Inadequate cash flow management

Unlike other industries, cash flow management can be particularly difficult for farmers due to the fluctuations in timing of expenses and income. It can be impractical to have consistency from year to year when high upfront input costs can send your expenses through the roof. While it may not be feasible to have a consistent amount of cash in the bank, consider what you do have the ability to control.

For example: having a sum of cash set aside for tough years could be a good way to protect your operations from the inability to pay important bills. It may seem like an obvious first step, but using your historical financial information to determine how much cash is required to run operations in an average year may be a good place to start when evaluating how to best manage cash.

While improving record-keeping may be the priority, focusing on analyzing the farm’s future cash requirements can safeguard you from a major pitfall: the over-reliance on credit. If you are not aware of the cash requirements for the operations, you may find yourself forced to use credit to cover cash flow gaps which may be costing your bottom line with high interest.

Not managing debt effectively

While debt can be a tool to leverage income-producing assets, I’ve seen some farms accumulate too much debt. The obvious impact of over-leveraging can be the risk of interest rates further damaging the farm’s cash flow position, inability to make the required payments and ultimately the damage to future lending opportunities in the case of default.

If your farm is currently struggling with managing debt, consider prioritizing high-interest debt payments and make sure to spend adequate time refinancing when interest rates drop to ensure you are taking advantage of market savings where possible. It’s important to have ongoing discussions with your accountant or financial advisor to make sure your debt management strategy is appropriate for your specific operations.

Lack of diversification

Most farmers will have specific industry strengths that make it easy to invest the bulk of their time and money into one specific area of farming. This can significantly impact cash flow management, as most of your income may be reliant on a single revenue stream.

It may be time to start thinking outside the box. I’ve seen cattle farmers open storefronts to sell their beef alongside other locally sourced meats, I’ve seen potato farmers branch out into the liquor industry and grain farmers expand into apiculture. While some options may seem particularly cumbersome, consider how expanding into another revenue stream could compliment your existing operations. However, be aware of the risk of overexpansion. Expanding too quickly without adequate financial resources or market analysis could cause more harm than good.

Risk management

Risk management in all its forms — crop and livestock insurance, futures contracts and government programs being the primary avenues — may be an area your farm can improve. It can seem like an impossible balance between managing risk and avoiding overspending on expensive premiums, but it may be wise to consider whether you notice a specific trend.

Everyone has a risk tolerance level, and it may be useful to identify yours. Are you noticing consistent overspending on insurance out of fear of every worst-case scenario? Are you taking advantage of government programs that may be beneficial, such as AgriStability and AgriInvest? Are you staying up to date on available grants for specific investment opportunities that your farm may be undertaking?

Misaligned investment priorities

This pitfall seems to be significantly more predominant in operations that are managed by more than one individual. Allocating funds to areas that may not be providing a solid return on investment could be causing the farm to struggle with cash availability. An example would be one “unaligned” individual investing in non-essential equipment upgrades when the cash could have been better used to improve soil health for an increase in yields in future years.

That’s not to say equipment upgrades are non-essential; under certain circumstances it can be critical to upgrade equipment. The importance lies in ensuring all decision-makers are on the same page, requiring constant communication. If this is a pain point your farm is experiencing, it may be worth it to implement some policies to safeguard against unnecessary spending. An example could be to require two signatures on every cheque over a certain dollar amount, so significant purchases are reviewed by another individual.

Neglecting technology adoption

Farm technology is developing at a very fast pace. This pitfall has two areas to watch out for: underinvesting, and investing too quickly. I have met many farmers reluctant to invest in new technology and, on the flipside, many who have allocated resources to several new pieces of technology regardless of its viability. Both sides have significant potential negative impacts on the farm’s profitability.

While choosing not to invest in technology could drastically impact potential efficiencies, it could also play a role in the work force your farm attracts. It is also important to consider the long-term plan of your farm: are you contemplating handing the farm operations to the next generation at some point in the future? It may be wise to gradually invest in new technology to support the next generation, ensuring they won’t face the burden of making drastic, costly upgrades to modernize the operation once they take over.

