Today’s market environment has its share of challenges and opportunities.
For instance, Neil Bentley, Director of Marketing for BASF’s U.S. crop business, says some of the headwinds farmers are facing include:
- Stronger U.S. dollar
- Higher interest rates
- Increased competition from the Black Sea and Latin America
On the flip side, Bentley says a few tailwinds are also in place:
- Stable U.S. economy
- Historically low debt-to-equity levels
- Strong domestic market for grains
Farmers must focus on good and purposeful business planning to be successful in this environment, says Bentley who spoke at the 2016 Commodity Classic, which is taking place this week in New Orleans.
Now more than ever, farmers need to manage risk to survive these trying times, says Bret Gloy, Purdue University ag economist and Nebraska farmer.
He offers these strategies:
- Stay laser-focused on costs. Gloy suggests looking at your big-ticket variable expenses, such as equipment, land and rents. A small reduction in any of those equals major savings.
- Manage working capital. Understand how quickly your assets can be converted to cash and how that affects your bottom line. Gloy encourages farmers to realistically calculate the risk of having unpriced grain in storage. You may need to make sales this spring to cover input costs.
- Pay attention to debt repayment capacity. Look at how much of your income generation is relative to your repayment capacity. “In this environment, it makes sense to finance a little longer,” Gloy says.
- Pursue “good deals” with discipline. Have clear priorities for your operation, Gloy says and then use discipline to only take good deals on land, equipment or other opportunities.
- Scout and crunch. Don’t go dark on your crop and market plans after planting—get out in the fields and crunch your numbers. “An extra hour to managing your crop is a good investment in this environment,” he says.
- Manage relationships. To spread out costs during tight margins, consider investing in technology and other systems with other farmers.
- Don’t forget about price risk. “It’s not fun watching the grain markets as they crank lower every day,” Gloy says. “A lot of people just shut off.” Instead of making that mistake, pay attention and be ready to pull the trigger when prices are close to your breakeven costs.
- Manage risk beyond crop insurance. Succession and estate planning help reduce risk as much or more than crop insurance, Gloy says. If somebody left your operation today, do you have someone who could fill in? Fix any gaps with training and backup plans.
- Consider alternatives. Today’s times call for creative thinking when it comes to leases, equipment, crop rotations and business structure. Think outside of the box for ways that could help your bottom line.