The moments leading up to the drop are the most important. There’s no getting off the ride now; you’re too invested. As you reach the peak, you do everything to prepare yourself for what’s next. Then it’s all a rush and when the ride comes to an end, you’ve traveled many hills and valleys, but endured.
Whether riding a roller coaster or working in the ag industry – what goes up must come down. The volatility in farming has increased significantly over the past 10 years, and is influenced by many factors outside of our control. Changes in monetary, fiscal, energy, and trade policies, along with technology, regulation, and consumer preferences affect the business of producing agricultural goods for the world.
Just as you would on a roller coaster, you must prepare yourself for the twists and turns. Following best practices during the good times provides a farming operation with staying power during the downturns.
Farm Credit – your cooperative – has more than a century of experience providing financial services through the ups and downs on the roller coaster of farming. FCI recognizes members’ operations are unique, and the tools that provide staying power vary from one agribusiness to another.
Over time, FCI has observed commonalities among those operations that have endured the peaks and valleys a few times, understand their operation’s risk profile, and proven their staying power.
- Management that adapts to the times with major decisions vetted through a group of trusted advisors, often family
- Quality record keeping system including accurate balance sheets and accrual earnings information
- Focus on manageable fixed costs over a multi-year period for both machinery and land investments with manageable debt service costs per acre
- Close eye on variable input costs, taking advantage of (often rare) discounts
- Cash rental terms that contribute profits to the operation
- A stable land base of acres
- Marketing plan coupled with appropriate risk management crop insurance plan
- Accumulated working capital during the up cycle to weather the down cycle and ready for opportunities
- Diversified income stream, including non-farm income sources and benefits
- Avoid overleveraging in the good times, keeping some reserves for the inevitable dip
The cost to borrow money is one item that has not been volatile over the past few years. The Federal Reserve is widely expected to continue to increase short-term rates. Although we have already seen the impact on the cost of money, interest rates remain low by historical standards. Reviewing your exposure to a rising fixed rate environment, and speaking with a FCI lender to lock in a fixed rate on any floating term loans may be a first step to ensuring your operation’s staying power.
FCI’s passion is Helping Farm Families Succeed, and keeping you safely buckled in on the agriculture roller coaster. Contact your local FCI office to discuss solutions for your unique operation’s credit or risk management needs.