May 2, 2019

Northwest FCS News

A constant theme during my winter travel season was that some producers were able to make a much better than expected profit as a result of good yields and production. Other producers felt their success was a result of effective marketing, overall risk management and cost efficiencies. A recent discussion with a University of Nebraska graduate from the 1970s really provoked some interesting thoughts.

The cornhusker’s premise was that the 1980s farm crisis weeded out the poor production managers. These poorer managers exhibited below average yields and, without cost controls, were the first in line for an exit strategy or even bankruptcy. While he was holding court with a group of engaged FFA students and young farmers, he said that the current economic cycle is pruning not only the remaining below average producers, but also the subpar business managers.

It appears that the concept of business IQ and management has a higher profile in this economic cycle characterized by narrow margins and higher volatility. In other words, being able to plan, strategize, execute and monitor results using a systematic approach that includes a balance in the production, marketing, finance and overall management will be critical to maintaining focus and intensity in this environment.

Unfortunately, the stellar economic times experienced from 2007 to 2012 resulted in some producers developing bad habits. Good times lead to complacency, which results in cracks in successful business models. Some examples of bad habits include going for the “home run” in marketing and minimizing income taxes paid by acquiring underused capital assets that hinder capital efficiencies. Other complacent acts include reviewing financials only once per year and failing to build up working capital during profitable years.

The Nebraska graduate and I agree that the next five years will prune out the average and below average managers.

One young producer in the conversation indicated that his 40-year-old peer was a below average production manager and would rate low on the management scale. Despite these apparent shortcomings, the producer was still in business. This producer inherited his family’s farm, was single and extremely frugal. There are always exceptions to the rule and that is what makes the agriculture industry so diverse and exciting!