FOCUS ON WORKING CAPITAL AND COST CONTAINMENT IN THE NEW YEAR

New farm diversification opportunities could help sustain long-term revenue and viability.

Some farmers made money the old-fashioned way — from operations — in 2020, while others showed profit from the consequences of this strange year.

Direct payments through programs like the Coronavirus Food Assistance Program (CFAP) could mask underlying issues within farm businesses and have implications for ag lending and farm balance sheets into the new year. Here are four things to watch as we move into the new year, namely some strategies and tactics to help ensure your operation remains viable in the near term and well into the future.

1. Plan for cost containment and working capital.

Current economic circumstances and prevailing federal payments to farmers combine to put a premium on farm-level planning for sustaining working capital and liquidity, especially with the likelihood of continued volatility in the grain and livestock markets. Part of that is the recognition that debt is not the enemy.

One common thread among these priorities heading into 2021 is cost. Knowing your operating costs well, especially as they relate to managing long-term debt, is a huge part of sustaining your operation through volatile times. Cost containment is a major component of a comprehensive risk management plan and should top your list of priorities in the new year.

2. Manage debt effectively.

It’s a common misconception that debt is always a bad thing. That is not necessarily true, especially with a larger farm business. The likelihood you will become debt-free is very low during your farming life. You will likely always have debt, but it’s just another line item on your budget to account for in building your farm management plan.

The key is to make sure you’re adequately managing that debt through cost containment and other strategies to ensure it’s not robbing you of equity. You may rely on that equity in the future to continue building your business and plan for succession or transition.

3. Be flexible and ready to evolve.

If you’ve long been a conventional row crop farmer, for example, evolving could well mean considerations beyond solid set soybean planting or narrow row corn. Think strategically: part of a long-term strategy to sustain your operation’s working capital may include ideas you haven’t considered before.

For example, regardless of how you fundamentally feel about grass-fed beef or organic crop production, there is major consumer demand for such products. If you have the inputs and infrastructure in place – as well as a sustainable, reliable supply chain and market opportunity – to make one of them work for you, these premium market opportunities are worth considering as a way to grow and diversify your operation’s revenue streams.

4. Keep your eyes on the prize.

Regardless of the optimal strategy for building or diversifying your farm business to sustain a brighter financial future, keep your attention focused on liquidity and working capital. If you identify a new, potentially profitable market sector and need to make adjustments or add acres, livestock or equipment, interest rates can lower the cost to do those things. Just make sure those purchases don’t add to long-term debt obligations beyond what you can easily cover without eroding equity.

If you identify new strategies or production systems that can help you grow your business in the new year, it likely would include some meaningful adjustments. That is where Conterra Ag Capital comes in. Conterra Ag has decades of experience in all types of agriculture from coast to coast. We may not be able to guarantee profits, but we can leverage experience with other successful operators around the country and flexible financing solutions to help you grow and diversify your business. If you’re interested in working together to make that happen as we move beyond 2020, get in touch with us today.

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