Farm Management Minute: Humility: A good tool for 2016
March 18, 2016
Several years ago, I heard ESPN commentator Herm Edwards talking about NFL football players. He said they can all be described in one of two ways; those who are humble and those who are yet to be humbled. This same principle can apply to professional food producers too! During the recent "super-cycle" of agriculture some producers egos grew along with their crops, they didn't have to necessarily be a good producer or good businessperson to be successful. Simply being in the right place at the right time made a lot of smaller producers into multi-millionaires, on paper at least.
Fast-forward to March of 2016…things have changed. If you had already been humbled at some point earlier in your career (e.g. the 1980s), you likely made more conservative decisions during the recent cycle. The result of this mentality was an improved balance sheet with some updated assets but an overall reduction of debt which better prepared you for the leaner period we are in today. On the contrary, if you were a producer who thought you were invincible because $7 corn and $225 CWT feeder cattle would last forever, you likely grew your operation aggressively, but did so with significant increases to the liability side of your balance sheet. If so, it appears your opportunity to be humbled may be here.
Sadly, even if you made good decisions in recent years, the sheer economics of things right now are still creating huge challenges for you today. But this is not a time to be prideful, it is a time to admit you may need to do things differently than you have done them in the past or even ask for some assistance. We know that the next few years will be challenging for all ag producers, but the decisions you make now will ultimately determine if you can be successful once things improve.
If you have ever read my articles before, you know what I am going to say… to do this, you need to know your numbers! If you know your numbers, you will quickly realize that simply borrowing more money to cover losses is not always the answer. Rather, you may need to make some difficult decisions such as letting some rented land go, refinancing term debt, or selling assets. I know all of these things seem contrary to your overall goal of building your assets up and growing your operation, but it very well could be the step backward necessary to eventually get you moving forward again. This is where the humility or swallowing of pride comes in. You can't just continue doing the same thing you have always done and expect different results. You need to make the best decisions you can with the data you have for the good of your business and your family, and contrary to popular belief, what the neighbors are going to think should not factor into your decision.
Unfortunately, our crystal ball is just as fuzzy as yours right now, but at the South Dakota Center for Farm/Ranch Management our instructors work directly with producers every day by focusing on the numbers. We help track and review prior year's numbers, work on current year projections, and use all of this data to help you make difficult decisions. If you would be interested in working with our instructors, please contact us at 605-995-3098 or email@example.com.