Lean on your resources

You have never had more resources than you have right now. Whether it’s technological innovations that support soil health, sustainable growing practices or the most advanced seed nutrition and protection products, there are plenty of tools and resources to increase efficiency and ensure success in the field. Like any industry, the ag industry has its challenges. What changes each year are the specific variables that create those challenges.

Know the current market

According to the 2023 Agricultural Lender Survey from the American Bankers Association, farm income and profitability are projected to compress over the next year. There are many reasons for this, including the expectations that government subsidies will decrease while production and labor costs will increase.

Understand supply and demand

Supply and demand are always at the forefront of the market. Ideally, we’d want supply and demand to be balanced so one isn’t significantly higher than the other. In the ag industry, demand is fairly predictable, and supply is more uncertain. Nutrien’s Chief Economist and Head of Market Research Jason Newton put it nicely:

“In agriculture, demand is driven by people’s need to consume food and that consumption growth has historically been very steady and positive, so that side is relatively predictable,” says Jason. “The supply side is driven primarily by weather and is more difficult to project. We know that weather will drive variability in production, which ultimately creates variability in pricing.”

“On a short-term basis, we will continue to see these cycles,” says Jason. “Longer term, we believe there are structural drivers that will constrain crop supply growth and support demand growth that could drive more frequent up-cycles and higher average prices.”

Adjust to labor costs

One thing that constrains the balance between supply and demand is the challenge you are currently facing with the cost of labor, but that’s not actually a new issue.

“Labor costs are going to continue to increase. In all fairness, though, that’s been a concern for a long time. Even a decade ago, availability of farm labor was a major concern at that point as well. It’s an ongoing concern,” says Jason. “From a longer-term perspective, technology offers the potential to help with this problem. Historically, if we think about growth in agriculture and farm size, what's made that possible is increased scale and efficiency of machinery and adoption of new technologies."

Expect tighter margins

We’ve seen tighter margins in the market lately, but that doesn’t mean profits have to suffer. It’s important to always pay attention to your own profitability equation.

“Interest rates and demand continue to be the big things keeping farmers up at night,” says Rocky Courson, a Facility Manager for Nutrien Ag Solutions in Baxley, Ga. “Those conditions make it important to keep your operating notes available and not tied up in input spending or operational costs. That way, you have money from your operating line as a backup plan and more liquidity to respond to other challenges you may encounter.”

If you go into the rest of the year expecting margins to be tight - even if the numbers start to look better - you’ll be better prepared to succeed.

Be prepared for certain added costs

There’s always a cost to borrow money. Over the past couple years, most of you have seen a much higher percentage of your profits eaten up by climbing interest rates. The Federal Reserve may lower rates this year, but even if they do, the rates will still be at a generational high for the short term, so interest expenses will continue to be something to consider. You can easily overpay in interest if you don’t research lending options first.

Know where to look for savings

Investing in new technologies is another way you can generate a greater return. For example, there are some exciting new fungicide products for row crops that are backed by extensive research and development. “These products have high potential to make crops healthier and more resilient against the cards mother nature deals,” says Jordan Howe, Area Manager for Nutrien Financial. “Growers will pay a premium upfront, but the added value they offer and the potential they have to enhance profitability make it a worthwhile investment, especially if you’re paying for them with money that would have otherwise been spent on interest.”

Embracing new technologies that can advance your operation is easier if you have a strong financial plan that provides options to leverage your capital in many productive ways.

Proactively manage your capital

A diverse financial plan will give you financial flexibility and more options to make your dollars go further in this market. Strategic use of financing, like the input lending that Nutrien Financial provides, can help strengthen your contingency plans by preserving your operating line so it’s available if you have unexpected expenses.

“It’s more than the big savings in terms of money, but what you’re able to look at and do with that money instead,” says Jim Engelsma, Location Manager for Nutrien Ag Solutions in Michigan. “Your return on investments is better. Right now, we have to grow more fruit that’s better quality and we have to do it cheaper. Nutrien Financial stimulates all of those things to be available on the farm.”

In addition to working for Nutrien, Jim’s family owns and operates an apple orchard and apple cider facility in Michigan, so he’s grown up in the agriculture industry and has first-hand knowledge of how important capital management strategies are.

Understand your cash flow and your breakeven point

Knowing what your cash flow and breakeven point is can impact your profitability. Your breakeven point can shift throughout the growing season, so it’s important to understand and track the numbers that go into that for your operation. Evaluate if everything so far has gone according to plan and adjust based on what you find.

Align your financial and crop plans

Once you know your cash flow needs, you can align your financial plan with your crop plan and can adjust throughout the year. Evaluate financing programs on how well they support your crop schedule and your needs. Terms can make a big difference to your bottom line. For example, look for payment due dates that hit after harvest so you can avoid costly late fees.

Intentional planning leads to growth

Many of you may have gone into the year with low expectations for growth. Despite what you may hear though, we believe you can be successful under most conditions and we’re optimistic that our customers can use their skills and passion combined with strong relationships with agronomists and financial experts to make the most of the rest of the year. Keep in mind that the market conditions can change quickly, so there’s a good chance projected outcomes will vary month-to-month and could look significantly different by the time harvest is here.

Learn more about how Nutrien Financial can help you be as successful as possible here.