Harvest The Wins
There is an old guideline in commodity agriculture called the “Two in Ten Rule.” That is, over a decade, approximately two years are going to be very profitable. For the other eight years, only the good businesspersons make money or minimize their losses.
The two in 10 years generally come when the weather and markets (either supply or demand) create a pricing or cost situation where even the poorest of managers can generate a profit. For the “top gun” managers, it’s a time when business profits are astounding, which leads to many new entrants into the marketplace.
In recent years, the beef and livestock industry has experienced this winning combination. Strong demand, along with modest livestock numbers and overall production, created a situation of high profits not seen in many years. Just 12 months ago, some futurists were indicating that the industry had moved to a new plateau. Recent economic shocks created by energy and increased demand for corn have dampened the outlook.
Currently the grains industry is in the winner’s circle. The question is whether it will last more than two years. Given the economic environment, one would say that three years might be possible. The biggest challenge to many will be to execute their marketing plan, if they have one, and harvest the wins now rather than holding out for higher prices.
Management Tip of the Week:
As my good friend Professor Danny Klinefelter of Texas A&M University says, know your costs, and if you show a profit, at least harvest some wins and pay some taxes.
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].