Here's How to Open Doors in a Down Ag Market
Complete financial information can open doors, even in a down market
By: Gordon Hanson, Chief Risk Officer | Farm Credit Mid-America
Whether we like it or not, an ag economic downturn is settling in. What started slowly in the grain sector a couple years ago is now arguably spreading more broadly across the agricultural industry. And, despite an occasional rally in the grain market, most experts forecast up to several more years of low grain prices and elusive profits for most farmers. However, it is critical to remember that while economic downturns create risks they also create opportunities. Do you know how you stack up in the face of current economic conditions and how you should respond?
Risk or opportunity for you?
During an economic downturn, many folks definitely need to hunker down, cut costs and weather the storm, while others may actually be in an excellent position to take advantage of the uncertainty and expand their businesses. Ag economic downturns typically see equipment values decline along with land values and cash rents. This can create a rare opportunity to expand your operation at discounted prices. But how can some farmers bear the brunt of the increased risks while others are poised to seize on rare opportunities – all during the same downturn? Because financial strength, cost structures and overall finance performance vary significantly.
Complete and accurate financial information is essential for understanding if you face more risk or more opportunity in the current and unfolding ag environment. Proper financial statements measure your financial health and performance, providing critical insight into both your ability to withstand risk and your ability to seize upon available opportunities. Consider the following in preparing your financial statements:
• Include all assets on your balance sheet, including financial accounts (checking, savings, investment, and retirement) and interests in partnerships, and other legal entities.
• Use current and realistic values for all assets including many assets that fluctuate in value over time This includes land, equipment, livestock and grain inventories.
• Include all liabilities on your balance sheet, including bank loans, private party contracts, open accounts with suppliers, credit cards, and any other unpaid bills.
• Recognize that your earnings information (income statement and/or tax return) and family living expenses should reconcile with changes in your balance sheet information.
Critical decisions have to be made during stressed times, and these actions, or inactions, have significant positive or negative implications for a long time. High quality, complete financial statements provide essential information needed to make the right decisions for your operation.
For additional financial tips, insights and perspectives, visit the Farm Credit Mid-America website.