Silver Linings Hard times bring opportunity

May 15, 2009 07:00 PM

When prices and markets collapse, the natural tendency of many business managers, including dairy producers, is to pull back and shelve plans for future growth.

That's often a strategic mistake, says Bob Milligan, senior consultant with Dairy Strategies in Lauderdale, Minn.

"The best managers recognize that even the greatest businesses—whether they're farms or Fortune 500 companies—can and will have years with red ink at the bottom of the income statement,” Milligan says.

"But they also know that major downcycles often pre-sent opportunities for buying low and selling high and positioning the business for growth and expansion.”

To determine if you might be in position to capitalize, make a realistic assessment of where your business stands currently. Milligan advises asking two questions:

1. Will the business be financially viable for the next five to 10 years and beyond?

2. Does it have the liquidity (cash or borrowing capacity) to cover losses that could occur during the downturn?

"If you can answer yes to both of those questions,” Milligan says, "start looking for opportunities.”

Assets. With the current slip in farm income, prices for cows, land and machinery are headed downward. "We recently heard of 300 springing heifers being sold for $1,150 per head,” Milligan says. "Just six months ago, the price would have been $1,800 or more. There are some good deals out there.”

Construction materials/services. The slowdown has left many contractors underemployed. "Contractors still have to make a living, so you shouldn't expect fire-sale prices,” Milligan says. "But if you can knock 1% or 2% off the debt load per cow associated with capital expenditures, that's a sizeable savings. If nothing else, the situation might allow you to hire a high-quality contractor you otherwise wouldn't be able to afford.”

Business units. As businesses in the industry are forced to exit, farms, herds and on-farm processing plants may become available at attractive prices. "The key is to do some general planning ahead,” Milligan says. "Then if a neighbor tells you he's
declaring bankruptcy within 24 hours unless you buy his herd, you'll be able to react calmly because you've thought it out beforehand.”

Bonus content:

Dairy Strategies

One Producer Who is Building

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