“Nobody ever went broke making a profit.”
Dryland grain producers can be fairly optimistic about 2009, predicts an independent farm consultant and former agricultural banker. Earl Smith of Wheatstone Consulting of Olds says that while commodity prices may be down from last year, there should be increased opportunities for producers to sell at better prices. Ultimately, success will depend greatly on the farm management skills of individual producers.
“On balance, cropping budgets for 2009 look OK,” said Smith, speaking to about 500 participants at the Agronomy Update 2009 conference here in late January. “Nobody ever went broke making a profit but you need to move when prices are profitable; don’t wait for the top of the market.”
Farm business plans are more important than ever, said Smith. The concern is that farm management has not kept pace with advances in agricultural technology, increasing costs and at times tighter margins. “The business side has lagged – it’s something you need to spend more time on,” said Smith. “In my experience, some farms in every sector make a profit every year despite external factors. Farm management skills are the key difference.”
With the volatility of the financial markets, some may be wondering whether there is a credit crisis in agriculture. According to survey conducted by Smith, the major lenders say it’s business as usual. Still, producers should expect stricter
adherence to lending guidelines and higher rates to reflect higher perceived risk. Also, some producers may experience more difficulty getting credit based on their financial position. “Don’t assume credit from last year is available – apply early,” said Smith.
Secure your product
If buying on credit from independent farm suppliers, producers should be certain of the security of those businesses. “If putting up a building or buying fertilizer, take delivery right away, because if the company goes down, you are at the bottom of the list for getting your money back,” said Smith. The risk with independents requiring payment up front, is that the purchaser, or producer, becomes an unsecured creditor.
Smith is optimistic that many of the negatives tied to the volatility of financial markets can be managed locally through effective farm management plans. Furthermore, there are pluses to the global economic situation – interest rates, bulk shipping costs and the price of fertilizer have dropped. The Canadian dollar is weaker, the cost of fuel is better, and there is more demand for agricultural products.
Another issue that requires planning is farm succession.
“This is huge to me – I saw so much of it in the bank,” said Smith. While the old view involves a one-time transfer of assets, the new view is that a farm is an ongoing business that needs a succession plan. “You need to focus on transition over time of ownership and management so that farm succession stops being a single event.”