Four Flaws That Get Farmers Into Trouble

Times are tough in agriculture. Prices are down and this year looks "iffy" at best.

Farmers have enough trouble without adding self-inflicted wounds to their woes. I visited with a lender about four common weaknesses he sees farmers have in their management. At the risk of piling it on during a down year, here are some of his ideas about farmers who still fall short in their management.

1. Marketing. In the past, farmers may have been burned by a bad experience with hedges and options in the futures market. Futures are still the way to go. Farmers need to lock in their prices to maximize their returns. The markets are too volatile to do it any other way.

This lender believes that a lack of reliance on futures marketing reflects a problem with pride. Many available marketing seminars are poorly attended. This is also true for programs on records, taxes, and risk management/insurance.

Why? He believes operators, no matter whether they are big or small, are afraid to be seen there. It is an ego thing. If they do attend, some of the concepts go over their head. They don't want to appear stupid in front of their peers so they don't ask enough questions. They leave and market the same old way they always have.

What is that same old way? The gambler and speculator in them wants to hit the market at its peak so they hold the crop too long and incur interest and storage costs. This is an ego thing also. There are bragging rights to selling at just the right time. This lender feels the maturity date of loans is a major factor in marketing or else even more farmers would hold on to their crops too long.

He also feels believes that women aren't as attached to commodities or as ego involved as their husbands and consequently make better marketers. They take the emotion out of it and can make more dispassionate decisions.

Women may be more security conscious and more aware of cash flow needs for family living. They see the need to lock in a price. One gift he sees farm women bringing to farm management is their orientation for detail. Also they are willing to go to seminars and ask the "dumb" questions.

He would like to see farmers execute a marketing plan - any plan. He guesses that only 15 percent of the farmers he knows are really where they need to be when it comes to marketing.

2. Using records for management. This isn't about the days when farmers ran their businesses out of shoe boxes stuffed with receipts. Most farmers have computerized their records and have accurate, accessible information. Their accountants have good information.

This lender thinks that farmers don't know what the records mean. They need to learn how to evaluate their records in order to make better business decisions. Farmers can use key ratios and indicators as tools for management decisions. Only of a small percentage of farmers actively use their records as a key part of their management. The problem is similar to the marketing issue - the pride factor of not being willing to ask questions.

3. Family living expenses. This is a delicate area. A lot of farmers are still farming because they have cut their family living to the bone. They feel the pain of working hard and not having enough income to pay the bills. There is real hurt and hardship in the countryside.

This about farm families who don't keep track of family living expenses. They write checks without knowing where they stand. During hard times, their lifestyle doesn't change. They live like a family whose living expenses are independent of farm income.

They still trade pickups and take extravagant vacations. "We work hard. We owe it to ourselves." Instead of cutting back, they add debt to an already precarious financial situation. The lender sees too much credit card debt coming in to maintain their lifestyle when they should be in a cut back mode.

4. Communicating with others. During a time of crisis, farmers tend to keep their own counsel and try to solve problems without gathering enough advice or consultation. They need to be active in their communications with their lenders/creditors and be honest and forthright about their difficulties. They hide from bad news and don't want to face reality.

By withdrawing and keeping their problems to themselves, they either become depressed or immobilized. They can become angry and scapegoat their problems on others. The solutions lie in facing reality, communicating with others and being flexible. Problems can be solved if they overcome their fear of exposing their problems to others.

I invite farmers, lenders and other interested parties to comment on this column and add to the list of common mistakes still being made in agriculture. I hope this will help a few people take stock of something they can do to help themselves. It won't change the prices, but it may help identify some areas in which farmers can exert a little more control in their lives.