By Don Nitchie
We believe the best asset that successful farm mangers have is a positive attitude – especially in the face of less profitable times. We think a big part of this is due to fact that successful farmers are comfortable analyzing their finances and acknowledging their strengths and weaknesses. These producers recognize early warning signals from their records and analysis, so they are prepared for a potential downturn or negative situation.
Despite being proactive managers who maintain a positive attitude, everyone is experiencing some level of anxiety or stress under the current farm market conditions. As a result, you or your business partners may be more self-deprecating, critical of family members, self-doubting, or just generally feeling a higher than normal level of stress or anxiety. It is nothing to be ashamed of, but it also should not be ignored. It is important that you, as family members, friends and business partners, watch for any major attitude changes or signals of depression in both yourselves and your associates.
Having come from the historic profitability period of 2006-2012, there are more than a few folks who have not yet re-aligned their thinking to what many say is a return to the more typical, long-term competitive environment in agriculture. Regardless, it probably feels like a dramatic decline, as the record profit period lasted longer and was higher than any in history. A positive outlook combined with a proactive management strategy will help you get through. Keep in mind that small improvements add up when dealing with some of the following stress-inducing situations associated with the current conditions:
Your Income Taxes are High. Some late career producers are trying to transition to retirement/to the next generation and are now paying some of the biggest income taxes of their lives, even in the face of low current year prices and profits. This occurs because over the years much of their profits were deferred forward and invested in farming capital assets, which now need to be liquidated or transferred. It is not fun but is a mathematical and accounting reality of a successful farming career. At best, it can be moderated by spreading the deferred tax burden over several years.
Your Financial Ratios Weakened. This is not ideal, but it is a key part of managing to have strong indicators to begin with — to serve as shock absorbers in rougher times. You, of course, need to recognize when they decline too much and determine what actions will put them back in balance. You need to measure, monitor and use these ratios to be prepared for action if needed. If you wait for someone else (your lender) to point out a problem, it might be too late and probably will limit your options to fix the problem.
Your Marketing Prices are Low. Welcome to the party. Some of the best marketers seldom get the highest price. They make numerous sales at less than the high price of the marketing year. Forget about waiting for one price and then selling it all. Everyone may luck out once in a career, but this approach leads to disaster too often. Today’s market, where prices are not often offered above breakeven, is very challenging. If you succeed in averaging a sales price in the upper half of the year, it would be extremely good. Try hard to sell increasing amounts as prices increase and do not decrease sales quantities as prices go higher — mathematically this will increase your odds of success for the year.
Your Costs are high. When prices were high, cost structures that were too high did not have as much of an impact. When prices are low, cost structures really make a difference. Can you make a difference on your cost structure? Yes, you can and our members have been adjusting. The average cost to produce an acre of corn and soybeans decreased in the SWMFBMA for both 2014 & 2015. This occurred as the result of small decreases in expenditures in each of the major inputs. If your expenditures are high in a certain category, you need to verify it is for very good reasons. You might identify expenditures where you need to reexamine if your standard practices are really paying off. Small changes can add up to big savings in average costs.
When facing today’s stressors, be mindful of your own attitude and outlook. Also, be mindful of business partners, family members and neighbors also. Encourage yourself and others to move on from past decisions or actions that were not ideal. Let it go. It is good to review and learn lessons from past experiences, but those past decisions/actions cannot be changed. Stay engaged with your family and community. Compliment yourself and others for small achievements. Take steps forward. While it is good to plan ahead, don’t over-plan or stress about the future. You can only live life and your farming career a day at a time.