These economic times have even the strongest financially positioned producers concerned about the future. Recent calls and e-mails support this contention and provide a theme for this week’s column. Let’s dig a little deeper and examine some possible weak links.
Aggressive producers who have used profits, working capital and cash flow to expand operations by rental or purchase of land or a major capital expansion could potentially face tough times. These individuals have used valuable cash that may be needed if working capital lines become more difficult to obtain as some agrilenders re-evaluate their growth expectations.
One only has to look at how quickly liquidity and cash has dried up or become locked up in the domestic and global economies to see how this can bring some of the best-operated businesses to their financial knees.
Another strategy centers on tax management. That is, tax benefits for this year on capital purchases may lead to a three- or five-year borrowing obligation. These monies will most likely be paid back in times of tighter margins and reduced cash flow.
Others may suffer when input costs are prepaid to a supplier or market contracts are not fulfilled, resulting in losses as an unsecured creditor or having a crop or commodity not paid for.
Now is the time to build up your cash reserves and a strong balance sheet to weather the storm.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].