Our economy is in a constant state of flux. We’re seeing inflation rise at an astonishing rate so farmers must take steps to mitigate the damage. While we can’t control prices, we’re able to control the way we spend money on the farm. Money management has never been more important than it is today.
This blog post will reveal how farmers are cutting costs during inflation to give you some ideas moving forward.
They Focus on Efficiency
Operating efficiency might be the most important focus during inflation. This is true with any business, but farmers have it exceptionally rough. For instance, fertilizer costs have skyrocketed in comparison to the prices paid for crops the previous year. So farmers are forced to pay a lot more but they have less money in the bank. The same notion holds true with dairy supplies and other essential farming equipment. While the payoff, in the end, will see higher prices, that doesn’t help with the initial costs of growing the crop or generating the milk.
Of course, efficiency doesn’t stop at fertilizers. It was just the most convenient example of boosting farm efficiency. Labor is another essential resource, but it’s also one where you can’t really control the costs. Rising prices mean that people need to earn higher wages. Farmers are finding ways to get more from their laborers by eliminating jobs that are redundant and capitalizing on tasks that lead to growth.
Selling Unused Equipment
Many farmers are going through their catalogue of farm equipment and taking note of things they don’t use anymore. They are selling off older equipment in order to put away extra cash to get through these difficult times.
The truth is that selling equipment that’s not being efficiently used is a great decision. You’re not getting your money’s worth from it anyway. It costs time and money to maintain. Selling it is the logical approach.
Just before inflation hit, many farmers experienced an unprecedented increase in sales so they are holding onto that money tightly to get through inflation. Farmers are investing this cash in ways to benefit their growth so that they exit this period of inflation with increased production.
While some farmers are turning to debt as a way to survive, successful farmers are investing cash so they don’t end up with their elbows in debt. Going into debt right now is an unwise decision and only makes a tough situation worse. Many farmers have found that having cash reserves serves as a safety net that mitigates rising operational expenses over the long term.
Farmers are Locking in Interest Rates
No. I don’t mean they are going out and getting loans. The interest rates are so high right now that long-term debt would crush most farmers. They are leveraging their current debt since it comes at a lower interest rate. In short, they are paying the bare minimum for previous low-interest loans and putting away the reserve cash.
Furthermore, farmers dealing with balloon loans are negotiating with their borrowers to lock in low-interest rates while they still can. Securing lower rates now will save a lot of headaches later down the road.
Be Smart to Survive Rising Inflation
Everything listed in this blog post is based on making smarter choices. Some of it is just flat-out common sense – like not borrowing money with interest rates so high. Other factors aren’t so apparent though. Not all farmers think to renegotiate balloon loans now before the rate gets too high.
In order to survive inflation, you need to plan ahead and be sure you’re prepared to meet the growing cost of operating a farm.
Interesting related article: What are Costs?