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10 tips for navigating your farm through coronavirus
If there’s one word that also accompanies today’s buzzwords of COVID-19 and social distancing, it’s uncertainty.
“There is perhaps more uncertainty in the ag economy today than there is in any recent memory,” says David Widmar, cofounder of Agricultural Economic Insights. “We’re now just getting done with the planting season, and there are not a lot of knowns about how big the crop will be. We also have questions about where demand is going. But no one knows.”
To navigate the uncertainty, Widmar and Nate Franzen, president of the ag banking division of First Dakota National Bank in Yankton, South Dakota, gave the following tips at a webinar hosted by Granular, an agricultural software company.
1. Expect huge volatility.
Coronavirus has pummeled the economy, including agriculture. Widmar points out the Great Recession spurred by the 2008 financial crisis contracted the economy by around 9%. Estimates for the economic damage incurred from COVID-19 for the second quarter of 2020 approach a 20% contraction.
“It’s off the charts,” he says.
Agriculture shares in this pain. COVID-19 has disrupted the meatpacking industry, and the crash in gasoline prices has led to ethanol plants running around 50% of capacity.
On the other hand, estimates exist that the economy may grow 10% to 15% in the third and fourth quarters of 2020, says Widmar.
“So, we’re talking about record breaking (levels) to the low (end) and possible record breaking (levels) to the high (end),” he says.
2. Control the controllable.
“Look at your balance sheet and make sure you’re doing everything you can to position yourself,” says Franzen. Sometimes, this means selling assets you do not want to sell.
“Sometimes, that’s the best decision you can make to position yourself for success in these kinds of down cycles,” says Franzen.
3. Make a farm budget.
“We see that operations who track actual performance to a budget make better and more timely decisions and end up the year in a much better (financial) position,” says Franzen. The budget can be fluid, adjusting as new information becomes available through the year, he adds.
Excellent digital tools exist for farmers to track production and financial metrics. Conversely, some farmers prefer to use less complex monitoring tools, such as Excel spreadsheets they can regularly update.
“I’m a big believer in the ‘keep it simple’ process,” says Franzen. “Whatever is easiest for you to make sure you have real-time data you can track is what you need to use, whether that’s a simple spreadsheet or great software tools that are available in the market. The key is it has to be accurate and timely so you can use it to make decisions throughout the production year.”
4. Think singles, not home runs.
“This environment isn’t going to create very many home runs,” says Franzen. “It’s about making those little corrections, the singles, and not home runs.”
In retrospect, it would have been a brilliant marketing move to sell part of the 2020 crop last January or February before COVID-19 started crashing markets. If you didn’t, pick yourself up the floor and adjust. “Revise and make a new plan based on current realities,” says Widmar.
5. Lock in on certain inputs.
“A lot of our input costs are connected to energy prices,” says Franzen. There are more opportunities today to lock in on low fuel prices.”
Ditto for locking in interest rates. “We are at all-time low rates,” Franzen says. “We can argue about whether we think they’re going to go lower, but at some point, they can’t go below zero.”
6. Avoid decision paralysis.
“We can hear so much information that we just put our head in the sand and don’t know what to do,” says Franzen. “We just become paralyzed. At that point, you’re in a very dangerous spot. That’s why monitoring your numbers, knowing where you’re at, can remove a lot of the outside noise and keep you focused on what you need to do on your farm today to make improvements.”
7. Look forward.
“My experience is that too often in ag, we look back and get kind of hung up on that path,” says Franzen. “Or, we go to the coffee shop and we worry about what the neighbor did. You have to have your eyes wide open and see what is happening in this environment and how that might impact you. Then, based on what we see peripherally, we have to set a path forward and set targets and set goals for our operation.”
8. Be careful where you cut.
Being in the commodity business requires ruthless efficiency, and part of that is controlling costs. However, there’s a balance to strike. Excessively cutting costs can curtail revenues. For example, cutting fertilizer applications can backfire if they cost yield, says Widmar.
Widmar notes that pie charts that detail crop production costs often devote 25% to seed, fertilizer, and crop protection costs. Yet, he estimates that bulk of cost-cutting efforts goes to reducing these costs.
“This is just an easy one to go after,” says Widmar.
Farmers may incur larger cost savings without running the risk of lower revenues by targeting expenses like cash rent payments, machinery costs, and family living expenses.
It’s tough. Sometimes, this includes paring back on cash rent or letting some of those farms go. Ditto for machinery if analysis reveals a farm is over capacity in this area. “There’s some great data from Kansas State that shows there some wildly different machinery expenses per acre for similarly sized farms,” says Widmar.
Then there are family living expenses, which hit home hard.
“It’s going to be uncomfortable, but you need to dig in and do benchmarking in that area,” says Widmar. “That is an area where it can be difficult to make some cuts, but there are some big improvements that can be made.”
9. Avoid isolation.
“The best leaders out there, in my experience, realize they don’t have all the answers,” says Franzen. “They realize they’re not perfect. If you’re scared, if you’re stressed about something, that’s OK.”
These farmers differ by not keeping it to themselves.
“Communication, communication, communication is the key,” Franzen says. “Seek advice from those you trust. And don’t ever, ever forget that communicating, that seeking advice, that getting help, is a strength, not a weakness. Too often, we’re independent in agriculture. We think we can figure it out on our own. Isolation is not a good thing when we’re dealing with stress. Don’t be afraid to reach out.”
10. Accept that all this could last a few years.
“There is an expectation with recovery, that we may be out of this in a year and then back to normal,” says Widmar. “It may be years.”
In the short-term, massive federal stimulus measures will help farmers and the general economy. Long term, though, there will be consequences, just as there were with stimulus that pumped money into the economy following the Great Recession around 10 years ago. Sequestration and budget cuts were still impacting federal coffers when Congress passed the 2014 farm bill after several years of delays. Meanwhile, inflation or deflation could result years from now as a consequence of decisions made today, he adds.