The winter months provide farmers and ranchers plenty of time to ponder their next steps. As we approach the 2023 farming year, farmers and ranchers are looking ahead with uncertainty yet again. The political landscape will continue to influence the day-to-day as well as out-comes in 2023; therefore, we all must take that into account as we begin to plan for the upcoming year. In addition, the 2023 Farm Bill debates have been underway but we have yet to see any significant proposals. I suspect this process to pick up some steam after the first of the year. This, too, could have positive or negative effects on operations in 2023 and beyond, depending on the out-come. As of late, interest rates and continued inflationary risks pressure producers and pose margin concerns for the coming year.
In my previous article on Farm Finance in July 2022, I wrote about communicating with your lender. With the uncertain and volatile times ahead, effective communication with your lender just makes good business sense. Keeping lenders aware and involved in what is going on in-side your operation will pay dividends down the road. I recommend at least two intentional visits during the year, either in the office or field, to discuss how the year is shaping up. This is just a minimum. Now that the crop is out, I recommend going over your numbers with your lender to officially see how the year ended and formally discuss plans for the upcoming year. The earlier this process is started, the better off everyone is, as it allows time for options, if necessary.
As the 2022 farm year is now in the books and we look to start another year, the planning process really starts to come together as harvest finishes and the first quarter begins. Farmers and ranchers reflect on what went well, and what didn’t go as well from the previous year, as well as apply the lessons learned from prior years to draw up the perfect plan for the upcoming year. This will hope-fully lead to a successful and profitable year as possible. In every direction you turn for forward-looking data concerning the ag economy, analysts say farmers and ranchers can expect more of the same but with possibly more volatility than in years past. With that kind of outlook or crystal ball, so to speak, it is imperative to take the time and really peel the onion back. This exercise will assist them in evaluating and taking a hard look at their overall management practices of the operation so they can determine how to efficiently reduce overall production costs to be sustainable and profitable in these volatile times.
The winter planning process for farmers and ranchers is a critical season to take a good and honest look at their business and make any necessary changes for the upcoming year. One thing many managers forget during this process is to include others within the operation for their input. These need to be key members of the team who will provide honest, reasonable, and valuable input that can be put to work. When including others in the decision making, they begin to see ownership in those decisions; therefore the efforts are seen in the output and management abilities of those individuals.
These changes can involve a variety of things, from equipment purchases to labor enhancements to changes in overall sizing of the operation, just to name a few. It also allows time to put into place some goals for the upcoming year that should help directionally challenge management and others within the operation throughout the year. Sharing this information with your lender will also be helpful in strengthening that relationship as well as utilizing him or her as a trusted advisor. Your lender can also share in the accountability piece and help you track financial growth, as well as assist with any adjustments that may need to be made with the overall plan. From a lender’s perspective, this can be very rewarding as they become a valuable part of the operation and get to see the operation grow and prosper knowing that they had a hand in that success.
Farm Finance is not “rocket science” but it is specialized, and it is based heavily on relationships. Understanding that and the perspective your lender has will be key to weathering those financial storms that have the potential to creep up along the way. Being proactive and communicating effectively with your lender will enhance the relationship as well as assist in bridging the gaps when adversity hits the operation. The earlier a lender knows about a certain situation and the more he or she knows about that situation, the better he or she can help craft a solution for those issues.
Looking forward to a successful and bountiful 2023.
Cole Plafcan is senior vice president, director of Agricultural Lending within Simmons Bank’s Community Banking group. The views and opinions expressed in this article are those of Cole Plafcan and are not endorsed by, and do not necessarily reflect the views of, Simmons Bank. Simmons Bank does not provide tax, accounting or legal advice.