Managing the Extremes
One of the main points in my speeches is that managers of any business will be required to have strategies that can be deployed when extreme conditions occur. Some of you may say this is managing business cycles.
I indicated in a recent meeting that producers would go from the best year they ever had one season to the worst year in the next. A seasoned board member indicated this occurrence was nothing more than what farmers had to manage through in the past. My response was that his sons and daughters would see higher degrees of extremes.
For example, soybean, beef, and now dairy enterprises are experiencing an extreme up-cycle. In some cases, I have overheard soybean producers say that it is different this time and we may be experiencing a trend. Did we not hear that just before major declines in the stock market and general economy a few years ago?
The point is that some of the poorest management decisions are often made during good economic times. There is a reason that land values are reaching extreme levels and John Deere is reporting record profits. Yes, you can grow and expand your businesses, upgrade equipment and facilities in good times. However, make a point now that prices are strong to build some working capital and cash, and get your balance sheet in order through prepayment of principal. It is these types of decisions that will assist you if prices rapidly decline or costs spike.
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Editors' note: Dave Kohl, The Corn and 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.
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