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The prospect of high costs in agriculture and looming uncertainty – both in the industry and in the world – can make life stressful for decision-makers. But it doesn’t mean it has to be. Strategic, thoughtful management through the uncertainty is key to giving operations the best chance to thrive in an ever-changing marketplace, experts said in a recent Farm Credit Mid-America webinar.
“(Uncertainty) is the hand we’re dealt in agriculture and we have to understand and think about how we manage through that,” says economist Dr. Brent Gloy, co-founder of Agricultural Economic Insights (AEI) who joined fellow co-founder, David Widmar, to offer insight and advice on the current marketplace.
Gloy and Widmar say despite high commodity prices and uncertainty, they’re optimistic about the ag economy for 2022 and 2023 because the high profitability of the last two years now allows many farmers the opportunity to set their operations up for the future. How can they do that? Gloy and Widmar suggest these three strategies for navigating the industry now and in the upcoming year.
Many farmers talk about possible scenarios, asking open-ended questions that produce vague answers, which don’t arrive at actionable resolutions, Gloy and Widmar say. Instead, use a process that poses specific, resolvable questions that can produce probabilistic answers. Calibrate expectations over time and take detailed notes month-by-month to get a holistic view of the situation. Then, develop resolutions, record outcomes and score how well the resolution worked.
This kind of process gives producers an objective view and leads to more substantive, productive conversations with teammates, lenders and partners that lead to better decisions.
“It helps you frame the situation a lot better. Rather than saying ‘I’m just worried about corn prices,’ well, why are you worried about it? What price levels would it take to be successful? What are the numbers and what do I think the chances are of getting there?” Gloy says. “What we want to do is move out of emotional decision-making into a rational process.”
There are a multitude of risks in agriculture and trying to tackle them all can be overwhelming. Prioritizing risks can be even harder, but it’s an important strategy to avoid becoming reactive when difficulties arise. Widmar and Gloy suggest producers start with a blank page and think through all potential risks with their teams. Then, narrow that list to top three and develop a plan for them. Picking just the top few allows producers to focus on what’s most important and easily communicate with partners and lenders.
“Prioritizing those three is really difficult but it can be really invaluable for sharpening our thinking and sharpening our focus,” Widmar says.
Making predictions isn’t a valuable exercise if the information isn’t used strategically, Widmar says: “It’s really important to frame that (information) and then say ‘how can I position my operation as a reflection of that.’”
Instead of just worrying about a situation, like tumbling commodity prices, use predictions and expectations to formulate a plan. That can mean adjusting your marketing plan, getting more aggressive in pricing, or changing spending priorities at home.
“(A plan) allows you to move past that chaos and all the noise of everybody talking about all the challenges out there and position your operation,” Widmar says.
The primary goal is to get operators to think critically and proactively so they can be better decision-makers because “at the end of the day, that’s what we have to do,” Gloy says. “We have to make our own decisions, navigate that uncertainty and position our businesses to be successful.”
Watch the full webinar with Gloy and Widmar here: