I have recently been involved in the Ag Edge Farm Business Seminars with Water Street Solutions at various locations in the Midwest and the Upper Midwest. Top-notch speakers along with outstanding groups of lifelong learners make this program an essential educational event for producers and agribusiness people who desire to improve themselves. A survey of attendees provided perspectives on how fast the agricultural economic landscape and producers’ behaviors are changing as a result of the moderation of commodity prices.
The attendees were asked their thoughts on the profitability of agriculture in the next five years. Nearly 60% indicated agriculture would still be profitable, but will require much more margin management. Approximately 30% stated that some years would be profitable, while others would not. The remainder of participants stated that one year of profits is ahead of us at best.
These results point to the agricultural financial landscape of the future. Easy profits are in the rearview mirror, where the average and below-average producers made money. The top 40% of managers will make money going forward, but it will require high levels of business acumen, mental discipline and follow through. If you plan on being an average producer in the future environment, keep in mind that real estate appreciation will likely not be there to bail out failed strategies or execution plans. The shelf life for the average producer will be five years, or it could be shorter depending on the depth and duration of this moderation or downturn.
The next few years will require significant shifts in management to monitor and measure results in operations, finance, marketing and risk management. How did the Ag Edge program participants stack up concerning this aspect of management? Just over 25% considered themselves obsessive about monitoring and measuring, particularly in planning and decision making. Over half of the participants measure many things, but do not use the information in decision making to improve the farm. Approximately 17% track their results just enough to get by. What is “getting by?” They monitor financial information for tax purposes and they track how well crop genetics perform.
In response to these survey results, the past decade has made many agricultural producers soft, depending on high prices and real estate appreciation to cover up the results of less intense management. Mental discipline focused on management measurements will not only be only an option, but it will be a requirement in the agricultural economic white waters ahead.