University of Kentucky Department of Agricultural Economics
Economic & Policy Update Volume 15, Issue 06
Edited by: Will Snell & Phyllis Mattox
June 26, 2015
Budgets are Tight – Watch Expenses!
Featured Articles: Budgets are Tight - Watch Expenses! --- Tarrah Hardin
The Effect of Commodity Price Volatility on Food Prices --- Will Snell
MPP - Dairy Enrollment is Fast Approaching --- Kenny Burdine
Kentucky County Profiles Available Online --- Simona Balazs
With grain markets trending down and livestock markets flat, making budgets and watching cash flow carefully is going to be critical. There are a few ways to help both the budget and cash flow from being tight, watch expenses, plan major purchases, and protect cash. Expenses seem to come from everywhere
and can be very difficult to control. For example, repairs can be costly and can come at the least favorable time. One simple way to help lower repair cost is to maximize resources that might be around the farm or shop rather than running to get new parts every time something breaks or needs maintenance. Even though this suggestion might require some additional time to look for the parts rather than buying from a parts store, the money saved will be beneficial and can add up to be significant over time. Money can also be saved on fuel that would be used to run to different parts stores to buy parts, rather than looking for the part on the farm. These seem like very simple and common knowledge steps on how to lower repair cost, yet these can be very difficult to follow through during planting and harvesting seasons because of time constraints. While some repair costs can be unexpected and are difficult to budget, planning major purchases or major equipment overhauls that need to happen within the next year can be put into your budget. With net farm income projected to decrease further in 2015, if major expenses can be pushed later into 2015 or even 2016 that would help with the cash flow issues. Equipment dealers are
providing some very attractive purchase deals and especially leases. Remember that even when you lease equipment instead of purchasing it, an annual payment is still due. Make sure these additional payments and cash requirements will fit into your budget for upcoming crop years, especially if crop prices remain at the current depressed levels or continue to decline. Another way to help the tight budget is to protect cash through financing. There are currently opportunities to lock in financing with little to no interest, if any major purchases or overhauls are needed. Taking advantage of these deals helps to protect working capital & allows for cash to be on hand in case of an emergency. Financing large purchases & spreading the cost over time also helps the farmer to increase their working capital. Remember that financing any purchase still requires a payment at some point within the next year. Creating and reviewing budgets throughout the year will help in trying to stay on track toward your profit goals. Ways to help stay within the budget are watching repair expenses, plan major purchases, and protect your cash through financing. Each farming operation is different and could have more unique ways to help decrease expenses and watch the budget for 2015 and beyond. To help establish and analyze budgets contact your Area Farm Management Specialists with the Ky. Farm Business Management Program as well as your county Extension Agent for Ag and Natural Resources. Tarrah Hardin, tarrah.hardin@uky.edu
University of Kentucky Department of Agricultural Economics: Economic & Policy Update View all issues online at http://www2.ca.uky.edu/agecon/index.php?p=209