Taking your Farm from Good the Great
Looking at the swine industry and where is stands today, there is little incentive to expand your operations. The financial indicators are not present to provide the opportunity for pork producers to expand. The industry is current projecting modest profits for 2023, there are continued concerns around long-term feed costs and disease continues to be a challenge throughout the U.S. Don’t take it the wrong way. I still believe in American capitalism and if you are doing a great job you can either expand your operations or acquire other operations that have struggled, mainly due to disease issues. More importantly, you want to make certain you have continued alignment with a packer to solidify your market access.
One advantage I have is I get to see all types of operations that are spread across the U.S. One common theme I see is that operations that have maintained great health have a definitive advantage over their peers. I know that is a given, but what can you do for your operation to take your farm from good to great?
The first step is knowing your numbers. If you don’t have financials that you can rely on, you are only guessing at how to improve your operation. Unfortunately, I still see individuals who supply cash financials and manage their business by their checkbook balance. That method has proven difficult in a rising cost environment as you can lose sight of where all your cash went. It should be the first indicator that you need to change the way you have been managing our business.
If you are still using cash accounting, the first step you need to take is moving to accrual-based management records. Accrual financials provide you with the tools necessary to make long-term management decisions that will benefit your business. Moving to accrual reporting will give you true cost of production and any equity gain will be the result of earnings, not market value adjustments. At the end of the day, market value adjustments look great on the balance sheet but only come to fruition if you are willing to sell your operation.
After moving to accrual financials, the next step is using enterprise analysis, which includes all costs allocated for overhead per flow of pigs by site. If you don’t know this information, costly mistakes can be made when it comes to risk management. I know the concern from most producers is, “How do I get there?” Looking for the right consultant is vital if you cannot hire for the right individual. There are several accounting firms and consultants that can get you the financial numbers necessary to making informed decisions about your operation. Once you have the right financial consultant on board, the next step is helping them create a robust forecast model for your operations. This will allow you to make the best decisions on meeting your income targets.
As you look at continued improvement for your operation, consider consultants to provide the expertise you need as it is difficult for a smaller producer to hire a full-time employee for to fit that role. If you find the right consultant for accounting, nutrition, animal health or even surrounding yourself with a board of advisors, they are there to help you to grow your business and to be as profitable as possible.
Steve Malakowsky is the Director of Swine Lending, with over 24 years of experience at Compeer. For more insights from Steve and the Compeer Swine Team, visit Compeer.com