The Agriculture Enterprise Projections
All kinds of businesses face seasonal fluctuations, but few have the extreme ups and downs that agribusiness does. As has been pointed out before, not only is agribusiness seasonal, prices fluctuate with the supply and demand of a worldwide market. In this market then, Ag producers often change from one crop to another as conditions warrant. These adjustments affect not only the farmer’s production, but all the downstream operations tied to that production. Add in weather, the price of fuel, global influences and a host of other variables and it makes any planning from one year to the next difficult. Whatever your place in the production process; grower, processor or retailer, you will have to modify your plans to accommodate these many variables.
So because of this, a person reading your business plan and looking at the financial projections must be made aware that most estimates are within a likely range of possibilities. This range must be realistic and based on historical precedence and future price and supply estimates from reputable reporting services. Most agriculture prices peak and ebb from time to time, most often trade within a normal price range. Extremely high prices seldom last for long because producers throughout the world increase production as soon as they can get in the field. Low prices can persist for a while if the demand for the product is not growing. Some products fall out of favor and the retailers reduce their purchases. Once gone from public view they seldom return. Substitute products come along that get more promotion and the consumers define this as their new standard.
For the long term view agriculture products and Ag processing have a bright future. People are demanding more processed food; ready to eat and conveniently packaged. People continue to each out and have acquired a taste for all kinds of ethic and regional cuisine. In the very near future few ag products will be displayed in the grocery store in their “picked” state. Lettuce is already chopped, carrots are already pealed and potatoes are found in the freezer section ready to heat and eat.
The world continues to add more mouths to feed every day. Developing countries are gaining prominence as they take over much of the manufacturing tasks. These people now have the resources to purchase food that they could not afford only a short time ago. Agriculture production in other parts of the world has increased as well to counter the demand.
Wherever you are in the production cycle in agriculture you are going to be faced with highs and lows. If you are trying to make decisions toward expansion or entering into new markets, you should probably budget based on the low end of the range. This will keep you out of trouble unless an extreme event should befall the industry. How do you come up with reasonable numbers? In agriculture this isn’t as hard as it might sound. The number of acres planted (by you or the farmers that supply you) can be estimated fairly accurately by crop reporting services. The future price is always subject to the whims of consumers and the unpredictable weather, but it will normally trade in a range published for everyone to see. You can even lock in future prices with forward contracting.
If you carefully consider the options and research the available data, future revenue projections can be reasonably projected. Of course, it’s always better to have locked in contracts or price guarantees, but these are not always available for everyone in the cycle.