Ramblings of an Ag Banker at 3 a.m.
We all have things that keep us awake at night. A client of mine once told me, “I feel for you. I only have to worry about what is going on at my farm, you worry about mine and everyone else’s you work with.” He was exactly right.
While I could go with the ordinary list of things like global events, market volatility, geopolitical issues, global economics and poor financial records, the things that really keep me awake at night fall more into the symptoms or characteristics of what lead to financial issues on a farm. Let’s take a look at a few that top my list.
1. The home run hitter. This characteristic can most easily be described as someone who is always swinging for the fences. That is, they step up to the risk management plate and are always holding out for a better price. This home run hitter is always guessing curveball when a fastball is coming at them. They often misunderstand the relative impact of risk management decisions. Specifically, they’re worried about the price of an input when the price of their output is significantly more volatile. This usually results in missing a chance to make meaningful risk management decisions, resulting in more strikeouts than singles. Instead, manage the margin. When it comes to risk management strategies, hitting a lot of singles keeps you in the lineup.
2. The shirker. This character type can best be described in the statement “it’s not my fault.” The shirker typically blames everyone else for an issue instead of taking responsibility for what they can control. Some of the examples I hear include: blaming the broker for not having enough coverage; blaming the insurance agent for not providing enough coverage on something; blaming the accountant for late financial reporting; blaming a supplier for herd issues. While there are many things in agriculture that are not controllable, there are plenty of others that are. Make sure you own up to your responsibilities in making sound decisions that impact your operation’s financial performance. If things are not going in the right direction, make sure you’re proactively addressing them. Blaming someone else does nothing to address the issue.
3. The procrastinator. This character trait is described as either lacking the ability or willingness to follow through. This often includes both analysis paralysis and the “but this is how we’ve always done it” stubbornness, often resulting in missed opportunities to make financial gains by being proactive. This character will agree to make a change in process, protocol or activity as part of a plan for improvement but never seems to get around to making those changes. It calls into question the operation’s ability to make the improvements needed in the operation going forward and it erodes the trust in relationships. It’s especially challenging when one side agrees to a make a change as a result of a promise made by the other party. The failure or slowness in adapting new practices or making needed improvements usually leads to financial worries.
4. The firefighter. This is essentially being the opposite of proactive. It’s managing by crisis all the time. This operator spends their day going from fire to fire because in their world, everything is a fire. The banker sees this when an urgent loan request comes in, usually because the operation failed to plan. Yes, unexpected events come up, but a solid cash flow budget and monthly reviews of it go a long way to limit the need for “emergency” funding. The proactive managers are better risk managers and head off issues in the operation before the fire starts. In my experience, the more proactive the management of the operation, the better the outcomes.
5. The hoarder. This character is typically uncommunicative and fails to share important information with those who need it most. They also tend to be the most controlling, in that they want power over every decision and don’t feel the need to include anyone else in the process. The reality is that you should always ask yourself, “who else needs to know?” and follow up to make sure they’re informed. For example, if you decide to make a feed change tomorrow, who else needs to know? Getting everyone on the same page is critical to success. And by the way, bankers hate surprises, good or bad, so communication with them on a regular basis is critical.
6. The math impaired. This character makes decisions based on what is in their check book on any given day. Their decision horizon is very short term while failing to fully examine the impact on their cost of production and balance sheet. That same character will ask for financing without having done the math on how they’re going to repay the loan. If your decision filter is “the banker approved it,” you need to step up your game. If you do the math yourself, you should know how your banker will answer even before meeting with them.
As you meet with your financial partners in the coming weeks, think about what traits you have that contribute to them losing sleep. The reality is, if your banker is losing sleep over it, it represents a higher risk partnership, which comes at a higher cost. Being a solid a singles hitter, responsible operator, timely decision maker, proactive manager, strong communicator and risk manager while understanding your math will go a long way to making sure we all get a good night’s sleep!
