Wish for a longer runway
Agriculture producers could have used a longer runway to be able to coast into this economic downturn. But with crop prices plummeting recently and concerns about credit availability and costs, the landing appears to be more of a tailhook stop on an aircraft carrier than a greaser on a milelong runway. However, you can position your operation to be safe and profitable by adopting the following methods:
1. Don't let worries get you down. Bret Oelke, Extension ag business management specialist at the University of Minnesota, says that "farmers are getting nervous.” He advises: "Don't worry about the things that you can't change, worry about the things you can. Plan for marketing, manage costs of production and position your operation for opportunities that will present themselves in times of turmoil.”
2. Be willing to sell at a profit. Allen Lash of AgriSolutions in Brighton, Ill., says farmers can increase their profit by selling production at higher prices. "We had the opportunity to sell corn at $7/bu., but how many did?” Know with certainty your own costs and define an acceptable profit level. Sell at least some at that level.
3. Bulletproof your balance sheet. Greg Wolf, an agriculture consultant for Kennedy and Coe in Pratt, Kan., says this means strengthening both your net worth and working capital to create strength and flexibility. Ask yourself: "Do I understand the risk exposure of my balance sheet? If my banking relationship were threatened for any reason, how bankable am I?”
4. Boost working capital. Many lenders now require working capital equal to 20% of revenue, up from 15%, Lash says. That may mean putting off buying land or equipment and paying income tax.
5. Evaluate business strategies. Ask yourself if it is "time to double down on growth for the next generation, to draw back with ‘profit taking' while the opportunity is available, or one of the myriad strategic responses in between,” Wolf says. Perhaps most important is keeping your eyes wide open toward business fundamentals.” —Sara Muri
Not quite borrowing as usual
In general, ag lenders are in excellent shape, two dozen CEOs of Farm Credit System (FCS) branches from across the country told me at a meeting in Philadelphia on Oct. 16. Repayment rates on loans are up strongly on record net farm income, and loans in arrears are well below the national average for all loans, they note.
- NOVEMBER 2008