The good times in agriculture tend to happen in 40-year cycles. Unfortunately, for anyone kicking off a farming career this year, one of those cycles just ended. While the good times might be over, this particular up cycle lasted a particularly long time — and that may be why the downward swing has caught many unprepared, business-wise.
In this edition of the Mind Your Farm Business podcast, Dr. David Kohl joins RealAg Radio host Shaun Haney to talk about farming in the midst of big-picture turmoil and uncertainty, and how, when things are happening well outside your control, how you manage around the big-picture things.
Kohl discusses a multi-level approach to defending your business against external factors, and that requires focus and a business plan with sensitivity analysis — the so-called “boundaries of the road” the business will travel on.
Another critical point of focus is on working capital, Kohl adds. Many farms are heavy on equity but light on working capital. Working capital means so much in a volatile farming cycle, as it allows you to market when you want vs. when you have to, and allows the farm to capitalize on cash incentives and benefits.
He also suggests keeping a good team around to talk to, to help keep you grounded and staying positive in tough circumstances. (Story continues below player)
Kohl says to stay focused on the fundamentals and keep aimed at success. In tumultuous times and depressed markets, it’s important to think about base hits not just home runs. “Watch for small opportunities and be ready for them,” he adds.
He also cautions against cutting costs without first evaluating the added risk of eliminating certain line items. For example, the risk of cutting out vaccines on a cattle ranch only makes a small change in the total operating cost, but it could have huge repercussions to the bottom line, but in the negative. The same might be said of eliminating crop insurance. It’s important to cut the right costs, and balance it off with the risk of what the cut cost brings.
Disclaimer: Royal Bank of Canada and its subsidiaries are not responsible for the information provided in this podcast, and this information does not necessarily reflect the views of Royal Bank of Canada or any of its subsidiaries. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its subsidiaries.