Farm Finances: Farming in an Economic Downturn

By Dustin Madison
‍
For the first time in over a decade, it looks like the U.S. is preparing to settle into an official recession. This isn’t really news to most of us on the farm, as we have felt the bite of an economic downturn for about a year now. While government and university economists may measure the health of the economy in GDP and unemployment rate, the real indicators at the farm gate are the costs of supplies and the prices we can sell our goods for. And, right now, those supply costs are stifling: Fuel is $6 per gallon or more, fertilizer set record highs this spring, and feed costs are overshadowing the highs we see in grain markets. Add in the weeks-long backorders for common parts and materials, and 2022 is quickly becoming a year we’ll be glad to forget about.   

Now that the gloom and doom is out of the way, it’s a good time to think forward. How do farmers, particularly beginning farmers, navigate an impending recession, and still come out stronger on the other end ?‍

Well, the same way we started farming in the first place – a mix of ambition, creativity, and grit. Raising crops or livestock isn't all that easy to begin with, so farmers already possess all of the intangibles needed to survive whatever comes next.‍

Maintain Cashflow

Keeping a business alive always depends on maintaining cashflow. This is further complicated on a farm because of the seasonality of what we do. Whatever we raise takes time (think months, not weeks), and inventories are seldom as consistent as we’d like. 

Pay attention to those monthly trends on your farm, and budget accordingly. It seems pretty simple and straightforward, but that’s where most people run into trouble. Don’t take anything for granted, and spend that extra hour intentionally reviewing and tweaking your budget as markets evolve, weather conditions change and life happens. 

Lock in Interest Rates

The era of cheap money we just exited does not look like it will return any time soon. This makes everything from buying land to buying a tractor much more expensive endeavors than they were a few short months ago. While some farmers don’t rely on agricultural loans to keep afloat, credit lines are the life blood of most producers. Credit helps to offset some of the cashflow woes a farm can experience during the growing season. So, as those lines become more expensive, they will require extra consideration. 

With the Fed all but promising to continue increasing interest rates through the rest of 2022 and possibly into 2023, consider getting to work locking in rates on any credit you expect to use in the upcoming months. Sure, the 6% rate of today is not as sweet as the 4% of last winter, for example, but it still beats the 8% we may see by next winter. Don’t waste time lamenting the past, make the best decision today with the information at hand. ‍

Rethink Sales

Volatility will likely be the way of life in the commodity markets for the foreseeable future. There’s not much anyone can do when faced with wild global markets. Ultimately, you do your best to cover costs and take profits when they present themselves.

What’s more controllable is how you react to local markets. Many beginning farmers rely on sales close to home, whether they be meat, produce or other niche products. In these cases, the bigger economic factors named earlier can have a real impact on the small farm. Not only is the farmer facing higher costs, but her customer is dealing with the same stresses of high costs in nearly every aspect of life, too. Be extra mindful of costs and consumer sentiments and how they can quickly change. Maybe there are opportunities to cut your customer some breaks for volume purchases or to consider subscription models that are accompanied by discounts. It may take additional flexibility and creativity, but farmers should remain confident that their products are still in demand and have an important place in the marketplace. 

‍

There’s no one-size-fits-all strategy to farming through rough economic times. Every farm is unique, with different needs and different customers. Watch your numbers carefully, understand what works and what doesn’t in your business and minimize risk when possible. Have the flexibility to adjust plans as factors change beyond your control. And above all else, remember we are all on the same team, even and especially when things get hard.

‍

This post is written by Dustin Madison, a farmer whose background includes work with the USDA's Natural Resources Conservation Service (NRCS), crop advising, the American Society of Agronomy and more.

FarmRaise is not a financial adviser, but we are farmer-obsessed and want to see our farmers and ranchers thrive. If you're feeling the strain of the economic crisis and you're thinking about upcoming projects, see if you're eligible for funding. FarmRaise can connect you with agricultural grants, loans and cost-share programs that can help make your operation profitable.