“Everybody has a plan until they get punched in the mouth.” This famous quote from Mike Tyson is ringing very true for the current climate in row crop farming. Everybody has a plan about how they will pull their operation through this current “low price storm” that is hitting the market. The questions to be asked are – “How exact is the plan?” and “Does you plan have another plan?” If you are only thinking about your operation in one light and not taking into account what else may affect your best laid plan then, you may have a big problem when you get hit with that left hook.
Identify risks in your operation.
Many of you have heard of “What If?” Analysis or “Sensitivity” Analysis, which are analyses that look at your operation in normal, best, and worst case scenarios. They help you identify potential risks or weaknesses in your operation. However; instead of looking at the “what ifs” this time, I am talking about the management techniques to help curtail the effects of some of the “what ifs”….IF they happen.
You have already been through the numbers, but when one of the disaster situations begin to happen, what are you going to do? You should be setting up a backup plan, understand the consequences of certain situations occurring, and prepare yourself to make calculated moves in order to remedy them.
What if there are torrential rains?
What if there are torrential (I am talking Noah’s Ark type) rain that hits your crops for a week without stopping? If all the fertilizer is leeched from the ground and insects have to be sprayed for again, that is going to cost extra money and possibly a lot to reapply.
Will you have the capacity to borrow extra money if your line is maxed out? This could be thought of in advance with your banker. Ask when you go in for your normal line of credit if the bank would be willing to extend more funds later in the year. The bank should be able to run an analysis based on your collateral and financial situation to determine your borrowing capacity. This will actually make you look like a better manager and appear favorably in the eyes of the banker because you are making plans ahead of time.
Then consider – Is it best to even reapply? Can you recognize if the crop is too far gone and make the decision not to poor extra money into a crop that will not make enough revenue to cover the costs? It may be best to cut your losses. Have you ever heard the phrase, “If you are going to fail, then fail fast”? This phrase is not encouraging quitters, it is pointing out the fact that if failing is a great possibility then why stay longer and increase the loss. Sometimes you just have to evaluate yourself and see if you can make the tough calls, or recruit someone who has the expertise to help make the call.
There are many other situations that could be discussed in this area, and I can’t address them all in this article….you would get tired of reading! Look for more to come until this “low price storm” has been weathered. More topics like this will be featured. In closing, think about your operation hard. Write down everything that could go wrong and what your response would be if that started to happen. Hope for the best, but plan for the worst. Planning is one of the greatest risk mitigation tools around. Thinking through this list could help you stand up after the punch and not be down for the count!