Latest / Dollars In The Dirt / #019 - How Farmers Can Survive The Diesel Crisis

Transcript

#019 - How Farmers Can Survive The Diesel Crisis · Dollars In The Dirt

• 0:00
  Right now diesel prices are eating into farming margins faster
• 0:03
  than almost any other input cost. Most producers think
• 0:07
  that because fuel prices fluctuate they just have to wear
• 0:10
  the cost and hope for a drop. Well the truth is when diesel
• 0:14
  becomes a major structural pressure on your cash flow it
• 0:17
  needs to be actively managed, just like interest rates or
• 0:20
  rainfall. After helping hundreds of farmers secure over
• 0:24
  a billion dollars in finance, I can tell you that the best operators
• 0:28
  don't just absorb high input costs, they restructure their
• 0:31
  working capital to absorb the shock. So in this video, I'm
• 0:35
  going to show you the exact four-step strategy to restructure your
• 0:39
  finance, free up cash flow, and manage volatile input
• 0:42
  costs without crippling your business. Welcome to Dollars
• 0:45
  in the Dirt. I'm Brecon Curtis, and this is where we break down the finance
• 0:49
  side of farming so you can grow your operation, buy that next property,
• 0:53
  and build real wealth. Let's get into it. So let's start with
• 0:56
  cashflow is king. The first thing you need to understand is that
• 1:00
  businesses don't fail because they are unprofitable. They fail
• 1:04
  because they run out of cash at the wrong time. With fuel prices
• 1:07
  doubling to over $3 a litre, those rising costs
• 1:11
  can quickly erode your margins and drain your bank account. You
• 1:14
  need to re-forecast your budgets immediately with a realistic diesel
• 1:18
  price and then stress test it with another 20% increase. You
• 1:22
  have to build buffers into your budget. If you're just scraping by on your
• 1:25
  current prices, a sudden spike could force you to
• 1:28
  make panic decisions, like selling off your herd. Working
• 1:32
  capital needs to absorb volatility shocks and not amplify them.
• 1:36
  It's about knowing your cost of production inside and out. Once
• 1:40
  you know your true cost of production with these new fuel prices,
• 1:44
  you can start reviewing your options. I had a client recently
• 1:48
  who had been burning through $20,000 a month in diesel just to keep
• 1:51
  the operation running. They were profitable on paper, but
• 1:54
  the cash flow timing was killing them. They were paying for
• 1:58
  fuel up front and then waiting 90 days to get paid for their produce. The
• 2:02
  gap is where the business dies. We had to sit down and
• 2:05
  completely rebuild their cash flow forecast. Not based on
• 2:09
  what they hoped fuel costs would be, but what it actually costs
• 2:12
  them today. Plus a 20% buffer. And
• 2:16
  if you aren't doing that right now, you're flying blind. And that
• 2:19
  leads to the next point around making sure your structure is
• 2:22
  organised. This leads us to a critical step, getting your loan
• 2:26
  structure right. You need to increase your working capital well
• 2:29
  in advance of needing it. Don't wait until the tank is
• 2:32
  empty and the bank account is dry. And as a broker, I
• 2:36
  work with clients to make sure their facilities are set up interest only to
• 2:40
  preserve their cash during the high cost periods. And you
• 2:43
  also need to make absolutely sure that capital purchases,
• 2:47
  like machinery or infrastructure, are not
• 2:50
  being funded through your working capital facilities. This is
• 2:53
  a guaranteed way to choke your cash flow. You need to get the structure
• 2:57
  right and give yourself breathing room. If your cash flow
• 3:00
  allows, consider bulk buying when possible or increasing on-farm
• 3:04
  storage. But don't empty your bank account just to save a
• 3:07
  few cents a litre. Think of your working capital
• 3:11
  facility like a shock absorber. If you're driving over a
• 3:14
  rough road like a massive spike in input costs, you
• 3:18
  need a big shock absorber. If your working capital limit is
• 3:21
  too tight, every bump is going to rattle the whole business. I
• 3:25
  see farmers all the time who have millions in equity but can't pay
• 3:28
  the fuel bill because their debt is structured entirely as a
• 3:32
  term loan with high principal and interest repayments And
• 3:35
  we structure the debt, pull out some of the equity, create a dedicated working
• 3:39
  capital facility, and suddenly they have the cash flow to
• 3:42
  operate without stress. And this leads
• 3:45
  me to the next point around asset utilisation and efficiency. Once
• 3:49
  your loan structure is sorted, you have to look at how you're
• 3:53
  actually using the fuel. Do you have the right machines for
