5 minute read
Hitting the curveballs
from OFN August 10, 2020
by Eric Tietze
the ofn ag-visors Advice from the professionals
Hitting Curveballs
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By Jessica Allan
This year has not been the kindest for cattle producers. Things were starting to look good – we had rain, plentiful pasture, decent prices. Then COVID-19 hit the markets. As the financial markets took a beating due to the uncertainty of the virus’ effect on our national and global economies, cattle markets reacted accordingly and dropped limit down. It wasn’t a matter of supply, or even demand, that caused the drop, but rather the anticipated drop in demand. Typically, when incomes tighten, one of the first items adjusted in a family budget is the purchase of meat products, especially beef. We now know demand was not the reason for the continued low cattle prices, but rather the bottleneck our curJessica Allan is an agricultural lender and commercial relationship manager at Guaranty Bank in Neosho, Mo. A resident of Jasper County, she is also involved in raising cattle on her family’s farm in Newton County rent marketing system has created – but that’s a topic for and is an active alum another day. The point is, the situation that was created of the Crowder Colat the beginning of the year is still rectifying itself. Cattle lege Aggie Club. She prices have started to ease back up, slowly, but they are may be reached at still being affected by our stalled economy on top of sumjallan@gbankmo.com. mer heat and pasture issues.
Cattle producers are familiar with price fluctuations in the markets, but this last decade seems to have had more than its fair share of extremes from the highs of 2012 to current day. This has created challenges for both producers and their financial partners alike. Price fluctuations, whether minor or significant, impact a producer’s cash flow and can determine whether that producer will be able to profit that year.
When working with a producer on their annual cash flow, a financial advisor will take into account historical prices as well as projections from trusted sources like the extension office. But sometimes life throws a curveball. So what happens then? Both parties want the producer to stay in business and be able to pay back their debts, so it takes teamwork and adaptability.
For many, that may mean requesting payment extensions or revising a loan to provide temporary relief with the hope that prices will recover within a certain timeframe. But solutions like this can seem a little like closing the gate after the bull has escaped the pen.
Is there a way to prevent temporary solutions for unforeseen circumstances? A couple that come to mind are budgeting and price protection. Creating a budget for cash flow that allows for repayment of debt at the lowest expected prices and sticking to that plan in years with better prices allows producers to set back funds to carry them through the unexpected years.
Price protection can be another tool to ensure a producer’s projected income won’t go below a certain level. This can be done through puts and options, market futures, video sales and more. Every producer has a unique business operation and may use any or all of the tools available depending on the farm’s needs at that point in time.
Bottom line, curveballs are a part of life. For cattle producers, they can come out of nowhere just like COVID-19. But we can prepare for them. Even if those plans aren’t enough, maintaining a good relationship with a financial advisor can go a long way toward reaching the other side of any difficult situation, even a global pandemic.
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