Your Reading List

Put Working Capital To, Well, Work

Cornie Cudcostembig and Walter Waitnsee are two go-getters in theGrainewsfarm community. We have worked with these two chaps for a couple of years and found their story very interesting. Cudcostembig and Waitnesee farm beside each other and both have experienced good margins in the grain industry.

Cudcostembig decided he wanted a big shed. He had a lot of equipment and Jack Frost was nipping at more than his nose. His paint was fading faster than Frosty’s snowballs in late April. He had us figure out a couple of years ago how much depreciation he could save if that equipment was all under a roof. Cudcostembig was happy with the 10 per cent return the shed would could save him. Although we recognized the potential return of the shed, Cudcostembig’s working capital was at critical level. We recommended he delay the construction and focus on strengthening working capital. As his third wife will attest, he’s not a man that can easily resist temptation! The shed was built and all was good. Or so he thought.

The following spring brought torrential rains and two-thirds of Cudcostembig’s crop was drowned out. His working capital was washed away completely, but his credit debt grew like a hybrid corn plant in July. In the fall, when we sat down with Cudcostembig again he had the entire cost of the shed sitting on trade credit for which he was paying 24 per cent interest. The 10 per cent return on the shed — which appeared to be a good return on investment earlier on — was now costing him 14 per cent. There nothing on Cudcostembig’s farm that was yielding a 24 per cent return, and as such it was realized he needed to reallocate capital. As his wife said, “It’s time to sell some stuff!” After much deliberation, Cudcostembig decided that he would part with a quarter-section of land on the outskirts of his farm. This quarter section would raise cash that could be used to pay off the debt load.

Walter Waitnsee also had just experienced the same poor year. Walter’s wife of 35 years likes to describe him as a man who “likes the security of a sure thing; he’s not much of a gambler.” At the same time as Cudcostembig was building his shed Waitnsee was looking at putting up much-needed grain storage. After much deliberation, he reluctantly delayed the bin purchase. In the wet year that followed, his working capital also took a beating. He was glad, then, that he had not built the bins, as he didn’t need them anyway.

Waitnsee watched the papers and in the fall, lo and behold, a quarter-section of land adjoining his came up for sale. Contact? A Mr. C. Cudcostembig. Waitnsee was ecstatic! He had always wanted this chunk of land, and his decision to maintain healthy working capital was going to allow him to get it. He picked up the phone and two hours later was headed to the lawyers office with a signed offer to purchase.

The moral of this story is that slow and steady can win the race, and never discount the opportunity of tomorrow. The good news for Waitnsee is that one more year like this and Cudcostembig’s wellshedded equipment will sell very well at an auction sale.

AndrewDeRuyckandMarkSloanemanagetwo farmingoperationsinsouthernManitobaandare partnersinRightChoiceManagementConsulting. Withover25yearsofcumulativeexperience, theyoffersupportinfarmmanagement,financial management,strategicplanningandmediation services.Theycanbereachedat [email protected] and [email protected] or204- 825-7392and204-825-8443

About the author



Stories from our other publications