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Strategies for managing profit in agriculture during a down cycle

The reality has set in that grain prices, cash flow and profit margins will be modest at best. Whether this part of the cycle correction will be one, two, or even five years or more in duration, farmers and their lenders will have to manage through these economic white waters.

The lender can play three roles in the current environment. One role is that of a teacher. Down cycles are often a period for teachable moments on finance, marketing, risk management, and overall strategic operation. A lender can also play the role of a coach. That is, as alternatives are identified for business sustainability, the lender can provide the culture and environment of encouragement when goals are met or exceeded and this can be a valuable dimension particularly in a downturn.  

A lender can also play the role of a facilitator. In the1980s, some of the best business outcomes were the result of working with other lenders such as FSA or even competitors to maintain a sustainable path for a business. A lender can also facilitate the interaction of other resources such as consultants and industry experts. These people often have experience interacting with people on the front line and providing solutions to complex issues.

When “hunker down” strategies are being implemented, the farmer is like a player on the basketball court. He or she must be receptive to coaching and in some cases critique and tough love. Farmers who are successful in the down cycles are those who select alternative strategies, execute them with their lender, and then monitor results.

Throughout the whole process of working through the down cycle, open and transparent communication is imperative. Lenders do not like surprises, nor do producers. Liabilities that are not identified on the balance sheet, assets that are sold out of compliance with loan agreements, or lack of follow-through by the lender are some of the nightmares of the troubling times of the 1980s.

The down cycle in grain commodities, regardless of the duration, will end. In the meantime, this is a good time for relationship building and teachable moments that can benefit both farmers and lenders.

TAGS: Soybeans Corn
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