As commodity-price volatility continues to increase, growers need to get back to marketing basics, said Kevin Bernhardt, extension farm management specialist at University of Wisconsin-Platteville, at the recent Midwest Forage Association meeting.
“We have to get away from the mindset of outguessing the market,” Bernhardt said. “Volatility is going to be a part of our world going forward,” in part because of globalization and the fact that what happens in one country can affect prices in another.
“This is kind of boring,” Bernhardt admitted, “but we want to have farm records systems – and we want to use those systems. A lot of it is back to the basics: good farm management, good farm records, know your costs of production, know what’s at risk in your input portfolio vs. what’s secured.”
Know and use marketing tools and strategies and communicate with your lender, broker and other advisors, he said. “You need to make sure they know what’s happening ahead of time.”
Don’t cut back on feed costs if that means a drop in quality, he advised. On the left side of a paper, total the additional costs of making a change with reduced or lost revenue that may result. On the right side of that page, total the additional revenues you may get with the reduced or eliminated costs.
“If the right side is bigger than the left side, it’s a change that’s worth looking at. Don’t automatically cut input costs if it means a loss in production.”
Growers can expect tighter purchase policies – not being able to buy ahead and having to have cash down and cash on delivery, he said. Lender requirements will also increase. “I talked with a lender just yesterday. He said, ‘Our regulators are telling us we’ve got to start tightening down the screws on documentation.’ He is also doing a lot of talking to his loan committees if negative cash flows come in. Well, which cash flow is not negative right now?”