Survive, Optimize and Thrive
Start the New Year with a proactive economic plan.
The cattle industry, along with many sectors of the economy, faces critical challenges in the weeks and months ahead. It is easy to become rather fatalistic about our situation when markets are weak and volatile, especially when many of the causes are external to our industry and broad-based across the economy. We have a tendency to feel that economics is just what happens to us and there is nothing we can do about it.
It is certainly true that we probably cannot avoid or completely mitigate adverse economic impacts in the current situation. However, changing economic conditions implies that every producer needs to think about the means they have to make as much adjustment as possible to endure hard times in the short run and prosper longer term.
There are three levels of consideration for your 2009 business and management plan: survive, optimize and thrive.
Business survival
You must assess the extent to which the current situation threatens the very survival of your business. If the threat is large, managers must adopt a defensive posture and think about significant and necessarily unpleasant adjustments that must be made. The one thing for sure is that waiting and doing nothing will be worse than whatever you decide to do now. An operation facing serious threat of failure must consider the possibility of significant debt restructuring, liquidation of some assets and significant adjustments to family living expenses, among others. The current economic climate may well mean that producers should consider an expanded risk management program to reduce the threat of a fatal economic outcome in the midst of volatile markets.
Re-optimize your operation
Changing values of products and resources means that it is necessary to adjust input and output levels to maintain the profitability of production activities or, in the worst case, minimize losses in the short run. Changing values of feed, fertilizer, fuel and other inputs means that you may need to use less of some inputs, more of others and perhaps stop using some altogether. It is important to consider not only the level of use of various inputs, but to consider adjustments in timing, intensity and targeting of input use. Changing values for alternative products likely means that you need to reduce production of some products, expand production of others and possibly reduce overall production levels. In any event, doing the same things you have always done or making across-the-board cost reductions or production adjustments will be worse than carefully evaluated and targeted adjustments to production enterprises.
Look for new opportunities
A dynamic and volatile economy shakes up the status quo and causes many negative impacts but also necessarily results in new opportunities. It is the nature of markets that someone’s reduced sale value is someone else’s buying opportunity. Producers should be looking for and prepared to take advantage of opportunities for new investment, upgrading assets or repositioning of their business as the economy works through a wide range of adjustments and revaluation of resources. Such opportunities may be rather short-lived, and producers must have the vision and courage to act quickly to take advantage of them. The current situation may well provide a chance for producers who see past the current storm to strategically position themselves for recovery and future success.
There are no universal or simple recommendations for dealing with the current situation, but there are things that every producer can do to reduce the negative impacts.
Producers and their lenders should take a hard look at what they do and how they do it and maybe think about why they do it. Doing nothing is a plan, but not a very good one in these times.
Feelings of helplessness and panic are common, and the tendency is to hunker down and try to ride it out. However, hunkering down when you are on foot in the middle of a busy street will not help … you must have a plan to get out of traffic before you can figure out how to get on down the street.