A view from Jeremy Ostrander, CEO of AgriVision Equipment & PrairieLand Partners - May/June 2024
Tightening our belts together… Watching for opportunity
As I write this on May 7th, the recent rains and modest commodity rally give us all a dose of optimism for the 2024 crop, and our hope of a reasonable profit margin at year end. The last 6 months of commodity declines has left us all looking at ways to tighten our collective belts. It isn’t something that is necessarily fun, or easy to talk about, especially for those that may have joined agriculture in the past 5 years.
Whether you grow crops, run a cow/calf operation, feed lot, feed mill, or equipment dealership; we all are required to take similar steps to navigate the agricultural trough cycles that tend to come every 7-10 years. Now I would be thrilled if something happened that gave grains a boost and put us all solidly back in the black for 2024, but I think it best if we plan for the worst and pray for the best. I thought I would share a few of the similarities that our customers and our business have in common.
Data and information play a key role, not just on the production cost side, but when managing finances and marketing too. If we can measure it, we can manage it… and that is truer than ever before. By analyzing our maintenance data on our ½ ton, mid duty, and large frame trucks, we have been able to shift our trade cycle to find the sweet spot on when to trade each of the groups of trucks. During the last 5 years, there was a window where it made sense to trade ½ ton pickups well before 100,000 miles, when we considered trade values, tires, brakes, etc. As the market has shifted, that trade cycle has likely extended to a sweet spot that is above 100,000, but well below 200,000 miles. The sweet spot for trade cycles on combines and tractors has shifted as well. It might have made sense for many to run a new 8R in the last 5 years, but in the next 5 years, 1-3 year old tractors may be the sweet spot when you consider financing, maintenance, risk, and technology.
Capital investment decisions can be a challenge to figure out, and the plan can change every year. It doesn’t mean not spending any money altogether is always the right choice, although for many in the survival window of the 80’s that was the right choice for a few years. I don’t believe we are at that window yet, so it’s a matter of being disciplined, buying what we need, and what can return an investment. For our business, we will continue to make investments in some of our facilities, while choosing to delay on others. It may mean that we speed up some systems investments that utilize safe and trustworthy AI capabilities, and reduce the need for duplicate data entry. Other systems updates will be delayed as the system is not perfect but is functional today. I know of farmers that are updating to ExactApply or See and Spray sprayer technology, despite the up-front investment, because the ROI pays off in a short window. This is highly dependent on crop mix and number of acres. Our goal is to help you figure out, WITH DATA, what makes sense for your operation. I have a family member that just commented that his technology package allowed him to get 75% of his crop planted before the extended rains in eastern Kansas, leaving him feeling really good about his recent Precision Ag purchases.
Position yourself to take advantage of opportunities. This can be a broad topic, but on a more specific note, if you are considering expansion, it might be worthwhile to take a look at your balance sheet and consider refinancing. Refinancing and restructuring debt and income/working capital to help make upgrades or expansion possible is something we can help with. Scan the QR code below to hear more from me on refinancing opportunities in a video.
For us, this could be an opportunity to buy in quantity when a manufacturer needs to move product quickly or beat a price increase. It may also mean using cash to explore new parts opportunities that offer our producers some new cost-efficient solutions……more to come on this in the summer months! I know a producer who normally did not purchase his NH3 until late fall or winter. Despite interest being at 8%, he was able to buy NH3 early last fall for $580/ton, versus $700-850/ton prices at later dates. His interest carrying cost was $25/ton as he had to borrow the money. Even his banker felt good about setting up the additional borrowing capacity, knowing that the return was 4-6X.
My encouragement is that we have been through this before. I have to remind and retrain my brain every time that we hit these cycles. We may need to get out of our comfort zone. While experience is beneficial in these times, I also find that a new set of eyes can help us look at things differently. Justin Dziowgo joined our team as our CFO a year ago. Justin came from the Construction industry and often brings new insight to our team, and asks good questions. He uses data and research to challenge our status quo, and this insight often challenges us to approach something a little different. If you are looking to get a different result and would like another set of eyes, please reach out to one of our Store Managers and we would be happy to share some of our findings. Be safe and enjoy the growth of Spring.
Hear more extended thoughts from Jeremy by scanning the QR Code.