Neglecting succession and estate planning

It can be easy to put succession planning on the back burner year after year. Unfortunately, one can never truly know when it may become “too late” for estate planning. It’s best to initiate these discussions early and frequently as you consider transitioning your farm. While it may be obvious to include farming kids in the discussion, also consider the importance of involving non-farming kids. “Fair” does not always mean “equal,” but the more conversation that takes place around these topics, the fewer surprises there will be for everyone involved — not to mention that the earlier you discuss these topics with your team of advisors, such as your lawyer and accountant, the more tax planning opportunities may arise, keeping more money in the jeans of future farmers.

The unique struggles farmers face often breed resilience and strong work ethics. While some struggle may be good for your mental toughness, consider how cash management, diversification, risk management and investments could reduce unnecessary struggles faced by your farm. A few visits to your accountant may provide a tailored solution based on your farm’s financial health, easing the pressure of making significant decisions on your own.

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Canadian farmers and ranchers lived that movie back when forces within the United States were pressing to keep Canadian beef out in the final months of the BSE crisis, then again when the Obama administration took a not-bad idea — country-of-origin labelling — and twisted it into the worst imaginable caricature of itself. We’d marvel how a country that presents itself as our closest friend, ally and free-trade partner could unexpectedly turn on us, and again we’d reiterate that if we want to continue as an agri-food exporting nation, we had better start earnestly looking elsewhere for people to buy our stuff.

In many ways, though, this latest rerun is the worst (the worst so far, I should say): an ostensibly pro-business celebrity steps in to again lead that friend, ally and free-trade partner and immediately threatens heavy tariffs to tank the Canadian economy on one of the flimsiest pretexts imaginable (the flimsiest so far, I should say) in order to be seen to address issues too complex for him to quickly manage in any meaningful way. Relationships that businesses on both sides of the border have spent decades cultivating risked being erased by a president who, it turns out, is pro-Trump more than pro-business or pro-anything else.

And yes, against that level of unpredictability and unreliability, it’s reasonable and logical, yet again, to look around and see who else is buying or might buy what we have.

The previous efforts to do so, though, have been informative. If you recall the Legacy Fund, a beef market development fund set up by the feds in 2005 and administered by what’s now the Canadian Cattle Association, a 2014 review of that fund’s outcomes found it had helped to improve Canadian beef uptake overseas, but it also found resistance to the flipside: reducing dependence on the U.S. market specifically.

Industry players interviewed in that review pointed out the difficulties and painfully slow pace of opening up new markets overseas, as a reason why we should work instead to preserve a focus on the U.S. To quote one respondent cited in that review: “They have money, they are close and they speak the same language.”

On that first point, fair enough. On the second and third points, any country known as an exporter has had to overcome those. A glance at a map of the world shows neighbouring nations separated not only by language and culture but in some cases even by downright hostilities, the last of which can make it even more of a necessity to look further abroad. Whether Canada’s economy is in the same shape to become such a supplier of choice overseas is another question — but the exploratory work to find out, the preparation of paper trails and the development of brokerages to expedite passage of goods should begin now wherever it hasn’t already.

As for our nearest cross-border relationship, of course there’s a case to be made that the trade flows formed in the four decades since the original Canada-U.S. free trade pact was signed have made our economies too intertwined to extract ourselves now even if we wanted to. The past few weeks, though, have shown that our agreements — even the one President Trump himself signed — have turned out to be only as solid as the biggest player’s willingness to abide by their terms. Diversifying our export destinations at this stage in history remains a good idea. Let’s not kid ourselves, though, that such work can ever happen quickly enough to absorb all the potential impacts of whatever comes next.

Let’s also not pretend, though, that any of us know just what will come next. By the time this issue reaches you in the mail, we’ll soon know only whether Trump still considers the threat of tariffs worthwhile to achieve whatever his actual goals are. A recent policy note by Agri-Food Economic Systems, after the reprieve was granted in early February, offers some good suggestions of what those goals might be — but also wisely doesn’t claim to know which, if any of them, are closest to the truth. Among the possibilities listed there are:

• keeping Canada “off-balance” and inhibiting any future investment in this country without ever having to impose the tariffs;
• imposing the tariffs and using any funds raised to help cover U.S. domestic tax cuts;
• upsetting global currency exchange rates enough to re-centre the U.S. as a hub of manufacturing and processing;
• using the threat of tariffs to shake out new concessions on long-standing U.S. complaints such as Canada’s dairy sector, or to otherwise intimidate the CUSMA partners before that trade pact comes up for renewal next year; and/or
• some or all of the above.

