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.
