Post-Harvest Action Plan
December 8, 2020
This year has certainly been one for the record books! The black swan pandemic – with all its economic, financial, consumer, and social implications – has accelerated many changes. Let's focus on big picture variables and implications to business action plans for 2021 and beyond.
Economic & Financial Volatility
The global macroeconomic radar screen will lead to extreme volatility, requiring businesses to be financially agile with an emphasis on working capital and quick access to cash. Within this context of management, resiliency will be measured by one's competitors and the cost of production compared to domestic and international peers. The next generation must build business resilience and financial IQ – the profitability gap between the top and bottom third of agricultural producers’ business performance will widen in the long-run.
Global Macroeconomic Risks
The number one risk will be agricultural trade negotiations and progression. One in five dollars of net farm income is generated through the export markets. For some commodities – like soybeans – the percentage is much higher. The COVID-19 pandemic has accelerated the deglobalization movement. Global supply and marketing chains will be evaluated between countries and regions of the world driven by business, consumer, government, and political agendas. Agriculture will be front and center in these actions, resulting in extremes in volatility influenced by daily headlines.
Domestic Supply & Marketing Chains
The economic status of processing plants and the ethanol industry will drive the financial bottom line. A lesson learned from spring 2020 was that concentration and efficiency can be fragile and sometimes fatal. Whether it is a supply or marketing chain, diversification brings agility and resilience.
Examine your income statement in the context of government support payments as a percent of net farm income. A plan for 2021 and beyond needs financial sensitivity testing ranging from 25, 50, and 75% of cutbacks in government support payments. What is going to be the post-pandemic government support plan? Will this support plan come with a steep price in the form of higher taxes and a possible wealth tax, which would significantly impact the agriculture industry?
Finally, implement tried and true strategies with specific action plans for the post-harvest season.
- Develop a written cash flow with revenue and cost sensitivities based on your production, marketing, and risk management programs. Remember, cash flow is 80% of a business plan.
- Take time to develop a personal family living budget. This is just as important as the farm budget.
- Reevaluate your business, family, and personal goals and objectives. Do not forget yourself in the goal setting process and be sure to evaluate your physical, mental, and spiritual balance.
- Develop a formal or informal advisory team. This could include a lender, accountant, or industry consultant. Collaborations and sounding boards are great ways to maintain both business and emotional balance.
Put 2020 in the rearview mirror while considering how big picture variables impact your future business plans.