All of those sound like solid possibilities, but I’d add one more: none of the above. Sure, I don’t like to think that U.S. voters just granted all powers of the executive branch of government to someone who’d troll on millions of people worldwide for no productive reason at all, but like everyone else out here, I’m waiting on evidence to the contrary.

Correction

Before we go: in our Jan. 28 issue, we incorrectly identified spraying expert Tom Wolf as “Tom Wolfe” (“Tackling herbicide resistance with smarter spraying,” page 10). We’ve fixed that in the online version, but if you’ve only seen the paper version so far, rest assured we weren’t meaning to identify the late U.S. author of The Right Stuff and The Bonfire of the Vanities as an expert on crop spraying.

Drop me a line with any questions, comments or concerns.

CORRECTION, Feb. 27: The print version of this column (Feb. 25, page 3) incorrectly dated the Legacy Fund review’s year of release as 2015.

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And by diversifying exports, farmers will become less dependent on current major markets, reducing their financial risk.

“When borders close for any number of reasons due to trade tensions or shock caused by disease or weather having a broader range of export markets allows Canadian exports to be re-allocated, rather than reduced,” FCC said in a news release Tuesday along with the release of its 2020 trade report, “Opportunities and Challenges to Diversify Canada’s Food Exports.”

After identifying the world’s biggest and fastest growing food import markets — including those where Canada has a small existing market share — FCC identified opportunities to expand five Canadian food exports: canola oil, prepared or preserved pork, potato products, prepared crab and prepared or preserved beef.

In 2019 Canada ranked fifth and 11th in global agricultural and food exports, respectively, with sales earning $67 billion — a 10 per cent increase from 2015.

Of those sales, $29 billion were for food, accounting for 45.5 per cent of the total.

Food exports are up 28 per cent since 2015.

But 79 per cent of the increase was due to exports to just one market — the United States.

That’s a lot of eggs in one basket.

“Combined with our competitive advantages in natural resources and innovation, and a stellar food safety reputation, Canada has an opportunity to improve its world standing as a major food exporter, as well as to diversify its export markets,” J.P. Gervais, FCC’s chief agricultural economist, said in the release.

“World population growth, higher purchasing power in emerging markets and new trade agreements are key factors in potentially creating more opportunities for Canada to increase exports.”

Why it matters: Canadian farmers rely heavily on exports of unprocessed agricultural goods because they grow so much more than the domestic market consumes.

Canada’s agri-food industry has so far been able to fill domestic and export demands, despite COVID-19, Gervais told reporters via telephone Friday ahead of the report’s release.

“I would say there is a huge opportunity for us as an exporter in this world where a lot of food importers are not food secure… to say ‘here we are in Canada with quality and safety… we have all that to offer…'” Gervais said. “I think that’s a huge opportunity for us in 2021… we can be a leading supplier.”

Canola oil

Canola oil is the fastest growing vegetable oil behind coconut, FCC says. Canola oil is used mostly for food rather than biofuel. Importers in Asia and the West prefer it because of its more environmentally friendly than some other oils. FCC says there is more potential to export more Canadian canola oil to Asia and Europe.

Pork

Beyond China, most Canadian pork has an advantage in small countries with slow recent growth. Excluding China, the markets that show the greatest potential for Canadian pork are in Europe — Italy, France, Germany, Belgium and Poland. There are hurdles, including a European Union requirement that meat imports be certified free of antimicrobials, Gervais said.

“If you break down all the barriers we have a very competitive pork product in Europe,” he said.

Potato products

In 2019, Canada was the fourth largest exporter of potato products, worth just over $1 billion. The expanding Western diet has increased demand for French fries and potato products. While the United Kingdom is the largest and fastest growing importer, there is opportunity for expansion in Europe and China.

Crab meat

From 2009 to 2019, Canada has been the world’s largest exporter of prepared crab, capturing 33 per cent of total global exports last year. China, along with South Korea, Indonesia, Vietnam, Thailand and Hong Kong, represent a third of the global import growth. However, Russia is threatening to overtake Canada in crab meat exports.

