Ag Economy - Weekly

The Ag Globe Trotter

Dr. Dave M. Kohl

Welcome to the weekly edition of The Ag Globe Trotter  by Dr. Dave Kohl.

Transforming the Black Swan into a Phoenix

The COVID-19 black swan event has three phases. At first, it was a dirty bird causing mass disruption in economics, businesses, households and personal lives. Then, a nasty, angry bird will rise during the second phase. Countries will point fingers and the blame game will result in disruption of commerce and trade with extreme market volatility. The angry bird will create widespread social, political and economic anguish. The third phase will be the phoenix stage. This is the mythical bird that rises from the ashes of destruction. The phoenix is more powerful, innovative, agile and resilient than before. 

Through these three stages, how can farms and ranches best navigate the white waters, whirlpools, waves and torrents in the wake of this sudden-impact event? 

Get your financials in order and monitor them on a monthly basis. Document your losses if government and financial assistance is received. Compare these losses to the last three years to determine what changes were beyond your control. Maintain good communications with your lender. 

What is your liquidity position and equity depletion rate? Start your analysis by calculating the burn rate on both your working capital and equity. Divide your losses into working capital. Working capital is a measure of financial liquidity calculated by subtracting current liabilities from current assets. To calculate the burn rate on equity, divide your losses into your total equity.  

Before liquidating any assets, conduct an analysis of potential deferred taxes. Deferred taxes on low-basis assets or fully depreciated assets can create tax liabilities. In some cases, the amount of deferred taxes can be burdensome. 

Seek financial and emotional help, if needed. Do not be ashamed. Many individuals and businesses are in a similar situation. 

Finally, good, old-fashioned outside the box thinking with other positive and realistic businesspeople, inside and outside of agriculture, can set the stage to rise stronger and smarter like the powerful phoenix. 


Comments

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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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