This year, many agricultural markets remain near historic highs contributing outstanding revenue to production businesses. These opportunities come with the caveat that input costs also reflect the high inflation of today’s economy.
From diesel to alfalfa seed, inputs are creeping higher. As you put your annual plan in play, consider engaging an advisor to review your operation and help find potential cost savings. Confirm that the advisor has a wide range of operational experience and the capability to benchmark your land-based business to offer strategies that keep your costs contained and maximize revenue.
Here are a few tips from our Land Management team to help contain costs without compromising your operations:
We have found that analyzing line items and identifying the enterprise that each cost is associated with ensures that our customers find value in every expenditure. One of our high mountain ranch customers put this practice into play when applying fertilizer. Soil maps and the current market value of grazing formed the basis for understanding the ROI of fertilizer application. By applying the high-cost input where most feasible, the enterprise cut costs while maximizing grazing on parcels less suitable for high hay production.
A similar approach is often utilized when faced with planting high-cost alfalfa. The feed quality of this crop exceeds the requirements for most cattle herds, allowing the operation to plant a lower cost hay crop while still meeting the nutritional requirements of the livestock.
Effective management of equipment repairs and maintenance will test nearly all operations. We find that success in this category is a combination of art and science. Step one is to identify qualified local vendors with transparent billing and then work to implement a proactive service plan.
Beyond the tax strategies developed with your CPA, we find benefit in taking financial reporting to the next level, often breaking out the land business into different enterprises. This allows you to see where the ranch and/or farm offers the greatest potential to generate revenue. This approach also includes consideration for ranch activities that have “subjective” value. These contributions often do not have a financial component illustrating that cash flow is not the only driver in the pursuit of maximizing the benefits of owning a dream property.
There is no “one size fits all” approach to finding a solution. Each property is as different as the people who manage them. We spend time getting to know your operation and the team who drives your day-to-day activities. We then build on their strengths and supplement them by offering new options to consider in the “highest and best-use” equation. It takes experience sourcing inputs from a variety of operations and having the metrics in place to evaluate a cost-effective approach.
With high market prices for our agriculture products, now is the time to develop strategies to weather compressed margins that will surface with economic uncertainty and industry overproduction. Whether you’re looking for a one-time deep dive or ongoing financial reporting, we have the tools to keep your investment in prime condition.