Beef

Global prepared and preserved beef imports grew by 58 per cent between 2009 and 2019 and China accounted for almost 40 per cent of it. Over the same period, Canadian exports grew by almost 125 per cent. Last year China surpassed the U.S. as the largest beef importer, including prepared and preserved beef. There are opportunities for Canadian beef in Europe and other Asian countries..

While FCC’s report extolls the benefits of increasing food exports and diversifying markets, it acknowledges it’s not easy. That’s why FCC is helping smaller and medium sized companies to first grow exports to existing customers, Gervais said.

“Then afterwards I am convinced we can see some diversification given the efforts,” he said.

“Diversification almost always entails seeking markets that are further away and more expensive to develop,” the report says.

Some potential markets are price-sensitive, especially for high-quality Canadian products, the report says.

China can also be as influential in world food markets as the U.S.

“It (China) can engage in the protracted tensions that have shaped much of global trade since 2019 and lead to shifts in trade flows that do not truly reflect diversification,” the report says.

“A slower pace of economic expansion worldwide can mean more timid growth in food demand, impeding diversifying efforts. The pandemic has reminded us of the importance of a robust food supply chain and economic consequences for some countries may last years.”

— Allan Dawson reports for the Manitoba Co-operator from Miami, Man.

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I think back 15 or 20 years and there were many actively promoted diversification schemes (and some of them were definitely schemes). If you were producing crops, perhaps you should consider some exotic livestock opportunities. Bison, elk, deer, reindeer, wild boar, llamas, alpacas, ostriches, meat goats, flying squirrels, hedgehogs and even pigeons were among the money-making alternative livestock ventures touted to have great potential.

And they weren’t all schemes or scams, by any means. After initial breeder hype some levelled off to become quite successful business opportunities for good managers.

Unfortunately, I can even go back 40 some years when some of the first continental beef breeds were being introduced to Canada. That was a different type of diversification. There were some crazy prices paid in the 1970s for fresh-off-the-boat Simmental, Charolais, Gelbvieh and Limousin bulls. I know not all of the early investors survived those prices, but yet the introduction of the breeds did, and they have well established themselves as a valuable part of the North American livestock industry.

I don’t recall any real crazy crop diversification ideas. Instead of just wheat and barley farmers were urged to consider adding oilseeds and pulse crops to rotations. Most have grasped that concept quite well. There was some promotion of specialty crops such as herbs and spices, fruit and berry crops such as saskatoon orchards, and there have long been niche markets for some of the ancient grains such as spelt, millet and quinoa to name a few.

So at the FarmTech Conference in Edmonton in late January, I was on a fairly comfortable learning curve when two presenters talked about diversification opportunities that included alfalfa hay (for export) and malt barley.

Neither are new, by any means, but the diversification message is worth repeating just in case producers are looking to extend crop rotations.

Alfalfa hay

Ed Shaw with Barr-Ag Ltd. of Olds, Alta., described some of the opportunities for alfalfa hay exports. Barr-Ag Ltd. (www.barr-ag.com) describes itself as “Canada’s leading exporter” of timothy hay, non-GMO alfalfa hay and mixed hay. Along with forage crops, they also buy and export many grains, oilseeds and pulse crops.

Shaw’s message: there always is demand for good quality, nice, green, non-GMO, properly dried alfalfa hay. It’s a crop with a good five-year fit in your cropping rotation, and it’s good for your soil. If you can get it baled at about 12 per cent moisture it is worth about $250 to $275 per tonne at the farm gate.

Shaw says there are also different contracting opportunities for alfalfa hay:

• The farmer can grow it and bale it;
• The farmer can grow and buyer will come in and harvest it; or,
• The farmer rents out the land a contractor grows it and harvests it.

One new-to-me feature Shaw talked about: you can grow the hay but it can be tough fighting the weather to get it baled dry enough for storage — well, call in a contractor with a bale dryer. Apparently these bale dryer units (there are a few out there) are available to buy or hire on a custom basis. A fully self-contained, portable unit will cost about $450,000.

They have 400 HP engines, forcing heated air into spikes that go into large rectangular bales, and they can pull about 10 per cent or more moisture out of a bale in 12 to 24 minutes. One operator processed about 200 of the big bales in a day. So becoming a contractor who goes bale drying may be another diversification plan.

