Maneuver Your Financial Opportunities During COVID-19

07:00AM Mar 26, 2020
Don’t panic, and have a plan. 
( AgWeb )

The coronavirus (COVID-19) pandemic has all but frozen the global economy. In times of crisis and extreme market volatility, it’s easy to make knee-jerk decisions and ignore best practices.

But, that’s the opposite of what you should do. Instead: Don’t panic, and have a plan. 

“During times of difficulty it’s critical to stay focused on what you can control and try to ignore all of the outside noise that could distract you from making deliberate and effective business decisions,” explains Chris Barron, a national financial consultant for Ag View Solutions, Iowa farmer and Top Producer columnist. “Stressful economic periods often present tremendous business opportunities.”

On a recent episode of the Ag View Solutions Pitch podcast, Barron visited with Ben Pagel, president and CEO of Northeast Security Bank. They shared the following advice on how to continue to make good decisions during a crazy time.

1. Don’t have FOMO about low interest rates.

The U.S. Federal Reserve has cut interest rates to near zero. This provides an opportunity to restructure loans and change terms. Pagel says farmers should contact their lenders about opportunities but remember the interest rate market is in complete flux. 

“My advice would be to wait a week to 10 days and let things calm down,” he says. “Then I think interest rates will kind of stabilize.”

Don’t have the fear of missing out on low rates.

“We're going to have some turmoil for another 30 days, and that puts us at planting time,” Pagel says. “The most important thing is if you're ready to farm. Go get the farming done so your production will be there. Then we'll discuss interest rates and debt structure. I think the window of opportunity is going to continue to be here for six months.” 

Listen to Chris Barron and Ben Pagel discuss making smart financial decisions during a black swan event:

2. Review your credit terms, loan timelines, etc.

To that end, make sure you understand your current interest rates and loan structures. Then you can see how much of a difference stretching out loans can mean for your farm, Barron says. 

“If you lower your loan payments, you can mitigate risk by buying yourself more time and ensuring your debt payment capacity will allow you to continue to function as a business – even if you run into really tight cash flow,” he says. 

3. Run financing scenarios to present to your lender.

Do your homework ahead of your lender meeting. “The conversation shouldn’t be, ‘Well I heard rates went down, and I want my rate to be lower,’” Pagel says. 

Analyze your cash flow and intermediate debt, he suggests. Then you can show your lender if you change your loan’s interest rate, your overall payments will be reduced by a specific amount, which will help your operation’s cash flow.

“Be proactive and analyze your own situation so when you come in, you don't put the ownership on the lender,” he says. “Explain what you are trying to accomplish by asking your lender to reamortize your debt.”

By doing this work ahead of time, you can speed up the financial process.

4. Revise and follow your grain marketing plan.

“When in a panic situation, people lose sight of a plan,” Pagel says. “Now is the right time to write down a marketing plan. If you have the discipline to write that down, a lot of times, that leads to the discipline to follow through with that plan.”

Follow Barron’s Grain Marketing Checklist:

  • Manage basis.
  • Calculate production cost to a per bushel number.
  • Evaluate your cash flow needs for the current and upcoming seasons.
  • Determine sales increments (volume as a percentage) needed to match cash flow needs.
  • Determine sales timing (months) to meet cash flow.
  • Determine your margin target. (Profit per bushel goal.)
  • Review and understand tools needed to reach profit margin target.
  • Review storage and logistics needs. Match to basis and sales plans.
  • Document the plan and adjust to the moving target as needed.
  • Use the numbers and the plan instead of emotion when pulling the trigger.

Read More: Manage Your Grain Market Opportunities

5. Evaluate your lending partners and build a bench.

Open communication with your lender is key. “In the times we're in right now, it's really important that your lender knows where you're at and you understand what your lender is thinking in regard to your operation,” Pagel says. 

The February Rural Mainstreet Index (RMI) shows more than half of bankers indicated their bank had a disaster plan to deal with the coronavirus, while 29% reported their bank was developing such a plan.

In times of turmoil, having a "lender on the bench" in case you need to make a change will make the adjustment much less painful, Barron says. 

“I recommend having at least one if not two other lenders who have a complete and full understanding of your financial position,” he says. 

Here is a list of topics to discuss with your current or potential lender.

6. Keep your eye on the big picture. 

“Tough times never last, but tough and resilient people do,” Pagel says.

Listen to Chris Barron and Ben Pagel discuss making smart financial decisions during a black swan event:

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