Last week we focused on the bad and ugly business war stories based on producer input facilitated by Farm Business Management instructors, lenders and agribusiness people in Minnesota. Here is one more bad story before moving to the positive discussions.
Financial Due Diligence
Some other unsuccessful situations involved failure of follow-through on commitments. A group of producers who prepaid for supplies from a financially weak agribusiness encountered problems when it was time for the supplies to be delivered. Another producer had a problem involving failure to honor grain contracts with changing values.
The moral of these stories is that one must conduct financial due diligence on any major financial business arrangement, whether it is prepayment or contracts for services or goods. In the next 24 months, this will be ever more critical in tight economic times.
Successful Marketing Strategy
One producer sold a majority of his corn for $5/bu. on the way up. He had seller’s remorse when corn peaked at a higher price; however, with a breakeven price of $3.25/bu., he is laughing all the way to the bank.
The moral of this story is that a good diversified-marketing and risk-management strategy can pay dividends, particularly if it guarantees a price significantly above the cost of production. Also, $5 corn looks quite good with 20/20 hindsight.
Incremental Growth
A major livestock expansion was completed incrementally using predetermined assumptions before children returned to the business. The producers maintained open communications with the community and neighbors.
The moral of the story is that most successful expansions occur incrementally, over time, so the business does not outgrow their financials and management. They take time to groom the children’s management skills and detail expectations, responsibilities and accountability. In today’s commercial agriculture, keeping the community informed of plans, both good and bad, is like the old Fram oil filter commercial that said, “You can either pay now or pay later!”
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.