How to manage this cruel summer

Talking to advisers as soon as you are aware of an upcoming challenge is the best way to get everyone on the same page and prepared to help come up with solutions, says the writer.  |  Getty Images

This summer has been a challenge for farmers and agricultural production across a large area of Western Canada.

From heat domes to wildfires and drought, the impact has been widespread and touched everything from fruit to dairy and poultry and grain and cattle.

The outcomes are still to be seen, but grain producers in many areas of the Prairies anticipate significantly reduced yields, and livestock producers are concerned about feed, pasture and herd size.

Our agriculture and agribusiness industries are used to dealing with challenges but, so far, this has been one for the record books. And we are enduring these extremely challenging weather issues as we still grapple with a lingering global pandemic.

Despite this backdrop, there are ways to help work through these challenges.

Extreme weather conditions can make you feel powerless, but now is a good time to look to your planning tools — going back to your budget and taking stock of the current situation versus the assumptions you made earlier this year.

Update these tools with current information: estimated production, anticipated prices, insurance coverage, and expenses still to be paid. This will help to determine any potential shortfall.

The analysis puts you and your financial partners in an informed position from which you can then evaluate potential solutions.

It is worth stressing the importance of having (and updating) a business plan. They are an extremely valuable and sometimes underused tool, not only for assessing operations but also to reflect on your strategic direction.

The process of writing a business plan serves as a roadmap that will help to identify strengths, weaknesses, opportunities, and threats. It will also help guide decision making in the short and long term and can be an anchor in times of volatility.

For most operations at this point, the die is cast and there isn’t a lot more to do for now. It’s a waiting period to see where production shakes out.

It might be a good time to review incremental expenses and decide whether the potential return justifies those expenses.

For livestock producers, if it looks like you’re going to need to reduce the herd, consider the timing and whether it makes sense to move some inventory earlier rather than later.

You might not be able to predict the high or the low of the market, but by looking at your own cost structure, you will be able to determine whether there is a positive margin available.

It is also worth evaluating the merits of locking in interest rates for longer terms to bring predictability to cash flow. Changing weather and other external factors create significant uncertainty; locking in rates may help with handling external headwinds.

It can be easy to overlook the benefits of leaning on an external network of advisers — your banking partner, consultant, and accountant — or tapping into resources that can help manage through challenging times.

It’s a good practice to meet with your advisers regularly to help develop, modify and monitor your financial plan.

When things don’t go according to plan, like with extreme weather events, tools such as cash-flow projections and break-even analysis can help identify opportunities to pivot and adjust, even if that just means minimizing losses.

Sometimes there can be anxiety around having a conversation about a negative event. But the truth is, talking to your advisers as soon as you are aware of an upcoming challenge is the best way to get everyone on the same page and prepared to help come up with solutions.

There is no doubt that the current situation is extreme — it’s impacting a huge geographical area and a number of agricultural sectors.

While volatility in the agriculture sector is a constant, the resiliency of those operating in the sector will always be another constant.

There are opportunities to help ensure stability in an operation, wrangle control of what can be controlled, and optimize profitability.

Janine Sekulic is the national director of agriculture and agribusiness at BMO Bank of Montreal.

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