Successful Management During Challenging Times

When talking to producers who farmed in the 1980s, you’ll likely hear about: interest rates, low commodity prices and declining land values (resulting in some consolidation.) Consistent with agricultures cyclical nature, today we are again facing a compressed margin environment in grain and livestock markets.

The difference is that many producers have learned from history and their debt-to-equity and debt to asset ratios are better today than in previous market downturns. Agriculture is a commodity business and that means prices and returns are volatile.

However, when talking to area farmers, most tend to agree there is a storm brewing on some farms. Managing risk like crop inputs, commodity price swings, and financial or debt management continues to be essential for any successful farm.

Farmers realize they cannot control prices. Some of the most interesting conversations with farmers revolve around what farmers are doing that they can control. Many growers have already locked in variables like rent, seed and fertilizer. Have you thought about locking in inputs the coming year and beyond, or talked to a grain marketing advisor? If you have multiple-year land rent contracts have you considered securing a percent of other costs; for example diesel fuel? If you are only locking in land rents and no other inputs or outputs you are betting land rents will go up, commodity prices will go upor non-land inputs will come down.

In the end, some of the best inventions were the result of necessity. The market will continue to leave opportunities for the most efficient or higher net margin producers. Hopefully, we have, as an industry, learned from previous downturns in livestock and grain industries.

At Compeer Financial, we’re continually analyzing the past to help farmers better navigate through current challenges. It’s never been more important to partner with business advisors who have the experience and expertise to guide you in growing your operation and achieving your goals.