Malt barley

Scott Keller, who farms in the Camrose, Alta. area says malt barley is the most profitable crop on their farm after canola. But he says it needs to be treated more like a speciality crop, rather than an afterthought in rotation. He suggests growers line up production contracts with malting companies and grow a variety the maltsters prefer.

Seed early, he recommends, ideally right after pulse crops and apply proper fertility. While some recommendations for seeding rates are quite high, he seeds at a rate that produces about 25 plants per square foot. For fertility, he doesn’t overdo nitrogen to reduce the risk of crop lodging. On average, he aims for about 75 pounds of nitrogen total (if a soil test shows there is about 20 pounds of N in the soil, Keller adds about 55 pounds at seeding). He says he may lose about 20 per cent yield with lower nitrogen, but at least the crop isn’t going to go flat on the ground — lower yield, but he protects quality. The crop also needs about 40 to 50 pounds of phosphorus.

Keller likes to seed malt barley on pulse crop stubble. He recommends use of in-crop fungicide to protect yield and quality. If seeded in a timely manner, he can usually harvest a 100-bushel per acre crop in August.

He said it would be great if plant growth regulators (PGRs) could be used on malt barley. He could apply more nitrogen and perhaps achieve 110 to 120 bushel/acre yields. PGRs can be used on barley grown for livestock feed, but not on crops headed to the brewing industry.

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“Canada has done extremely well in establishing strong trade relations in a number of key markets thanks to a long-held focus on getting trade agreements in place,” FCC chief agricultural economist J.P. Gervais said in a release.

“While we believe there is still room for growth in diversifying our agriculture export markets, it won’t be easy. The long-term success of Canadian agriculture relies on our ability to provide a greater diversity in commodities and food products for new and existing export markets.”

The 16-page report stated Canada was the world’s fifth largest agricultural exporter in 2018, with about 35 per cent of those exports, worth almost $34 billion, going to the U.S.

Soybeans and pulses have accounted for 20 to 25 per cent of Canada’s total ag exports.

However, trade disruptions, such as the U.S./China trade war, exemplified the over-dependence on one or a few major customers.

As well, when it came to pulses and other crops, Canada has faced increased competition from Asia, South America and the Black Sea region.

From 1999 to 2017, Canadian pulses saw yearly average increases of around 8.3 per cent. Since then, pulse exports slipped, largely due to India hiking import tariffs as its domestic production increased.

There are major impediments to diversifying Canada’s pulse exports, the report noted, such as the added cost of developing those newer trade ties.

Another is the emergence of China as a major player, as it holds a tremendous amount of sway in the global marketplace.

Also, demand from new markets would be curtailed by any slowdown in the Chinese and U.S. economies.

— Glen Hallick reports for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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The plan would provide direct financial aid to some companies affected by the tariffs and would support investments to improve productivity, worker training and boost market diversification, Quebec’s Liberal government said in a news release.

The Trump administration has imposed a 25 per cent tariff on steel and a 10 per cent tariff on aluminum imports from Canada and other nations, prompting retaliatory tariffs against the U.S..

In June, Quebec said it would offer $100 million in loans and loan guarantees to steel and aluminum companies hit by the U.S. tariffs.

Quebec’s Liberal government, which is facing an October provincial election, said the plan announced on Wednesday would support $3.1 billion worth of company investments in the province.

“The Quebec economy is today threatened by the Trump administration’s protectionist policies and their repercussions on the global economy,” Premier Philippe Couillard said in the release. “We are living in exceptional circumstances that demand an exceptional response.”

The measures announced Wednesday “reflect the necessity of maintaining the competitiveness of our agricultural enterprises and to help them in view of the shortage of labour affecting them,” Agriculture Minister Laurent Lessard said in the same release.

— Reporting for Reuters by Allison Lampert.

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Trudeau’s comments were among the most positive made by any Canadian official since talks started last year to revamp the North American Free Trade Agreement, which Trump calls a disaster that killed off many U.S. manufacturing jobs.

Scrapping NAFTA would badly hurt U.S. workers and industries, Trudeau told Winnipeg radio station 680 CJOB.

“I’m confident that the President is going to see that and choose to not terminate because it’s not in his or Americans’ best interests to walk away from NAFTA,” he said.

