Previously, we focused on how producers are positioning for success in this elongated, grinder of a cycle. We examined shifting enterprises, cutting cost, building working capital, and talent management of the workforce as popular areas for adjustments. Again, at a recent conference, individualized keypads engaged producers as they provided anonymous responses regarding the adjustments in their own operations. From an audience of over 400 producers, this insight is especially valuable as farmers and ranchers look for ways to weather the current economic cycle. Now, let’s review more of the producer responses.
One in 10 participants indicated they had recently declined a potential growth opportunity. Instead, they chose to focus on the efficiency of their current opportunities. There is a wise, old saying, “Every time you say yes to one opportunity, you say no to another in your business or personal life.”
The commodity supercycle delivered record profits for over half a decade, which left many focused on growth. Actually, some businesses were in growth overdrive. In several instances, this rate of growth exceeded the capabilities of business management, which is resulting in today's multimillion-dollar losses. Of course, growth is the number one reason why businesses fail. However, it is not only due to a lack of management capabilities, but also because working capital was used for growth. Encumbering the business with too much debt was another issue as today’s prices are inadequate to service debt incurred during the supercycle.
Recently, some producers have scaled back the scopes of their operations, and are attempting to squeeze more income out of the more efficient assets. As a result, many have found a better balance in their business, family and personal lives.
Financially, the one strategy adjustment that is the most personal, controversial and perhaps the most difficult is cutting family living cost. This option was mentioned by about one in 15 respondents. Yet, several cited the challenges of rising medical costs, schooling and everyday living, which have minimized the impact of any cuts made.
Sometimes, the actual costs of living are not the problem. Instead, there are too many dependent on the business for income. One example is a senior generation that is retired, but without other sources of income. Another is a minimally productive family member who is being overcompensated for his or her level of work. Of course, there is also the matter of commingling expenses. For business profitability, this misuse of resources can resemble an iceberg with family living costs above the surface, and a massive problem underwater. While it may require crucial conversations, a good family living budget can be very helpful in long-term sustainability and profitability. It is worth noting that some producers insist that family living costs have no impact on the farm business. I tend to believe that whether it is investments or healthcare, whatever spends income from the farm bears an impact.
The responses from this crowd of over 400 are particularly pertinent as each farm and ranch represented face the same economic realities. Their adjustments provide a great opportunity for benchmarking, and clearly demonstrate the fortitude and passion of many of today’s farms and ranches.
