Plenty of water, what about cash?

Few in business would argue with the maxim ‘Cash is King’.

This year with the amount of water about most people will be assured of a good spring. It could fail but that is unlikely. But a good spring won’t make a good year financially for anyone who has a large area of barley and or wheat and is exposed to the spot market.

When the market is running hot people believe that it is unstoppable but in time it’s likely that it will come back to the trend line. The livestock markets have been hot with prime lamb where the Eastern States Trade Lamb Indicator is sitting in the low 500’s and the Eastern Young Cattle Indicator is over 700 cents

Conversely, when a market is falling it appears that there is no end to the fall as we are now experiencing with wheat and barley. Both are sitting at ten year low. But as we know from looking at history commodity markets in food production do bottom out and lift again.

From the point of view of the farm manager try to run a business through these highs and lows it is important to ensure the cash from the good times is invested to ensure that there is cash for the lean times. Cash is king and cash flow is the oil which ensures that the monarchy can continue.

Many clients well be in a situation where the increased cash from the last couple of years has been invested in fertiliser, fences, yards, land and in a general catch up with vehicles, plant and equipment. As a consequence it is likely that anybody who has used the recent surpluses to catch up and is depending significantly on wheat and barley will have budgets which now appear to be very optimistic. In those cases there will be a cash deficiency.

If your business is in this situation you need to talk to your banker sooner rather than later but it’s important before you have that conversation to ensure that you fully understand your cash requirements that you have a well-argued, well presented case which is realistic.

For many individuals it will be advantageous to have a third independent party to assist in the preparation the case for more money. Your Meridian Agriculture consultant can assist you in the review of your current budget the preparation of the case for increased borrowing and if necessary in seeking alternative sources of funds.