any priced volume. This will give you the value of the inventory that you can use to plan.
It’s important to work from a conservative value. I’ve seen scenarios in the past where farmers had a really good year and watched while the ‘profit’ eroded in the marketplace. This can be really frustrating.
Worse, if decisions are made based on higher prices than what is actually received when grain is sold, you can end up in unfavourable situations.
It’s also important to talk to your accountant as soon as possible to plan for managing the potential income tax implications. Time can be a huge advantage when it comes to developing and implementing tax strategies.
Given that you do have marketing and tax management plans in place, it will help to set priorities for optimizing the benefit from the crop. Priorities can be separated into business and personal/family.
Business Priorities
- Prioritize how much working capital you want to set aside to finance operations for the next year. Many farmers are increasing their working capital as a way to manage volatility that exists in the business.
- Try to avoid the temptation to spend it all on equipment. On the other hand, it may be a great opportunity to upgrade certain pieces.
- Paying down debt may be an option. If this is a priority, you can focus on repaying debt with the highest interest rate, or with the highest cashflow commitment. Sometimes it’s a better business decision to pay off a loan with a higher annual payment (principal and interest) but with a lower interest rate.
- Succession planning is something to consider, even if actual succession may be years away. Basically, what can you do at this time to really benefit a future succession plan?
Personal, Family Priorities
- You may want to simply spend some of the profit. Get some enjoyment or return on the personal investment that has been made in the business: take a trip, invest in the house or recreation property, as examples.
- Personal retirement plans. Different from succession planning for the business, what can you do that may benefit your own retirement, even if it may be years out?
- Consider management development programs and resources. They require a significant financial investment. Is it a good time to invest in performance and business management development strategies?
- Education for your children is an option. Costs associated with education are high, especially if it requires moving away from the parental home. Could some of the year’s prosperity be set aside for this?
There’s a really good feeling that comes from harvesting a bumper crop — reward for all the work that’s been done. With careful planning and priority setting, it’s possible to extend those good feelings to realize a wide range of benefits that can ultimately come from the crop.
