July 10, 2020

Halftime Report

Those of you who have coached sports before understand that the halftime break can be a good time to reassess and strategize for the second half. Analogous to a basketball team’s health status, agriculture during the COVID-19 pandemic has had two sprained ankles with the other starting players in foul trouble. Let's catch our breath, call on our bench and team supporters and move forward during this halftime break.

The major disruptors during the first half of 2020 were demand destruction, trade uncertainty, a global recession and uncertainty regarding the length and depth of the pandemic. It’s likely these disruptors will be with us for an extended period of time.

These disruptors and other events have resulted in extreme price and expense volatility. For example, the questions of supply and market availability will continue to be major challenges for many agriculture producers' business models.

This will be coupled with trade agreement uncertainty, which will be critically important for those dependent on export markets. Agriculture trade could be drawn into international disputes over technology, military strategy and other issues that are discussed globally.

The Federal Reserve, through monetary policy, and government, through fiscal policy, have provided a bridge through the short-term financial and economic challenges. But, how long will this support continue?

In the second half, be prepared for the U.S. and global economies to operate at 90% of capacity. Within this context, some industries such as airlines, hotels, restaurants and universities will be operating at 50-75% of capacity. Online retailers and other businesses that are aligned with the customer’s needs and wants may operate at 125% of capacity. This trend will only accelerate in the second half of 2020 and carry over into 2021 and beyond.

With this being said, what are some of the strategies coming out of the business and financial locker room for the second half of 2020?

First, fine-tune your financials. Knowing your cost of production by enterprise is imperative for planning and executing a marketing and risk management plan. A recipe for success will be increased focus and getting back to the basics with a risk management plan. But, be careful about only shooting for the three-pointers. Occasionally leaving some profits on the table may be a winning combination in the long run.

Next, monitor your financials at least quarterly or at closer intervals. Waiting until the end of the game or year-end is not an optimal strategy.

Finally, depend on your bench support and team to provide input. The use of advisory teams and open communication can be a good strategy during uncertain times. Only time will tell what the second half of 2020 will bring! As former Hall of Fame basketball coach John Wooden once said, “Failing to prepare is preparing to fail.”

 

Comments

Please send your remarks to AgGlobeTrotter@accountlist.com. I would like to know what you are thinking.

Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.

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