Cold day on the ranch Amanda Radke

Is ag doomed to repeat the 1980s?

Many producers are feeling the pinch of the wallet with today’s commodity prices, but the 2017 outlook is much brighter than what producers faced in the 1980s.

Last week, I spoke at the 2017 Farm Credit Services of America (FCSA) Women in Ag Conference. My topic was agricultural advocacy in a polarized society, and I offered tips to attendees for ways to bridge the gap, make meaningful connections and regain consumer trust.

The event also included speakers who talked about seizing opportunities, farm succession planning, leadership positions available to women in agriculture and a current market outlook.

Ann Finkner, FCSA senior vice president and chief administrative officer, opened the event with an overview of the market factors that are impacting today’s farmers and ranchers.

Finkner compared today’s market conditions to the agricultural collapse in the 1980s and said while many producers are concerned that’s where the industry is headed, there are many differences between then and 2017.

READ: 5 ways young producers are at risk

“This is not the 1980s; however, it is a period of adjustment,” said Finkner. “The 1980s represented a leverage crisis driven by high real estate prices, high levels of debt relative to asset values and high interest rates due to runaway inflation with most loans having double interest rates.”


Looking at today’s challenges, she said producers are now facing a cash flow shortage due to three primary reasons: high cash rent, machinery and equipment investments and living expenses. Finkner offered six financial management strategies to weather the current market storm.

She advised producers to build and maintain working capital and to be cautious of being highly leveraged. Finkner explained that fixed costs are the main factors that separate high cost, medium cost and low cost operations. The three fixed costs are owned and rented land payments, machinery and equipment investments and family living costs.

“Addressing variable costs is part of the solution and alone generally will not fix overall cost structure issues,” said Finkner. “Lowering fixed costs is key. The pace of financial adjustments will be critical to thriving or even surviving.”

Finkner stressed the importance of having a business plan and emergency fund in place. The markets may not be where we would like them to be, but families that sit down to pencil out the costs and stay on track together will be able to manage their way through this cycle.

The opinions of Amanda Radke are not necessarily those of beefmagazine.com or Penton Agriculture.

 

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