This article originally appeared in Progressive Dairy
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Brad Guse
Director, Production Agriculture, US Food, Consumer and Agribusiness
We all have things that keep us awake at night. A client of mine once told me, “I feel for you. I only have to worry about what is going on at my farm, you worry about mine and everyone else’s you work with.” He was exactly right.
While I could go with the ordinary list of things like global events, market volatility, geopolitical issues, global economics and poor financial records, the things that really keep me awake at night fall more into the symptoms or characteristics of what lead to financial issues on a farm. Let’s take a look at a few that top my list.
1. The home run hitter. This characteristic can most easily be described as someone who is always swinging for the fences. That is, they step up to the risk management plate and are always holding out for a better price. This home run hitter is always guessing curveball when a fastball is coming at them. They often misunderstand the relative impact of risk management decisions. Specifically, they’re worried about the price of an input when the price of their output is significantly more volatile. This usually results in missing a chance to make meaningful risk management decisions, resulting in more strikeouts than singles. Instead, manage the margin. When it comes to risk management strategies, hitting a lot of singles keeps you in the lineup.
2. The shirker. This character type can best be described in the statement “it’s not my fault.” The shirker typically blames everyone else for an issue instead of taking responsibility for what they can control. Some of the examples I hear include: blaming the broker for not having enough coverage; blaming the insurance agent for not providing enough coverage on something; blaming the accountant for late financial reporting; blaming a supplier for herd issues. While there are many things in agriculture that are not controllable, there are plenty of others that are. Make sure you own up to your responsibilities in making sound decisions that impact your operation’s financial performance. If things are not going in the right direction, make sure you’re proactively addressing them. Blaming someone else does nothing to address the issue.
3. The procrastinator. This character trait is described as either lacking the ability or willingness to follow through. This often includes both analysis paralysis and the “but this is how we’ve always done it” stubbornness, often resulting in missed opportunities to make financial gains by being proactive. This character will agree to make a change in process, protocol or activity as part of a plan for improvement but never seems to get around to making those changes. It calls into question the operation’s ability to make the improvements needed in the operation going forward and it erodes the trust in relationships. It’s especially challenging when one side agrees to a make a change as a result of a promise made by the other party. The failure or slowness in adapting new practices or making needed improvements usually leads to financial worries.
4. The firefighter. This is essentially being the opposite of proactive. It’s managing by crisis all the time. This operator spends their day going from fire to fire because in their world, everything is a fire. The banker sees this when an urgent loan request comes in, usually because the operation failed to plan. Yes, unexpected events come up, but a solid cash flow budget and monthly reviews of it go a long way to limit the need for “emergency” funding. The proactive managers are better risk managers and head off issues in the operation before the fire starts. In my experience, the more proactive the management of the operation, the better the outcomes.
5. The hoarder. This character is typically uncommunicative and fails to share important information with those who need it most. They also tend to be the most controlling, in that they want power over every decision and don’t feel the need to include anyone else in the process. The reality is that you should always ask yourself, “who else needs to know?” and follow up to make sure they’re informed. For example, if you decide to make a feed change tomorrow, who else needs to know? Getting everyone on the same page is critical to success. And by the way, bankers hate surprises, good or bad, so communication with them on a regular basis is critical.
6. The math impaired. This character makes decisions based on what is in their check book on any given day. Their decision horizon is very short term while failing to fully examine the impact on their cost of production and balance sheet. That same character will ask for financing without having done the math on how they’re going to repay the loan. If your decision filter is “the banker approved it,” you need to step up your game. If you do the math yourself, you should know how your banker will answer even before meeting with them.
As you meet with your financial partners in the coming weeks, think about what traits you have that contribute to them losing sleep. The reality is, if your banker is losing sleep over it, it represents a higher risk partnership, which comes at a higher cost. Being a solid a singles hitter, responsible operator, timely decision maker, proactive manager, strong communicator and risk manager while understanding your math will go a long way to making sure we all get a good night’s sleep!
This article originally appeared in Progressive Dairy .
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