The sooner you can figure out how the new reality is affecting your business, the quicker you can start putting together a plan on how to manage your business in the new reality and move forward. I’ve put together some questions you should be asking yourself in this new reality, including the following:
- If I had known then what I know now, what would I have done differently?
- What are you learning from this pandemic and how do you turn those lessons into actionable items for the future benefit of your family and your farm business?
- When looking at your farm’s business, where were you the most vulnerable when the effects of COVID-19 took hold of the world?
- Was your revenue stream impacted?
- Did you have unsold grain in your bins?
- How do you plan to manage your cash flow needs for spring? Were you going to sell grain, secure a cash advance or bank or supplier line of credit?
Maybe the plan was to sell the rest of the old crop grain this spring for cash flow for inputs. However, COVID-19 steps in and messes with that plan by dropping all markets, including grains, lower. So, what do you do? Do you sell and accept the hit in price or do you hold in hopes of a rebound after COVID-19 is resolved?
The answer to that question will depend on your farm’s current cash flow situation and whether or not you will need more cash to purchase inputs for seeding.
If you are convinced grain markets will rebound and want to hold on to your grain for now, then the next best step is to look at taking out a cash advance to get you through the short term until you get more grain sold, not knowing how long that may be.
With the advance being interest-free for the first $100,000, it gives you some time and flexibility about deciding when to sell your grain in the future and not having to worry about paying an interest charge on the borrowed funds. Using the cash to pay for inputs should get you a better deal and eliminate interest charges from the supplier if you were purchasing on account, unless they are offering a payment deferral program that makes sense.
These are all things you will need to sit down and pencil out to determine the best option to meet your farm’s cash flow needs.
The pandemic has also affected the crop input value chains. Some questions to consider include the following:
- Has COVID-19 interfered with your ability to secure inputs for the coming spring season and/or impacted prices?
- Did you pre-purchase some of your inputs?
- Can you take delivery of fertilizer, seed and chemical earlier to get better prices and/or to ensure you have what you need on hand when you need it, so you don’t have to run to town now to get it and risk contact with others?
- Do you currently buy your inputs from one supplier?
- What is your Plan B if that supplier goes out of business or can’t source some products due to unforeseen events elsewhere?
- Should you change your buying habits and do more pre-purchasing of products, taking them home to ensure you have them for the coming season?
This will impact your cash flow needs and possibly require extra storage needs for products. Some planning would have to go into implementing a strategy like this.
Look for opportunities
Out of uncertainty can come opportunity. We haven’t seen fuel prices this low in many years, so consider if this is the time to pre-purchase extra for the spring and fall seasons.
Pulse prices are rallying due to buyer concerns elsewhere, which is providing the opportunity to pre-sell new crop at some very good values. What can you do going forward to reduce or mitigate the effects of unforeseen events from impacting your farm business?
Take the time needed to do a risk review for your farm business. Put together a risk management plan that will help you to mitigate or eliminate the risks you know about.
Develop a plan that will help you to better react to future unknown risks and minimize the impact they will have on your business.
Look at how you are currently doing business on your farm and determine if there are things you can change to help you be better prepared for when the next unforeseen event happens that could affect your farm.
In the new reality, your grain marketing plan should address risks. Consider the following questions:
- Do you factor in the costs of storage and spoilage into your marketing strategy?
- For easy figuring, let’s assume storage and some risk cost is about five cents per bushel per month. Do you factor that in when selling grain?
- Are you paying interest on a line of credit that could be reduced or paid off if you sold grain sooner?
- Would having cash available from grain sales to pre-buy inputs save you money?
- Should you be more aggressive pre-pricing grain at profitable values when they are available as opposed to holding on to stocks and gambling the markets will improve over time?
- How do you protect yourself if you want to be more aggressive pre-pricing grain going forward?
You need to take time to build a marketing plan that works within your risk management plan. It needs to help you address risks you want to mitigate and not add any extra risk that cannot be managed properly.
This can be done through using various grain contracting strategies, futures or options contracts and production and/or revenue insurance to reduce or eliminate the delivery risk you will face if you become a more aggressive grain marketer. More elements to consider include:
- Would doing these kinds of things help to better protect your farm from the next unforeseen event?
- Would they help to protect your revenue and cash flow if you had a stronger marketing plan in place?
- Would you be less affected if you had all of your inputs secured on-farm for the coming year?
- Would you be able to sleep better at night knowing you were more prepared for the next unforeseen event that come along?
Good luck this spring!
Stay safe and keep healthy.