Farmers and ranchers are businessmen. Just like any other business, farmers and ranchers need a budget. A budget forces a farmer to set in writing expectations for expenses and income. A good budget will show the relationship between expenses and anticipated income, and assist in making decisions. For example, if your budget shows that you can’t make your loan payment, then maybe you should put a hold on that new tractor.
A budget will also make you more money. It will assist you in setting goals, and determining whether those goals are realistic or not. A budget should forecast income based on current commodity prices, and forecast commodity prices.
A good budget should also be realistic. Farming and ranching are incredibly unpredictable. A single hail storm can change a farmers fortunes. A realistic budget will help you adapt to challenges on the farm.
An important tool in making a budget work is an operating loan. Typically farmers and ranchers incur most of their expenses on the front end. Farmers pay for seed, fertilizer, and fuel just to put a crop in the ground. All of this takes money. However, a farmer isn’t paid until he sells his crop. An operating loan can bridge the gap between expenses early in the season, and income at the end of the season. Many banks offer famers and ranchers operating loans, and charge interest on the money borrowed.
A wise farmer or rancher will create a budget, and only draw on their operating loan as is necessary to pay for budgeted expenses.