Some farms have had a couple of tough years with weather not co-operating. For many, and for a second year in a row, average-type yields have been achieved with very little in the way of moisture. I think it is testament to advances in farmers’ abilities to grow a crop. But there are a different set of clouds on the horizon.
There’s been quite a bit of capital invested in farm businesses. Margins are down. Cost are up. Interest rates are rising. Are we headed toward a perfect storm?
I don’t know of anyone who can say for sure one way or the other. I know I can’t. I sure think about it a lot and wonder, what if?
Which leads me to this thought: what can farmers do to prepare for the eventuality of that storm? I don’t have the space in this article to discuss all the different things that could be done to prepare, but there’s one thing I’m going to suggest.
Farms in general have significantly prospered in the last 10 years. Where has that prosperity come from? The prosperity I’m talking about is the aggregation of wealth that sits in personal statements of net worth and business balance sheets.
Some potential factors or combination of factors that could have contributed to that prosperity include:
- increases in crop yield due to varietal advances
- increases in crop yield due to agronomic practices
- higher prices
- lower interest rates that have enabled capital investment
- asset value (typically land) increases
- advances in management practices
If we are headed to tougher times, what factors, which have contributed to prosperity on your farm, can be replicated? I think this is an important question.
My suggestion is to look back and determine what happened on your farm that has driven your prosperity forward. Which of them will you be able to count on to sustain you through an extended period of low profitability?
My point is to gain an understanding of what has got you to where you are at this point in time.
Past financial performance does not extrapolate into the future. Past performance does, though, provide an indication of where your farm is headed financially. What can you learn from the past that may give you some advantage in achieving desired financial outcomes in the future?
A different form of preparedness
Have you noticed outside certain buildings that there are signs that read “Muster Point?” It’s a key component of a business’s or organization’s emergency preparedness plan. I was at a peer group meeting a couple of weeks ago and noticed the sign in the hotel where the meeting was occurring. It led to a discussion within the group about different forms of emergencies and what preparedness planning could be undertaken.
I posed a question to the group and think it’s important enough to present it here. Have you talked within your farm team/farm family about what would be done and should be done if someone had a serious accident while at work, or if someone died? Not pleasant thoughts at all but not out of the realm of possibility either. Many reasons exist for developing a solid accident or death preparedness plan, including because there are many family farms where senior-aged people are continuing to work.
My hope in raising this question is that you will take some time this winter to talk about the possibility of an emergency occurring on your farm and put plans down on paper that outline how you and others will manage through the crisis.
Terry Betker, P.Ag, is a farm management consultant based in Winnipeg. He can be reached at 204-782-8200 or email@example.com.