I have a test for you. Turn on your TV and watch any network news program and see how long it takes for the anchor to mention the economy in Canada or the United States. Did you try it? It didn’t take very long, did it? We are bombarded with information about the economy these days. Whether you’re accessing news through TV, radio, newspaper, Internet or the coffee shop, there is limitless content about the economy and the potential pitfalls and opportunities for you.
So how is this downturn in the economy going to affect my farm and what I can do to minimize the effect? There are greatly varying opinions on how long this recession is going to last and what the overall fall out will be for farmers across Western Canada.
I spoke with Danny LeRoy, associate professor in agricultural economics at the University of Lethbridge, about the impact of this economy on farmers. LeRoy says, “Realistically the amount of agricultural products produced is not going to substantially change in 2009 but the environment and risks for farmers will.”
The farms most at risk are the ones relying on cheap credit, he says. “If interest rates were to rise due to inflation with commodity prices continuing to drop, it will be a shock to the farming system. It might create a financial situation that reminds us of the 1980s.”
In my personal opinion, it is very nave or hopeful for someone to say the words, “This will not affect me.” In some way or another, this economy is going to affect you, whether you are in agriculture, manufacturing or retail.
Clem Samson, vice president of western operations for Farm Credit Canada, feels that the future of agriculture is still strong due to the global population growth and increase in middle class.
“A potential strengthening of interest rates would result in potential issues for farms that are highly leveraged and lack working capital.” Samson concluded with, “What people need to understand about agriculture is that based on the thin margins, it takes four years to climb out of a hole dug by one bad year.”
WHAT CAN I DO IN 2009 TO MANAGE THROUGH THIS?
A wise person once told me to focus on the things that are in your control. You cannot control the recovery of the economy or whether grain prices will rise in the face of rising interest rates and currency volatility, but you can control what decisions your farm makes to weather the storm.
Bill Daye, CA and managing partner with Daye and Co., says, “The best way to manage through a tough economy and lower commodity prices is to put a high level of scrutiny on capital purchases and create a operating/financial plan that is conservative and your lender agrees to.”
I think that you must separate the needs and wants to create smarter spending decisions. You do not need to cut off purchasing completely but you need to make sure that you are able to make justifications of improved efficiency or productivity to the farming operation. I think that this same sort of thinking applies to operating expenses as well. When I am discussing potential seeding plans with customers, it is quite common for someone to cut the wrong expenses in my opinion. For example, planting dirty seed or not spraying for broadleaf weeds are great examples of saving a nickel to spend a dollar in the long run. Focus on things like cutting back fuel consumption, analyze repairs and maintenance, and examine how you can lower your interest costs.
Mark Wobick, an agrologist with Meyers Norris Penny in Lethbridge, commented that to withstand most adversities, work on developing the strength of your balance sheet. Businesses that have strong balance sheets are able to take advantage of opportunities in a bad economy.
Daye and Wobick both agreed that when working on the plan, don’t shoot for the moon in terms of promises. In my opinion, under-promising and over-delivering is always better. Creating false high expectations is not going serve your business the best in the long run.
Make sure you tap into your support network. This would include your accountant, lending account manager, and most importantly, your peer group. I find that I make more impactful decisions when I access trusted external opinions to better understand an issue. As the reader, you have taken the right step by taking the time to read Grainews.
I agree with Clem Samson that the future of agriculture is bright, but that is not to say that there won’t be bumps along the way. For a lot of us, it is fear of the unknown that makes us walk with trepidation. The economy is just one of the external factors affecting agriculture right now, but there are things you can do to make sure your farm limits its exposure as much as possible.
Shaun Haney publishes the Haney Farms Quarterly and his blog, which can be found at www.realagriculture.com.Haney Farms is located in Picture Butte, Alta., and is involved in the grain, seed and beef business. You can contact Shaun at 1-877-738-4517 or [email protected] haneyfarms.com.