Planning and Communication Important to Overcome Drought, Low Cattle Prices

Ongoing financial planning and communication are key for producers struggling with drought and low market prices, like those in 2002.

As the season progresses, it's clear producers' initial financial plans for this year will not pan out, said Cheryl Burkhart-Kriesel, community and economic development specialist at the University of Nebraska's Panhandle Research and Extension Center at Scottsbluff.

Even the best business contingency plans could not have envisioned bad situations, but periodically re-figuring business profit and loss, re-evaluating goals and communicating with a lender will be especially critical this year, the Institute of Agriculture and Natural Resources specialist said.

"Estimate where you are financially," she said. "Granted, the cash flow and financial statement that you projected in January for your lender might look like mission impossible at this time of the year, but at least the projection gives you a starting point or baseline."

First, producers should re-estimate their gross income, she said.

Although challenging this year, trying a variety of scenarios, such as changing yields, market weights, input costs and other relevant variables, will help to show how each impacts the bottom line.

USDA Farm Service Agency payments and any other non-crop or livestock income undoubtedly could be a significant portion of income in a bad year. The weather will continue to be a factor, and global supply/demand, the stock market and international tensions all play a part too, Burkhart-Kriesel said. Producers also will need to re-evaluate financial estimates and business goals.

"Short-term goals often surface casually in conversations with family and friends," Burkhart-Kriesel said. "These conversations might focus on what piece of equipment needs to be updated, the potential purchase of livestock, or new land rental agreements."

Long-term goals often are less specific and harder to pin down, but both may need to be re-examined in light of a drought and other factors.

"It's difficult to make a lot of decisions now for the long term," she said. "We need to wait for the crops, insurance and federal disaster payments and try to adjust as best we can."
Realistically looking at goals and financial estimates early will keep the business as flexible and liquid as possible -- even in challenging times, she said. The earlier this is done, the more options there are and the less pressure on the business and family.

Keeping the lines of communication open with a lender also is important, Burkhart-Kriesel said.

"Lenders see the pastures and crops and feel the stress of the season as much as agricultural producers," she said. "They need to be kept in the communication loop. The more information they have about your business, the easier it is for them to work with you in the future." ©