• 3:56
  the size of your operation? It might seem counterintuitive to
• 4:00
  spend money when costs are high, but are older pieces
• 4:04
  of machinery costing you more in fuel than what they could save you in
• 4:07
  repayments on a new one? More efficient machines. You need to also
• 4:10
  consider utilising contractors for peak work instead of
• 4:14
  owning and running everything yourself. It's about being ruthless with
• 4:17
  your efficiency. I was looking at a client's machinery
• 4:21
  schedule the other day. They had an old tractor that was burning 30% more
• 4:25
  fuel per hour than a modern equivalent. They were
• 4:28
  holding onto it because it was paid off. But when they ran the
• 4:31
  numbers, the extra fuel cost over a year was actually higher
• 4:35
  than the finance repayments on a new efficient machine. And
• 4:38
  sometimes taking on debt to upgrade equipment is the
• 4:42
  smartest cash flow decision you can make, provided the
• 4:45
  efficiency gains outweigh the finance costs. you have
• 4:48
  to look at the total cost of operation and not just the debt level. Just
• 4:52
  quickly, if you're tired of expanding your operation to a new bank manager every
• 4:55
  year, only to get a one-size-fits-all deal that doesn't fit
• 4:59
  your business, we can help. At Season Finance, we do things differently.
• 5:02
  We've got over 70 years of combined experience in agricultural lending,
• 5:06
  and we work for you, not the banks. We're the consistent expert team
• 5:10
  in your corner fighting to get the finance that actually helps you grow, purchase
• 5:14
  the next property and build your legacy. Don't leave money on the table. If
• 5:18
  you're looking at your next move or just want a second opinion on your current setup, click
• 5:21
  the link in the show notes to book a confidential, no obligation chat
• 5:24
  with the team and we'll show you what's possible. Righto guys, now back
• 5:28
  to the episode. And this leads me to point four, having the mindset of
• 5:31
  a CEO. Finally, you have to adopt the mindset of
• 5:34
  a CEO. You're not just trying to survive, you want to be in a
• 5:37
  position to take advantage of opportunities when others are struggling.
• 5:41
  Treat fuel volatility exactly like you treat interest rates. It
• 5:45
  needs to be actively managed, be proactive in organising your
• 5:49
  working capital and don't fall into the trap of thinking prices will
• 5:52
  come back down. Assume this is the normal and plan accordingly.
• 5:57
  And most importantly, communicate early with your lenders about
• 6:01
  your plan moving forward. You can't control the diesel prices, but
• 6:04
  you can absolutely control how exposed you are to them.
• 6:08
  Keeping it positive and focus on managing your business. The
• 6:11
  producers who thrive in tough times are the ones who treat their farms
• 6:15
  like a corporate business. They don't complain about the things they can't control,
• 6:19
  and they're aggressively managing the things they can. They have regular
• 6:23
  meetings with their broker and their accountant, they review their budgets monthly,
• 6:27
  and they stress test with their assumptions. When the bank sees
• 6:30
  that level of professional management, they are far more likely to support
• 6:33
  you with working capital. It's about demonstrating control in
• 6:37
  an uncontrollable environment. So guys, at the time of recording this episode, the
• 6:41
  fuel price has actually retracted a little bit. We're seeing some producers that
• 6:45
  have seen a 30 to 40 cent reduction in diesel prices over
• 6:48
  the last couple of weeks. The point of this is though, is making sure that you've always got
• 6:51
  a buffer. You might be diesel this time, it's going to be fertilizers the
• 6:54
  next thing that's going to be spiking. All your input costs
• 6:58
  are quite volatile. Making sure we've got a buffer in
• 7:02
  your budgets is really important. Don't let a spike in input costs force
• 7:05
  you into selling assets that actually make you money. Get your structure right,
• 7:09
  build in your buffers, and manage the risk. If you need
• 7:12
  help reviewing your current loan structure to make sure the working capital
• 7:16
  you need, reach out to Season Finance. We can do the heavy
• 7:19
  lifting for you and look forward to seeing you in the next episode. Thanks for
• 7:22
  tuning in to Dollars in the Dirt. If you've got value from today's episode, make
• 7:26
  sure to subscribe so you never miss the insights you need to grow your business.
• 7:30
  And if you're ready to stop being just another number to the banks, visit
• 7:33
  Season Finance via the link in the show notes. Remember to follow