… it's a new environment and rules have changed…
Don't fall into paralysis
Producers need to be careful to not look into the rear view mirror, because it's a new environment and rules have changed.
Ann Hess, National Hog Farmer
May 20, 2020
Control the controllable. That's the best recommendation Nate Franzén, president, Ag Banking Division at First Dakota National Bank in Yankton, S.D., has been offering to his clients during this time of uncertainty amid the COVID-19 pandemic.
"There's so much information coming at us and the real challenge is what information is really material to me and my operation and what information is less material or things that I just don't have time to dive into and digest at the current time," Franzén said during a National Pork Board COVID-19 webinar Tuesday. "I think the folks that manage that best are really going to weather the storm the best, so to speak."
What are those controllables? He says to first start with your balance sheet.
"That's your staying power through any cycle in agriculture and working capital is so critical," Franzén says. "Is there anything you can do today to bolster working capital? If there is, I think you need to be exploring it. You need to be having that conversation with your lender and with others."
He also advises producers to examine their leveraged position.
"If you happen to have had some tough timing where you expanded or grew on the front end of this and you're in a more, highly leveraged situation, I think you have to have very serious conversations today about what can I do about that and what are my options," Franzén says.
Historic low interest rate options could be a real opportunity for producers to manage that interest rate risk and lock in some attractive rates and terms in this environment, which also gives some protection on the leverage carried in operations.
Next Franzén suggests producers look at the key risk indicators in their business beyond those performance and production indicators they watch every day in a normal environment.
"What can you do to preserve your core equity, and maintain or build on that working capital level," Franzén says. "Those are going to be vital for you as you're managing through the curve balls being thrown at you right now."
On the income and expense side, he says focus on key performance indicators, converting their production metrics to financial metrics.
"Those of you out there that are really tracking those numbers closely and can update them in real time or as close to real time as possible, you're going to have a distinct advantage over others that aren't in a position and don't have systems in place to track those numbers and measure them," Franzén says. "Once you have those projections, those budgets, those plans, really track what's actually happening compared to what you thought would happen because it's going to point out areas and things for you to tweak along the way. The sooner you identify those, the sooner you make those management decisions you need to and adjust, the better for your business, the more you're going to preserve equity, the more you're going to maintain working capital and the better chance you have to get through the challenges that lie ahead."
In this current environment, the agricultural banker says it's about getting singles, not home runs...