Managing Through Tough Economic Times
In the small town near where I live, there is a day care center. Recently it has had a "Help Wanted" sign staked out front near the highway. Underneath the help wanted portion of the sign, it says "apply within." As I have passed by the sign, I have pondered the "apply within" portion and thought how each of us individually apply events, circumstances, experiences and challenges within ourselves.
During a recent phone conversation with one of our more senior cooperators, I asked, "Have you lived through any more economically challenging times than now?" He answered, "No, I think these are the most challenging times I have ever experienced." How are you "applying within" or managing through these difficult times?
During the decade of the 1970s (mostly the mid-to-late '70s), it is my opinion that, in a sense, management school was let out for production agriculture. The inflation rate was higher than interest rates causing credit to actually have a negative cost. The recipe for success on the farm was to buy today because tomorrow the asset would be inflated and loans could be paid back with cheaper dollars. The norm, encouraged by many lenders, was to buy, borrow and leverage the balance sheet because higher inflated asset values of tomorrow would keep financial ratios in the green. Conventional wisdom and conservative management styles, which were the trademarks of successful farmers and ranchers throughout much of the twentieth century, were forgotten during the 1970s. To achieve survival, these principles had to be painfully rediscovered in the 1980s. Production agriculture and the agricultural lending community went through a very difficult adjustment period. However, for those who survived, producers emerged as better managers and positioned to take advantage of future opportunities. During the next 20 years, agriculture generally experienced sustained prosperity, climaxing in 2008 with a record high national net farm income.
The difference between the agricultural crises of the 1980s and today is that, in general, farm balance sheets are currently in much better shape. However, with the economic concerns by the majority of domestic and foreign consumers, demand for many agricultural products is waning. This has caused commodity prices to fall by more than half from the unprecedented highs of the summer of 2008. In addition, input costs, although also declining from their record highs of last summer, are still at challengingly high levels for many producers to be able to pencil profits in most agricultural enterprises. Overshadowing the cost-price squeeze is the extreme volatility prevailing in many of the commodity markets that are driven by greed one day and fears the next. Volatility equals risk and high volatility equals high risk. The business climate for production agriculture has become one of high risk by virtue of the large price swings for both inputs and products. It has become difficult to determine what a high price is and what a low price is.
In a recent presentation to a group of young agricultural entrepreneurs, I encouraged them to visit with their parents and grandparents about how they survived the difficult times they had experienced. Necessity is a strong motivator for creativity and innovation during tough economic times. Today, agricultural producers have tools that were not available to previous generations. Information flows freely with today's communication technology. The question becomes how we apply these tools within our businesses to survive and be successful in the days ahead.