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Opinion: Operational diversification, planning vital for ag businesses

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Farmers and agribusiness leaders are no strangers to navigating tricky times. That’s practically the name of the game when your business is subject to the whims of nature, from weather to pests and everything in between.

But the past year has brought a different kind of stress to the ag industry with higher interest rates and global inflation increasing inputs, consequently tightening margins nearly across the board.

To combat this, many farmers have been exploring cost-cutting options, whether it’s limiting the amount of fertilizer used on crops or downsizing cattle herds as feed supply diminishes. These changes can help save money in the short term but can also result in lower yields. When coupled with current supply and demand issues, concerns appear that haven’t been seen in the industry for several years.

While these issues are legitimate, there are solutions to help traverse this complicated period. As they say, it’s not our first rodeo for many in the industry. The key is for farmers and agribusiness owners to work with a knowledgeable ag lender to create business plans specific to them, homing in on process efficiency improvements and diversifying the operation to introduce new income streams.

Make a flexible plan
Budgeting, tracking and adjusting are vital to all operations as cash-flow challenges arise, but farmers shouldn’t feel like they need to go it alone. This is where a relationship with a trusted ag lender comes in to help develop a custom business plan that maintains healthy working capital by leveraging fixed assets without overextending.

Cash-flow management
Providing updated financials is required by most lenders but typically only completed annually during tax season or when the lender requests an update. Keeping a more active tab on cash-flow management will help identify weak areas sooner before they become a larger problem.

This can look as simple or complex as needed to fit your style, but the primary goal is to measure performance and increase profitability. Simply wishing your farm would be more profitable next year isn’t a goal; intention is required to help ensure success.

The times are precedented
Although it seems like unprecedented times, that’s not historically true. It’s important to remember that rates are high for recent years, but we’ve seen even higher rates before.

Your farm may have to change its focus to work through lower margins, but it can be done.

Give some thought to other income streams that may help diversify your operation. A little creativity could be just the ticket to help offset the shrinking margins that come alongside loan rate increases.

Look at government programs
Although the Federal Reserve has consistently increased the benchmark borrowing rate to combat inflation, government assistance for agribusinesses is available in a variety of forms. For instance, the Farm Service Agency, a program from the U.S. Department of Agriculture, offers loans to help farmers and ranchers get the financing they need to start, expand or maintain a family farm.

If your operation doesn’t qualify, then ag loans, farm equipment loans and working capital loans are all available from local financial institutions to help provide a jumpstart, cash infusion or enable expansion.

While rising rates can be complicated for any business, they seem particularly thorny for agribusinesses.

Make it a point to discuss your situation with your trusted ag lender and other advisers.

Austin Mooneyham is a vice president and community bank president for Old Missouri Bank in Buffalo. He can be reached at a.mooneyham@oldmobank.com.

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