With credit markets tightening everywhere, it’s more important than ever for farmers and ranchers to polish their management skills, says Texas A&M extension ag economist Danny Klinefelter. Among his suggestions for operating in tough financial times:
- Emphasize liquidity. “Make sure inputs generate sufficient income to justify the expense,” says Klinefelter. “Remember, maximum profit and maximum yield are not the same thing."
- Shore up loans. This encompasses long-term loans (land and other real estate), intermediate loans (equipment) and short-term loans (operating expenses). “Make sure you’ve got your debt structured correctly,” he says. “It may be good insurance to convert some short-term debt to a fixed-rate loan amortized over five years, even if it’s at a higher rate. The objective is to improve your working capital position and to become more flexible. You don’t want to get caught with a lot of carryover operating debt for the next year."
- Evaluate alternative business models. Consider joining forces with other producers to gain access to expertise and economies of scale, advises Klinefelter. “Producers could form an LLC (limited liability company) or a closed cooperative to combine their buying power or to spread the cost of acquiring greater technical expertise or risk management,” he says.
- Delay significant capital purchases. “Deleveraging is another option to keep in mind,” Klinefelter says. “Right now, unless farmers really get a good deal, they don’t want to be going out and overcommitting themselves.