For producers, a home run hitter without a marketing plan gets the bragging rights at the coffee shop this year. In the long run, developing budgets with a range of probabilities, scenarios and outcomes given known costs and breakevens is very critical for long-term success. Having a diversified marketing and risk management plan that mitigates risk in a worst-case scenario and positions the business to capture profits during a favorable part of the cycle is critical. Producers need to be very careful not to lock themselves into fixed and variable costs, such as high rents, just in case the market crashes.

To lenders, the answer is getting back to basics. That is, requiring cash flows and profit analysis, a marketing plan that is executed and working capital reserves on the balance sheet to protect against financial adversity. Lenders need to be particularly conservative regarding the maximum amount loaned on land and other assets. Some lenders are dropping the limit from 80-85% of value to 60-65%.
