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Does my farm need a strategic plan today?

CLAAS tractor
FIT THE PLAN: This may seem like the exact wrong time to buy a new tractor. However, based on your farm’s position, strategic plan and buying opportunities, it could make sense.
Farm Business: Why have a strategic plan when there is so much uncertainty in agriculture?

You have likely served on a board when the chairman says it’s time to begin laying out the next five-year plan. Eyes tend to gloss over. Some question whether it’s possible to develop any type of realistic plan for a five-year period as rapidly as things change in agriculture today.

I would turn this thought around and say that a strategic plan is more important today than it ever has been. What has changed in recent years is the dynamic nature of strategic planning. Specifically, businesses need to be able to adjust their plans rapidly to changing conditions. Just because things are changing rapidly doesn’t mean you don’t need to plan — it just means you need to be able to adjust your plans more rapidly as well.

Strategic planning defined
Let’s start by discussing strategic planning. A strategic plan lays out a direction and focus that guides the operation’s actions under alternative future scenarios. In other words, how will your farm adjust to expansion opportunities, including opportunities to lease or purchase additional land, new technologies and new opportunities to create value? These may include such things as raising popcorn or producing seed corn vs. yellow corn. 

When the environment is quite uncertain, as it is as we head into 2018, businesses tend to take their time when making these decisions. Not reacting quickly to opportunities may result in missing out on these opportunities altogether.

As noted earlier, a strategic plan should provide direction and focus under alternative future scenarios. What does this mean? Your farm will likely react to opportunities differently depending on whether it faces low, medium or high crop prices; low, medium, or high liquidity and solvency positions; or low, medium or high interest rates. 

I suggest thinking about how your farm will respond to opportunities given at least three alternatives: a worst-case scenario, a status quo scenario and an optimistic scenario. Under this approach, these scenarios could be defined using projected profit prospects.

One caveat should be noted. Some farmers think it’s easy to develop a strategic plan for the worst-case scenario — just don’t expand, buy technology or consider new opportunities to create value.  However, there are times, particularly if a farm has solid liquidity and solvency positions, when a farm should pursue opportunities when industry profits are relatively low, as they are today. Think of it this way: Some opportunities that could arise now may not arise under the status quo or optimistic scenarios.

Take-home lesson
Let’s conclude with three key points. First, a strategic plan should increase flexibility, not reduce it.

Second, a strategic plan should take some options off the table. For example, know upfront what activities you will not engage in.

Third, a strategic plan should be relevant in both bad and good times.  More information pertaining to strategic planning is available from the Center for Commercial Agriculture at Purdue University.

Langemeier is a Purdue University Extension ag economist and associate director of the Purdue Center for Commercial Agriculture.

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