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By Josh Davis
Cattle producers have seen their share of ups and downs over the last few years, from trade wars, pandemic-spurred supply chain disruptions, and labor shortages to a relatively profitable year in 2021.
As farmers face new challenges as a result of inflation – higher energy costs, labor costs, and higher prices for feed, fertilizer and fuel – the need for solid planning and strong partnerships to support your operation are more important than ever.
Here are three steps cattle producers can take today to position themselves for long-term success.
Success is never accidental. Getting there begins with outlining clear and achievable goals for your operation. Create a vision for where you want to be and document it. This starts with assessing your total cost of doing business, looking at year-over-year performance, and creating benchmarks that will guide you.
With your goals and your vision in place, it’s time to outline the short-term and long-term strategies that will get you there.
Every producer needs a team of experts and trusted advisors around them. These advisors should include a CPA, attorney, veterinarian, and your lender, to name a few. Ideally, they should specialize in the industry and they should be people who will stand beside you in an ever-changing marketplace.
Once you have a plan in place, sit down with this group of people (either together or individually) and review the plan together. They will offer valuable feedback and help you find and address inefficiencies in your operation. Listen to their expert guidance and tactical feedback: it will help you make modifications to your plan, mitigate risk, and maximize your opportunities in both good and challenging times.
Agriculture is a cyclical industry. It doesn’t matter how good you are or how solid your plan is: there are going to be times when you make money and there are going to be times when you don’t. Taking advantage of opportunities to build up capital when you can will help you withstand swings in commodity prices, export demand and disruptive events, and provide much-needed cash flow if prices or demand decrease.
On the heels of a year when the market did present opportunities for producers to experience profits, it is important to begin building up a war chest of liquidity. This could even mean delaying capital purchases. Lean on your team of specialized advisors to help you identify any opportunities to build your capital and insulate yourself against volatility. It’s also critical that you work with a lender who understands the volatility of the market and will stand beside you through thick and thin.
Finally, don’t delay evaluating your marketing agreements and negotiating contracts until they are about to expire. Developing strategic partnerships, locking in feed costs, or even pre-buying commodities when you can are all opportunities to explore. Other opportunities include identifying other markets with premiums for health programs, uniformity or weaned cattle. Or, if it makes sense to lean into local demand, look for opportunities to market and sell your product locally.
It is always beneficial to plan ahead so you can deal with volatility in the marketplace. Implementing a vision for your future with clear goals, aligning yourself with a team of specialized advisors, and seeking every opportunity to build yourself up to withstand market volatility will help you navigate unknowns for the remainder of 2022 and beyond.
Josh Davis is Vice President Food & Agribusiness specializing in timber and cattle at Farm Credit Mid-America. Farm Credit Mid-America is a financial services cooperative that serves the credit needs of farmers and rural residents across Indiana, Ohio, Kentucky and Tennessee. Farm Credit Mid-America provides loans for real estate, operating, equipment, housing and related services such as crop insurance and vehicle, equipment and building leases. Learn more at e-farmcredit.com.