One is the future shaped by what will happen simply as a matter of course. The other is the future formed by what farm families set out to purposefully work to accomplish.

If your preference is with the latter, an inherent challenge is that individual family members, working together, will typically have different ideas and opinions about the future that they would like to see. So, what to do?

This is the tricky part. People will comment that planning has less value to them because they don’t know what’s going to happen in the future. Of course that’s true. No one does, the competition included. But that is actually one of the key benefits to planning — gaining a better understanding of the future.

There’s a saying, and I believe it to be true, that there’s significantly more value in the process of planning than in the finished product.

This is because the process of planning requires that we spend time thinking about our business and what we would like to see happen.

When things happen in the future that weren’t anticipated, both good and bad events, we have a plan in place to assess the impact of the good or bad things and react accordingly. In the absence of a plan, we are left to deal with them as they come.

The plan gives us a better chance at being prepared. The preparedness won’t guarantee outcomes but it will put context to the discussion that needs to happen when the events arise. The greater the potential impact of the good or bad event, the greater the benefit that accrues from having a plan against which to assess different outcomes. This can only be helpful.

If we’re going to use a plan against which to evaluate progress and assess the costs or benefits from different opportunities that come along, then we need to have some way to measure things, a way to put our heads around understanding what’s going on at the time. Measurements that can be used will be quantitative and qualitative. In other words, numeric and non-numeric.

Desired end states are statements that define where we want our business to be in the future. The end states can be organized into key management areas:

• operations
• marketing
• human resources
• finance
• technology

Here’s an example of a desired end state for the operations area of a dairy farm that I’ve been meeting with recently. Its time horizon is three years.

“We will have a 300-cow milking herd in place that fully utilizes our existing physical structures that include both the barn and the milking parlour.

“We will have a land base in place that ensures we have the internal capacity to produce sufficient feed for the milking and dry herd, and for replacement heifers.”

This statement defines the desired future for the operations component of the dairy farm. They are not currently milking 300 cows but have the barn and parlour capacity to do so. For this family, what do they need to do (step by step or action by action) from an operations perspective to give them the best chance of milking 300 cows and producing their own feed?

It would be similar for a grain farm that has people and equipment in place to handle more land. Questions arise. What are the plans to add more land and how do those plans line up with where the family wants or needs the farm to be in the future? The desired end states collectively bring definition to the future. They help in understanding what has to happen in each of the key management areas along the way.

As a farm transitions from one generation to the next, a change in management is required.

Bringing definition to the end states helps a farm family understand what those changes are in each of the key management areas.

Working to address the changes gives a farm family a better chance of getting to their desired future. This is the future the family will work to make happen as opposed to the future that will come along as a matter of course. This is less about que sera, sera and more about what a farm family can work on to make the future become what they envision.

Terry Betker, P.Ag, is a farm management consultant based in Winnipeg. He can be reached at 204-782-8200 or terry.betker@backswath.com.

I made a point of asking everyone I talked to how their crop looked. The general response was “pretty good, but could use some rain.”

Some areas are sitting better than others and by the time this article appears, crop conditions will be better or more dire depending on where you farm. Here’s hoping you’re in one of the fortunate zones. It seems that when there’s a lack of significant and general precipitation, it comes down to the luck of the draw from a thundershower or spotty weather system perspective.

A farm show is not the place to get into detailed discussions about potential implications arising from a lack of precipitation, and thus low yields.

However, one person did mention that they had capitalized too much of the relatively recent upside in the grain, oilseed and special crops sector. The person went on to say how concerned they now are about narrowing margins and low yields — and how quickly their liquidity is going to erode, especially in a drought situation.

It is, I think, somewhat of an aspect of human nature that will be a reality for a lot of farmers — when things are good, the purse strings can get a little looser. There is less attention to financial management in general.

Questions follow from discussions on eroding liquidity and generally weaker financial performance. Essentially, what can be done about it.

My first recommendation is to focus on financial performance in general. This applies to all farms, even if there are no current financial concerns or issues. Four things come to mind:

• Strategically manage the investments you make going forward.
• Monitor your overall debt load and specifically, look at the relationship between long-term and short-term, or current debt. Current debt is the portion of your overall debt that’s due in the next 12 months.
• Manage your liquidity (cash flow). This requires careful attention to different aspects of the business but importantly includes concentrating on marketing.
• Focus on operating cost control. This is easier said than done. Be mindful of discretionary spending. For example, can you put off replacing the tires on your tractor for a year?

My second recommendation is to watch your cash flow like a hawk. There are three things you can do:

• Calculate your average working capital for the past five years. Working capital is the best liquidity indicator. Note that if your farm has increased in size in that period, you may need to make an adjustment to the average to arrive at a reasonable current value.
• Determine how much additional working capital you think you should have to act as a buffer to the financial pressures you’re facing.
• Work to adjust your management practices so that you can achieve, and maintain, the working capital you need. In some situations where the short-term debt is high and working capital is inadequate, farmers may not be able to achieve sufficient working capital by adjusting management practices. In these situations, debt restructuring may be required.

Here’s a suggestion you can look at from a marketing perspective. Obviously, you want to get the most you can out of the marketplace. If the yields are down, then this becomes even more important. We’ve all heard about the price range where most of the grain gets sold. A first step in understanding how your marketing approach is working is to calculate your average selling price for each commodity you produce.

Simply take the gross revenue from each crop sold in the last year. Then divide that value by the number of net bushels harvested. This gives you an average price for each bushel sold during the year.

Next, compare that price to the average selling price of the commodity for the year. Are you above or below the average? I suggest that you make this calculation for each crop for at least the past three years and ideally five years.

Are you satisfied with your results? If so, great. Keep up the good work. If not, check to see what you could look at doing differently so that your average selling price improves.

Terry Betker is a farm management consultant based in Winnipeg. He can be reached at 204-782-8200 or terry.betker@backswath.com.