Finding opportunity in a market slump
Ongoing trade wars, low commodity prices, crazy weather patterns, rising input costs, increasing debt, regulatory burdens, retailer pressures — these are just some of the many challenges facing farmers and ranchers in the current agricultural economic cycle.
What's worse, for many producers, 2018 marks the fifth or sixth year of tight or negative cash flow. That's according to an Agviews report released in June by Bell Bank.
This is abysmal news for anyone involved in production agriculture. Whether you're a seasoned veteran or a green young farmer or rancher, how your agricultural enterprise responds to this current downturn in the agricultural cycle will determine the success or failure of the business moving forward.
In the Bell Bank report, Lynn Paulson, Bell Bank senior vice president and director of agribusiness development, explains how we got here.
"A common issue for struggling operations is leverage," he writes. "Sometimes it's just a matter of unfortunate timing. Producer who expanded and leveraged up their operations right before the down cycle were particularly at risk and have found it difficult to get sufficient economic traction (profits) to climb out of their debt load. High-cost producers (mainly in terms of land and equipment costs) have also struggled when margins have been so narrow."
So what can we do now to ensure we survive and thrive in the years to come?
Perhaps it starts with how we are looking at things. Sure, things may seem doom and gloom, but there are many who are enjoying profitability, even in this lull.
How do they do it? For some, the secret has been keeping debt loads down, diversifying portfolios for extra income on and off the ranch, specializing the commodity produced, direct selling to consumers, thinking outside the box or expanding at the right time to take advantage of low prices.
"It can be easy to get sucked down the rabbit hole of thinking that given all the negatives, everything is a disaster," Paulson says. "Many tend to paint the entire sector with the same broad, negative brush. But just as in the 1980s, the majority of today's farmers and ranchers are doing okay. Adversity for some may create future opportunities for others."
So what are these opportunities, and how do struggling producers take advantage of them? While not every situation is the same, of course, producers that are positioned right may be able to leverage this downturn to move their enterprises forward.
With an increasing number of producers exiting the business and/or selling off tracts of land to stabilize their financial positions, this could present opportunities for others to purchase farm or pasture acres at a cyclical low. It also opens up the marketing opportunities in local communities as new players enter the business.
Yes, it's tough out there, and many may not be able to take advantage of these opportunities. On the flip side, Paulson points out that some of today's most cash-positive producers were the ones who expanded and grew during the market crash of the 1980s.
While 2019 hasn't been a great year for producers, maybe it could be the start of something really exciting. Maybe it's time to think outside the box and make some bold moves. I believe those who can grow during these tough times will truly flourish once the market corrects itself in the years to come.