“Is this crop making money or losing money?” One question rests at the root of all farm-level financial decisions. And yet, answering the complexities of that single question, year after year, will challenge most farm operators over a lifetime.
As farms close out a ‘good riddance’ year of high inputs, mode of action challenges, weather obstacles and low prices, there’s a lot to look back on the inform decisions for the coming season.
“What a hard year teaches you is how resilient your business is and how you're able to adapt to changes,” said Brian Mills, Mississippi State University ag economist. “It also teaches farmers the importance of making sure they have all of their financial information and an understanding of where there might be trouble areas and how they can improve.”
Unfortunately, a bad year, Mills said, is the kind that teaches the most lessons. For farms looking to make effective changes to their bottom line without cutting necessary costs or quality, there are five strategies to carry over into the new year.
1. Know profitability potential field by field
Where most farmers are professionals at breaking down their costs crop by crop, Mills said decision making can be fine-tuned with field-by-field data. As prices lag the rising expense curve, even one non-productive field can cause a hit to farmer pocketbooks.
“The big thing is that a lot of times you see expenses follow prices,” Mills said. “When the price of crops, especially corn, go up, expenses also go up. When prices come down, those expenses don't come down as fast.”
Today, farmers are caught in the slow transition back to lower prices, while also fighting inflation and ongoing availability challenges. The result, Mills said, is a squeeze on profitability.
2. Negotiate cash leases
Cash rent or crop share agreements can be foundational for farmers growing or maintaining their acreage. Sometimes, lessor-lessee agreements are more family than farming, and other times the clear lines of business stand.
In lease relationships with wiggle room or understanding owners, renegotiating cash leases on the basis of potential profitability could help save critical operating funds in the coming year.
“Understanding the whole farm aspect and how you can be more efficient, is going to go a lot further,” Mills said. “This next year is not looking great, so maybe you can renegotiate your cash leases, and there might be more savings that way than cutting agronomic costs.”
3. Cut money-losing crops
While some farmers identify with producing a specific crop, sometimes cotton, corn or soy just doesn’t make financial sense for a specific field or season. While tempting to hold onto a money-losing crop out of a sense of legacy, if the crop loses money year-over-year, change needs to be implemented.
“It's all about being more efficient and understanding where you're allocating your time and effort,” Mills said. “If you only have a couple hundred acres of, say, cotton, should you be producing cotton? In that case, maybe it's not profitable, and I think that's where most of the people are going to find that they can make some gains – finding out what crop is most profitable.”
4. Create and follow a marketing plan
Marketing crops took complex turns in 2024, as farmers held crops in hopes of higher prices. Creating and following a marketing plan can help producers aim for prices above cost of production, rather than waiting, and potentially missing, a peak sale.
“Make sure that you have your marketing plan, your risk management plan, and your crop insurance set up to help you in the in the best way possible,” Mills said. “There are ways to capture some higher prices through a better marketing plan.”
5. Evaluate equipment expense
Equipment expenses represent fixed overhead costs on farming operations where producers may find costs to cut without sacrificing crop quality or efficiency.
“If you have a small number of acres, does it pay for you to have all the equipment?” Mills said. “If it takes a lot of specialized equipment, in that case, it might be beneficial to go to maybe a custom harvester.”
For example, Mills said crossover between corn and soybean harvest equipment makes the two crops natural partners. But crops like cotton can require very specialized and often pricey equipment. In those cases, equipment ownership might be more of a cost than a benefit.
Overall, Mills said most producers are already implementing many cost-saving strategies on-farm. The cycle of high prices and low prices is a familiar one for farmers, and over time preparing for downturn years becomes almost second nature.
“Farmers are really good at producing crops, and so we will always see these trends of high prices and low prices,” Mills said. “This can be an experience to learn in the future to better plan for when prices are high, then set yourself up so that you can survive these kinds of downturns.”