A couple weeks ago, I began a discussion about the teachable moments of the recent economic crisis. While not all of agriculture experienced the economic freefall, there are proactive management lessons to be learned from the latest crisis. Last time we discussed the need for cash flow and liquidity. Clearly, a sound risk-management plan is necessary in these volatile times. As a matter of fact, it could be analogous to a successful football team with offense, defense and special teams. Let’s explore further.
The revenue side would be similar to an offensive game plan. Do you use a marketing plan including options, hedging, crop insurance and other tools to mitigate and optimize the volatile swings in prices? One will need to know their cost structure to allow for objective vs. emotional decision making. This will require a good set of farm records to help develop a game plan. Do not be fooled by those who succeeded by topping the market. Often one year of success through luck will lead to five years of failure.
Next, do you have an input cost- or expense-management strategy? Anyone who purchased fertilizer and other inputs when they peaked only to find that prices declined rapidly could benefit from this approach. Rather than a blitz strategy on cost management defense, one might find a staggered approach to input cost management may be the best strategy.
Finally, debt management is like special teams. It can either make or break the final score or economic results. Do not get caught up in the current low interest rate environment. Failure to consider locking in some interest rates could result in an economic fumble with negative final score consequences.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].