Weak commodity prices and an international trade war have inflicted pain on American agriculture – at a time when U.S. farmers, ranchers and agribusinesses can least afford it. It may be hard to combat global economic trends, but you can shore up your operation’s finances.
“While challenges such as low market prices and high production costs are unsettling,” says Thomas Eatherly, Pinion farm financial business advisor, “focusing on areas you can control—like revenue enhancement, cost reduction, and productivity improvements—can significantly influence your farm’s financial health.”
Eatherly recommends that farmers embrace a proactive approach by applying the innovative ‘5x5x5’ rule, a strategy devised by the renowned agricultural economist, the late Danny Klinefelter. This method focuses on three critical objectives: increasing revenue, reducing costs, and boosting productivity—each by 5%. Tailored strategies like these can be used to enhance your farm’s financial resilience and stretch your farm dollar in 2025.
Stretch Your Dollar with the 5x5x5 Rule
Increase revenue by 5%:
- Understand your cash flow and budgets.
“The money in farming operations is made in the four corners of the field or pasture,” notes Thomas Eatherly, Pinion farm financial business advisor. “Outside those four corners, evaluate the ROI on every single dollar – ask yourself if it’s truly worthwhile.”
Beyond that, make sure you’re tracking all receipts, records and other financial information to remain organized and accurate. Staying current on your record-keeping will help you know your cash-flow needs and assist with your tax-planning and other financial obligations while navigating around this industry’s downward trends.
- Find new revenue streams.
“Expenses are often easier to talk about, but the top 10% of farmers focus on revenue once they have their expenses under control.”
Look for ways to add to the bottom line such as alternative investments, obtaining subsidies, grants, carbon credits and conservation easements.
- Improve cash flow management.
Meet with your financial advisor to understand cashflow and forecasting. Work with them to optimize your debt structure, reduce expenses and retain more of your profit.
Reduce costs by 5%:
- Reduce equipment costs. Are you using your assets as wisely as possible? Can you do more with less?
“I encourage clients to share equipment if buying a new tool or tractor on their own doesn’t pencil out,” Eatherly says.
This can significantly lower your capital and maintenance expenses.
- Question all input costs.
Negotiate with your suppliers to make sure you’re getting the best deal. Make a few extra calls to see if you can save money through a different supplier.
“When the bill comes in, make sure you’ve received the quantity you’re being charged for,” Eatherly says. “Mistakes happen all the time.”
- Streamline farming processes.
Regularly evaluate your processes for planting, applying fertilizer, and spraying to reduce errors and waste.
- Leverage vendor relationships.
Work closely with your vendors to understand what their needs are for equipment and inputs. This can lead to more favorable terms and efficiencies that save you money.
Increase productivity by 5%:
- Leverage technology.
The right technology can save you valuable time and money. From back-office technology like inventory tracking, automated accounting and payroll to field-technology like drones and aerial imaging, explore these tools to see if they can help complete tasks more efficiently.
- Educate and train your team.
Execution and timing are essential to increasing higher yields.
“Let them know that their efforts to do everything leaner and better can help sustain the business – and their jobs — for the future,” encourages Eatherly.
- Be protective of your time.
Time management is crucial; being deliberate with your schedule can significantly improve productivity. One way to do that is to set appointments and avoid drop bys that can quickly steal up an afternoon.
By adopting these strategies, you are not just surviving; you are setting up your farm to thrive in 2025 and beyond.
For help in navigating downward trends, reach out to Pinion’s farm financial management advisors. Our ag-focused consultants help you make smart decisions for optimizing input costs and spending money the right way, as well as guide you in evaluating strategies, agreements, and opportunities to improve your bottom line and fortify your business’s future.
