Important to Know Costs

I’m KayDee Gilkey with the Market Line Report for February 18, 2014.

 

The commodity markets were closed yesterday for President’s Day so there are no prices to report. Instead we are checking in with globetrotting Emeritus ag econ professor from Virginia Tech Dr. Dave Kohl. A year ago, wheat March future contracts were at $7.42 a bushel. What a difference a year makes.

 

I asked Dr Kohl what do young producers who may have not yet experienced an economic downturn in ag need to remember in the current environment.

 

Kohl: “One of the things they need to do is they need to know their costs. They need to know their costs of production via enterprise. It is also very, very important that they build strong liquidity — in other words assets that can be turned to cash without disrupting normal operations.”

 

Kohl says it is also important to have forge a strong relationship with your lender.

 

Kohl: “And then one of the things that I would highly suggest is, as they are doing cash flow projections for 2014 is to do scenario planning with various yield, price and cost projections. Then they will do cash flow projections but then as actual results come out, do comparison of projected to actual and then adjust the strategy as game conditions change in 2014. So again being very astute financially, having a strong relationship with your lender and making mid-stream adjustments is going to be critical for 2014 and beyond not only for young producers but for the more mature set as well.”