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Why farmers rely on cash flow projections

Reference: FCC

Agriculture is a numbers game. Farmers need to determine a fair land rental price or if their operating line of credit will get them through tight times. While uncertainty around factors such as the weather makes it nearly impossible to know exact revenue and expense numbers, it is possible to get accurate estimates using cash flow projections.

Cash flow projections, or cash flow budgets, are estimates of cash receipts and expenses expected to occur during a certain time period, says Kevin Hursh, a Saskatoon-based agrologist and commentator. Operators use their best guess to determine expected yield and prices to come up with income figures and use their expected costs to calculate expenses.

Scott Thom doesn’t take chances. He creates in-depth projections that include all expected income and expenses for his feeder hog and cash crop operations near Denfield, Ont. He uses conservative yield and price estimates for both because he prefers to be pleasantly surprised by having more income than planned.

“Crop expenses are fairly straightforward,” Thom says. “I break them out the same way my accounting books do. I use crop insurance figures for minimum yield and price. Livestock is more difficult because accounting programs like to lump too many expenses together, and the hog price changes every day.”

He generally uses the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) cost of production numbers for both income and expenses as a starting point. If there’s a big discrepancy between his numbers and OMAFRA’s, he’ll generally defer to theirs unless he can identify exactly why he should use his own... Read More