The first ironclad rule in the reality of a free market economy is that the farmer is none other than an ENTREPRENEUR who produces a commodity for the market and provides a livelihood for his workers and family based on the rules of the enterprise – the factory.
In view of the above, the planning of the holding’s budget should take into account the principle of ensuring liquidity, i.e. the ability to provide funds for all the expenditure on the holding within the planned timescale.
An entrepreneur has to rely on facts and his own knowledge in order to make a profit, so it is important for him to be able to estimate and assess the market correctly in the current market reality. With a global market, a smaller quantity of a commodity in a country does not necessarily mean its high prices in the domestic market, and an oversupply means its low prices; these laws do not always hold true.
Sales markets and knowledge about them are widely available, but they are a collection of a great deal of information that needs to be gathered, analysed and adapted to the needs of selling products produced on one’s own farm as well as purchases from outside; facts and knowledge gathered from reliable sources are important for planning.
Important for budget planning is the analysis of sales and purchase markets in terms of: reliability and portfolio of customers and suppliers, e.g. factories, trading companies, farms, payment terms offered, analysis of prices offered by operators in previous years.
The profile of the farm – selling products, i.e. commodities for sale, i.e. production profile, quantity and quality of commodities produced, machinery park, farm size – this allows us to assess how we should behave in the market and when to sell commodities. With well-planned liquidity, we avoid the forced sale of goods, we sell when we can and when we want to.
Publicly available price quotations often deviate from the possibilities of the local market for the following reasons: price dynamics (changes can occur several times a day – speculative actions), distance from the point of sale, longer or shorter payment terms, different commercial quality of goods from different customers.
Budget planning especially of the revenue side has to be done based on the real market for customer prices over several years, due to large price fluctuations. Before deciding to sell, with a well-planned budget, we sell what we need to sell in order to cover liabilities and ensure livelihoods. We then observe the market and, to the best of our ability, make decisions to sell at a convenient time with the best prices.
When planning the farm budget, in order to ensure the farm’s liquidity, an outlet should be provided in advance for part of the production produced on the farm, e.g. by signing contracts for specific quantities, prices, deadlines – one-off or multi-year – for a product depending on the farm’s profile. For more on planning, see Area 3: Financial Sustainability.