Trump’s trade chief, speaking on Monday after the sixth of eight rounds of talks, rejected proposals for unblocking the negotiations but promised to seek quick breakthroughs.

Foreign ministers from the U.S., Canada and Mexico will meet in Mexico on Friday to discuss the talks and other issues, Ottawa said on Wednesday.

Work on renegotiating the deal began soon after Trump took office a year ago. He said if it could not be overhauled to better favour U.S. interests and U.S. workers, Washington would pull out.

The Trump administration is demanding big changes to the pact, and this has caused tensions with Canada and Mexico.

Trudeau told CJOB that “there are multiple issues at which point” Canada would not accept a deal.

“We’ve pushed our American partners on this and they understand that right now,” he said.

In his State of the Union speech on Tuesday, Trump said “America has also finally turned the page on decades of unfair trade deals,” but did not mention NAFTA by name.

Trudeau told CBC that Canada has multiple contingency plans in the event Washington does announce it plans to withdraw.

Government sources told Reuters on Jan. 10 that Ottawa was increasingly convinced Washington would give notice of withdrawal. The news hit stock markets and the Canadian and Mexican currencies.

Asked about contingency plans, Trudeau told CBC “not only do we have a Plan B, we have a Plan C and D and E and F.” He declined to give details.

Trade Minister Francois-Philippe Champagne says his “Plan B” is diversification. Canada currently sends around 75 per cent of all goods exports to the U.S.

— David Ljunggren is a Reuters political correspondent based in Ottawa.

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Though the year was hard that doesn’t mean this year needs to be. With some careful planning and hard work you can start to protect your farm to ride out this time of lower demand. One way to do so is to diversify your operation. This doesn’t just mean growing multiple crops — it can mean diversifying into livestock and producing food products right on your farm. With the aid of some free, simple decision making tools you’ll be able to find areas on your farm where you can change up your operation and bring in multiple streams of income. The tips on this list focus on choosing a new crop to diversify your farm.

1. Consider your options

There is a huge array of potential crops you can grow. The issue is picking the one that will produce the highest yields, at the best price, with the lowest inputs, and that takes best advantage of the qualities of your land. It’s no good to pick soybeans based just on high prices from last year, or the attractive futures contracts being offered this year.

The high price doesn’t mean anything if you need to acquire a lot of new equipment, herbicides, and pesticides that can eat up all your profits, or if your land isn’t suited for growing the crop.

2. Do your research

Try the interest for economic data about different crops and their performance. Provincial government agricultural ministries often provide a lot of information, and, no matter which crop you are considering, there is usually some information available. Look for information about what historically has grown best in what regions of the province.

Narrow your research by focusing on the crops that are producing the best return on investment, but don’t limit yourself too much — you may discover that your land is perfect for growing a less common grain, pulse, or herb which has strongly growing demand and is unrepresented in your region.

One excellent source for Alberta farmers is the AgriProfit$ program. This free service provides business management information for farm operators, including a detailed financial analysis of their farm, their current enterprises, and benchmark reports comparing them to other farms in their region.

3. Ask an expert

After doing some research and picking your most likely crop be sure to consult with an expert.

Each province maintains a staff of experts on each variety of crop, and know all about the performance of the crop in different regions. They’ll be able to give you advice that isn’t included in the reports on the government website because they’re knowledgeable about the latest research, including which varieties of the crop are most responsive to which inputs.

4. Budget for change

After you’ve made your decision, be sure to draw up a sound business plan and budget. According to Dale Kaliel, senior production economist, Alberta Agriculture and Rural Development, good planning is important to managing your farm operation. Your “plan” will deliver the rationale behind the economic choices you’re making about what will be produced, how it will be produced and why it will be produced.

If you’re growing the same crop you grew last year plus a new one, you’ll have to factor in how much less income you’ll bring in from the old crop (because you’ll be growing less of it) in relation to the projected income for the new one.

Don’t make the mistake of thinking that a budget is just about dollars and cents — your time is part of the budget too, and like money you only have a finite amount of it. Researching a new crop, learning about the inputs and variables that affect its yield, acquiring the materials, and planting the crop all take time. This is especially true if you’re growing multiple crops on your farm. Make sure you take account of how long you’ll need to implement your plan.

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