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SW Financial Literacy
A Slow Motion Train Wreck
By Shay Foulk
"Most people overlook the opportunity to farm next year by focusing on the home run." These are the words of wisdom my lender shared yesterday at our annual review. Surprisingly, those impacted the most are the well-established operations who knew they would 'be ok'. Now, they're having tough conversations about how they correct an issue they chose to ignore for the last 18 months in the years ahead.

Let's go back 18 months to the Summer of 2023. Normal season crop scares coming off of 2022 drought and lingering COVID economic impacts left a huge amount of uncertainty in the picture. To be clear, the best thing you could have done in 2022 marketing was do nothing until June and then sell it all. Corn lost 20% of it's value during the 2023 growing season with some rains, though, and denial began to set in. From June of 2023 to December of 2023, corn went from $7.00 peak to $4.50. To make matters worse, February brought lows in the $3.70 range. Nearly 50% of value wiped out, with numbers well below cost of production. What did a lot of operations do? NOTHING, until they had to. Then they reluctantly broke the welds on the bin doors as 2024 trudged along and they needed storage space or cash flow.
It is not uncommon for some operations to have gone from $450-$500 working capital per acre down to $100-150. $500,000+ wiped off of the Balance sheet in the blink of an eye- in one season.

I'm not here to lament on 'you should have marketed more sooner'. The question, though, is 'Now what?' You can't avoid the situation any longer, you have to proactively plan for the next few years.
A very unfortunate reality as part of the discussion with the bank man yesterday was farmers closer to retirement were more likely to be impacted than those who couldn't afford to lose.
2025 Plan:
Face the reality of 2024. Finalize your numbers, and get the information to the tax man, lender, or to your team so you know what the baseline is. Bad news (terrible news in some cases) does not get better with time. Have the hard conversation and get a plan in place.
Make projections for 2025. Run your numbers at insurance levels, APH, and Yield Goals (stress test). Know what your lending needs are in 2025, and more importantly what your projections show. Does it show breakeven? Consider that a win for 2025. 5-10% loss is common in the numbers we are seeing roll in. You're not alone, it's just the reality of the year.
Map out a Capital Expenditure plan. On paper. For the next 3-5 years. What do you need to buy to help your business grow and develop? Where can you cut back? Lenders don't expect the world to stop from one bad crop year. You still need to have a plan in place. Things break, stuff needs replaced, the business needs to set the foundation for growth when things turn back up. Free tool here (CAPEX Planning Tool):
Think about 2026+, too. How do decisions in 2025 affect 2026? No one knows what the year will bring or what will change in 2025. Things like fertility, crop rotation, and areas of 'cutting back' have lasting implications - 2nd and 3rd order effects that need to be thought through.
Know your cost of production and margin target
Finally, and most importantly, you have to know your Cost of Production to the penny. Then, and only then, can you make effective marketing decisions. Going to a shooting range and not having a target at the end of the 100m firing line doesn't do me much good. I need a specific target and need to be dialed in to make effective shots. I make annual targets for our business in margins, volume, yield, and areas of growth. My current targets for 2025:
5% ROI on corn and soybeans at APH: COP $4.41 corn; $11.62 soybeans
Yield- 245 corn; 75 soybeans (the fastest way to lower COP is increase yield, bar none)
Currently sold 100% insurance on corn at $5.03 (JUN '23 sales- 12.5% ROI at APH); 0% insurance on soybeans, net $11.70 with seed premium currently. Target $12.50 net ($11.00 NOV) with strike of 100% of insurance bushels by 15 JUN 2025 (7.5% ROI at APH).

I share this just for an example of why those numbers matter. I got lucky (luck is where preparation meets execution) and sold 2025 in JUN '23- the numbers looked too good not to get started, and then changed crop rotation to heavy soybeans, which gets me sold up to insurance on corn for 2025. So, in my case, I don't care at all about 2025 corn pricing, but I will be watching 2026 like a hawk due to my risk exposure of being heavy corn in 2026 and needing to get a logistics and storage plan in place. That corn won't hit my bins for 21 months (630 days) but I have no problem selling into any market rallies or seasonals over the next 6 months; I don't want the homerun, I want singles and doubles to farm the next year.
"What if prices rocket in 2026, Shay?" Great, I will sell ahead into 2027 and take margin where I can, because I know my costs and I know my target margin.
I'm not a guru. I don't know more than you. I am not as experienced as most of you reading this. @StandardGrain calls me a robot when it comes to marketing- I'm just not that affected by what is going on in the headlines, I only want to be methodical and as unbiased as possible in my marketing, and execute my plan with extreme discipline. That's all I can control.

Anyways, this want a bit out of the way of my original intent in this message, but I felt inclined to share my perspective and thoughts as we head into 2025. My marketing and margin strategy may not work for everyone, and if you're reading this and thinking I'm full of it, then the message probably isn't for you anyways. However, the 5 points I laid out are relevant to everyone reading this, and I hope you get things straight for 2025.
If you need anything, DM me on X @foulkshay or shoot me an email shay@agviewsolutions.com and feel free to share this if you got something out of it.
Big thanks to Shay for letting me reuse this article which he originally posted on x.com. Make sure you are following him, he has the best content out there around cash flow. He can also be reached through: Ag View Solutions
Need help with your operation's financials?
Have you updated your financial statements for the year?
Did you complete a review of your position with your lender?
If not, this is a dangerous step to skip. How will you know if you are in a position to buy ground (and how much ground) without getting a lender's feedback? How can you learn anything new without a review?
If you missed this crucial step during your renewal appointment, there is still time. I've opened up 30-minute financial review consultations helping you:
Update your balance sheet for the year if not yet completed.
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Have a great week!
Grant
