By Dr. Dave Kohl
The grain industry is taking a body blow punch as prices have moderated over the year. If the lower prices continue into 2015 and beyond, there will be a "punch in the mouth" which will disrupt many producers' strategic planning in the middle and later parts of the decade.
What are the characteristics of grain producers who will be sustainable regardless of the duration of the economic super cycle moderation? The easy money has been made in the grain industry, which in many cases has brought complacency in management practices, particularly marketing and risk management strategies.
The bottom line is that a certain set of producers will still be profitable in the economic moderation. Let's examine some of their characteristics.
- They will be strategic managers with an eye on global economics, geopolitical risk, and trends that will be impacting the grain industry. They will think globally but have the ability to apply these concepts to their own business' strategic decisions. For example, before developing a marketing and risk management plan they will test various economic scenarios at different price, cost, and interest rate levels. This will result in their "gut" decisions being based on logic rather than emotions or coffee shop talk.
- A manager who thrives in this part of the cycle will be focused. They will shed marginally productive assets including land, machinery, livestock and human assets that are not productively contributing to the bottom line.
- The producers who thrive will have previously built up working capital reserves and will be able to capitalize on investment and buying opportunities, rather than grow the business with an all-out mentality.
- They will focus on efficiency and cost of production metrics so that time, capital and other resources can be allocated appropriately to enterprises where they get the biggest bang for their buck.
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