Few things are more unsettling than the feeling of having no control. Yet that’s what many of our customers experience if their main focus is on the portions of their business they really can’t control: commodity prices, weather, trade deals. Here in July of 2019, we are halfway through yet another year of what Dr. David Kohl has termed the “Grinder.” Back-to-back-to-back years of sluggish commodity prices leading to slowly eroding balance sheets. Perhaps now would be a good time to remind your producers to put their focus on the portions of their business they can control.
As for us ag bankers, we have seen, in many instances, customers with consecutive years of carryover debt caused by operating losses. This has been a focus of a recent review conducted by the Federal Reserve Bank of Minneapolis. Carryover debt does not automatically adversely classify the borrower. If the carryover debt is adequately collateralized, appropriately amortized, if the borrower’s financial condition can support the debt and the terms of the carryover debt are within the bank’s policy parameters, the carryover debt often does not warrant adverse classification. However, I’m sure we can all agree, it’s in everyone’s best interest to minimize carryover debt.
Producers can regain control of their operations and help reduce carryover debt going forward by implementing a four-step approach. Step one involves developing an achievable Plan. No matter how well-managed a farm may be, there are still portions of the business with opportunity for improvement. The Plan may include revenue enhancement, better cost control, or a combination of both. Step two is to Strategize the plan; come up with what it’s going to take to put the plan to action. Step three is to Execute the plan, to actually put the plan into action. And finally, step four is to Monitor the plan. What gets measured, gets managed.
The reality is, the underlying theme in agriculture has become one of the necessity of making adjustments to survive. The “Plan” does not necessarily mean sweeping changes throughout the farm business, but rather, smaller adjustments. Improving margins by 5% can have a significant impact on a business in any given year and throughout a producer’s career. Dr. Kohl pointed out at a recent seminar that from 2013-2018 the better producers are getting a bigger piece of a smaller pie. To paraphrase him, they follow the “little bit better” rule. This is not the home run, and there is no silver bullet; they sweat the small stuff and get the little things right. Doing this puts control back into the hands of the producer.
Our borrowers can Plan, Strategize, Execute, Monitor, and ultimately, regain control. This puts them in a better place both mentally and financially. And finally, in spite of all the challenges and stresses both we and our customers face, I shall close with the same words an appraiser recently shared with me: Take time to enjoy the gift of today!
Darla Sikora is the senior vice president of agricultural banking with Citizens State Bank of Loyal and serves as the current Vice Chair of the WBA Agricultural Bankers Section Board.