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Common Ground
Farm Credit Services of America Blog

Making Tough Choices for Chance to Farm

by Maggie Holub | Apr 21, 2016

Maggie HolubI always intended to be a third generation family farmer. But my transition to a grain producer was supposed to be part of my father’s retirement plan, when both he and I were ready for the next stages of our lives. His death from a terminal illness at age 51 changed everything.

I entered farming last year in a financial position familiar to many young and beginning producers – with little of the working capital that puts producers in the best position to weather a down cycle like today’s. At FCSAmerica, where I am a credit analyst, we encourage producers to aim for working capital of 20 to 25 percent of the value of their production – or about $200 an acre for grain operators like me.

That’s a tough target to hit in my 20s. So I have had to make lifestyle changes and apply on-the-job lessons to make my operation viable. A key lesson: Good financial management is critical to my long-term success.

In my first year, my balance sheet had few farm-related entries on it. I projected my cash flow and calculated my break-evens -- $3.90 on 170 bushels of corn and $9.50 on 55 bushels of beans. My numbers proved pretty accurate, and I was able to pencil in retained earnings on my balance sheet at the end of the year. My cash trend, however, didn’t show a profit – the result of storing a portion of my grain, pre-paying my 2016 seed and fuel and machinery-related expenses (depreciation).

My financial documents have since grown from a few pages to a binder packed with field-by-field, monthly and annual analyses compiled using the digital tools and financial worksheets that are available to me as a FCSAmerica crop insurance customer. As a result of the hours I put into improving my record keeping, I determined that it made financial sense to accept an offer to expand my operation. In addition to the 270 acres I lease from my mom near Scribner, Nebraska, I am renting 95 acres from a nearby landowner who has known my family for years.

My rent now averages $218.75 an acre. My breakevens for 2016 are $3.80 for corn (190 bushels an acre on dryland, 200 on irrigated) and $9.00 for beans (55 bushels). That is below the average breakevens for northeast Nebraska published by the University of Nebraska-Lincoln: $4.19 for irrigated corn; $4.35, dryland corn; $10.18, beans. Still, I couldn’t make my operation work – on paper or in reality – if I didn’t apply the following:

Reducing Living Costs

I have three passions -- farming, my job at FCSAmerica and healthful living. I have had to be what I call crafty and creative to integrate all three into my new life. For example, I sold my house in Valley soon after I started farming and live rent free with my mom, in exchange for which I pay the utilities, half of all groceries and tend to chores around the farmstead.

I wasn’t willing to give up workouts at my YMCA, yet I needed to find additional cuts to my living costs. My solution: Become a fitness instructor. I eliminated my dues and I’m earning some extra cash for teaching two classes a week.

I also have developed a daily routine that allows me to be at my office job by 8:30 a.m., while also reducing my production costs by $16 an acre. Each morning, I rise at 6 a.m. to haul a load of corn to the elevator in North Bend 10 miles from my farm, return home to shower, and then drive 60 miles to  FCSAmerica’s Omaha office to write farm loans. At night, I pull my trailer up to the auger and load corn for the next day’s trip to the elevator. I am saving $4,800 a year by hauling my own grain, money that I can use to pay for services I can’t fit readily into my schedule.

Evaluating Machinery Costs

My dad owned an entire equipment line of fully depreciated machines, including four tractors, a semi, three straight trucks, a planter and two combines, and much more. My mom split the line between my sister and brother-in-law and me, with each of us agreeing to pay for all maintenance and repair costs. All the pieces are older, and I decided to overhaul one of Dad’s tractors with the hope that it will serve me well for at least another decade. I also invested in a used combine that I pair with my dad’s headers. The reason: Planting and harvesting has to fit into my paid vacation time from FCSAmerica. My John Deere 9500 trims two weeks off the harvest.

Lastly, I picked up a used semitrailer at a good price with the hope of eventually buying a semi that will allow me to haul more grain at one time and capitalize on commodity prices offered beyond those at my local elevator.  

When we analyze producers’ fixed asset costs at FCSAmerica, we like to see machine costs related to principal and interest of no more than $50 per acre. (Repairs are a variable that can push this amount higher.) My machine costs last year were close to $100 an acre after factoring in all my repairs, but should drop to about $75 an acre with the addition of my neighbor’s land – and provided my repair costs are in line with last year’s. I will continue to monitor my equipment costs to further drive down this expense.

Putting Analyses to Work

My father farmed full-time and did almost all the work required on his diversified livestock and crop operation. He felt comfortable keeping his financials mostly in his head and letting his banker take care of such things as building and updating his balance sheet.

I carry my binder of farm finances everywhere and can lose sleep thinking about all the what-if scenarios with my cash flow and balance sheet. I constantly have to weigh costs vs. time. Dad, for example, sprayed his own fields and spread manure from his cattle and hogs to fertilize his fields. That doesn’t work for my farm, which is exclusively a grain operation, so I built into my breakeven the cost of hiring someone to apply an application of nitrogen and chemicals.

I had a mix of hits and misses with my marketing last year. But overall, I did OK for my first year. Based on the numbers I put together from the get go, I calculated my production at 32,300 bushels of corn (190 tillable acres of corn x 170pba) and bought crop insurance with a 75 percent guarantee. I didn’t feel comfortable marketing 75 percent of the crop, so I contracted 46 percent of my corn in three chunks of 5,000 bushels each. Averaged together, my corn sold for $3.91 a bushel, just above my breakeven.

Running my farm like a business has given me the confidence that I have a viable, long-term operation. It is extremely important for me to run a tight ship to keep the assets that my father and grandfather worked so hard to obtain. I would be lost if I couldn’t see that tiny corn or soybean seed emerge from the ground and grow each season – or missed out on the hair-raising adrenaline rush of harvesting my very own crop. Farming is in my blood, it’s what I love doing. And to keep it, I have to be a savvy business woman.

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