Outlasting Low Prices Is All About Momentum
Momentum is an interesting word and an even more intriguing concept. It’s defined by the American Heritage dictionary as “the driving force or advancing strength of a development or course of events.” But momentum is also critical to your farm.
Much needs to happen as planned for a farm to break even or make money ($7 corn notwithstanding) and gain some advancing strength or momentum. Without momentum, a farm, like anything else, will stop moving forward.
Every operation begins the year with high hopes and expectations. However, a farm that has a high debt-to-equity ratio, low working capital, or family/employee issues will find it extremely difficult to gain momentum. Expansion and section 179 purchases during recent boom cycles have also brought some operations into the red with today’s grain prices. Most would admit that each year had its own plan and they ‘took advantage’ of ‘once in a lifetime opportunities’- but that approach doesn’t look long enough into the future and it can cause farmers to lose momentum.
Planning beyond the current season is the only way to capture momentum to carry forward for the future and continue your farm’s legacy. Most farm game plans only utilize momentum for this year’s crop. When corn and soybean prices hit bottom… the prevailing thinking is to ‘get by until next year.’ It is difficult to imagine gaining any momentum with $3.50 corn as low grain prices crush margins and halt many operational plans. But it’s definitely possible.
To gain the necessary momentum requires a well thought through plan that emphasizes the strengths of your farm operation over multiple years.
Your plan should utilize your experience and expertise together with that of your hand-picked team – your CPA, banker, attorney, insurance advisor, seed salesman, precision agriculture coach – and you should take advantage of your farm’s strengths. While no one knows what grain prices will do from year to year, your plan should have contingencies in place that allow you to alter one year’s plan and make up for it in another year.
Talk about your long term plan with your team and clearly outline how they are going to be part of the success of your 5 or 7 year vision. Farmers that are able to form a unique perspective of their farm’s strengths and leverage them with the help of their team are able to break through the limits of low grain prices. For example, what untapped potential does your farm have because of its location? What types of talent do you have within your farm family that could provide much needed diversification, if only there was an opportunity created for them? Is there a partnering scenario with another Ag business or farm operation that could conceive a new profit stream?
It can be difficult for farmers to think about their farm with a new perspective and change generational practices. But when you think differently and apply a new dimension to your planning, new opportunities become apparent. Farmers are a creative bunch…and with the right team and new approach, momentum begins to overcome the effect of low commodity prices.
If you don’t have a long term plan, there is an old Chinese proverb: "The best time to plant a tree was 20 years ago. The second best time is now." Every farmer is in it for the long haul. A year to year farm business plan just doesn’t match the terms required for ‘the long haul.’ Creating a long term business plan that will create and keep momentum for the next generation is the ultimate winning strategy.
The views expressed in this article are the author's alone and not those of Farmer's Business Network, Inc., its affiliates, or members.