To The Farmers Eyeing Growth in a Challenging Ag Economy ...
April 23, 2018
By Jeff Patterson • Security National Bank Ag Lender
The economy has not been kind to farmers in recent years. Agriculture has been plagued by low commodity prices, and experts including the USDA predict another large production year in 2018. However, they are not expecting a significant change in commodity prices.
While this is cause for concern, it is not a cause for panic. Navigating a challenging economy simply requires doing things a little differently.
As you know, agriculture is a cyclical business. And while things may be difficult now, it won’t stay that way forever. That’s why it’s important to position your business, so you can take advantage when the Ag economy takes a more positive turn.
Here are five tips to help farmers navigate a challenging economy:
1. Reduce Debt.
Properly structuring debt is crucial. If possible, sell off capital assets, and reposition short-term debt into intermediate and long-term debt to free up additional working capital.
2. ASSESS YOUR LAND, SPECIFICALLY
Do you have pieces of land that are draining your cash? Look at each plot you are operating, and figure out if the cash flow is positive or negative. Look at multiple years, so you can really get a sense of the production history behind each piece of land, and determine if it makes sense to keep.
3. Trim Expenses: both Production & living.
While this one might seem obvious, deciding what in your operation to trim isn't so simple. Until the economy turns around, it is important to look for ways to save on production costs — be it seed, chemicals or rent. And, when times are tough for your business, it may be necessary to look at changes that you can make to your personal expenses. Anything you can cut back on temporarily will lessen the negative impact of a down economy.
4. Put a Market Plan in Place.
Look especially for opportunities to expand your customer base, or strategies to set your farm apart from your competition. Some examples include modifying your storage process (storing grain on-farm or maxing out your capacity can help you capture market appreciation at the right time), forward contracting, buying put options or speculating to capitalize on the market carry.
No one is going to tell you specifically how to run your operation, but what they can do is give you insight into the best way for you to move your business forward.
5. Talk to your banker.
Maintaining a strong line of communication with your lenders is critical. If you have financial concerns, please contact us. One of our advisors may be able to suggest ideas you haven't considered that can help get you through tough economic times.