 Ken Kelly with the farm and agribusiness management team with the Alabama Cooperative Extension System. I want to talk a little bit today about farm operational continuity. How are we going to keep the farm going? What are we going to do in those times of disaster? How are we going to address those issues? As we go through this, we'll talk about several different things. Of course, it'll be pretty broad and pretty general because everybody's situation is going to be a little bit different. If you have questions afterwards after the video and you don't have all your questions answered by the presentation, feel free to email me at kelewi.com or call or text me on my cell phone at 251-238-0373. So when we talk about continuity, farm continuity, a lot of times normally when we talk about that, we're talking about succession planning and estate planning and how does the farm going to continue from generation to generation. And that is definitely continuity and part of the discussion we need to have and it's extremely important. But it doesn't address some issues like who knows how to do certain critical tasks, who knows when and how to fertilize, who knows all the computer passwords, knows what bills have to be paid and where you go to pay those, and just general things that have to be done for the farm to continue in times of emergency. And that's kind of what we're talking about today is operational continuity, not necessarily succession planning, but operational day-to-day when disasters happen. So do you really need an operational continuity plan? Well, yeah, I would say so. And I'll kind of start with the obvious. Okay. Anybody heard about COVID-19 that's going on is completely turned the world upside down. Hit every segment of our economy and every segment of our population has been hit by COVID-19. So we know stuff like that's out there now. Granted, it's a hundred year pandemic and we don't see those very often, but they do come along and we need to be prepared for them. And then there are things that are a little more individualized like avian influenza. We saw that hit a couple of our poultry producers over the last few years and certainly could have a large impact on the poultry industry. So those guys have to be ready for all that and it can affect other things too, like your hunting and your agri-tourism type stuff because of the bird interaction that goes on there. So those things play into our planning. Certainly natural disasters. Most of us remember Katrina, we remember Michael. Certainly where those disasters like that hit, they are extremely devastating. They hit all of our guys. And if you don't have some kind of continuity plan, how do you adjust to that? How do you make things work? How do you continue to cash flow during those situations? We also think about certain political and social events, 9-11 certainly upset a lot of different things really for several years, put us down a certain path on our economy and how things were going with that this last year. So we've seen riots, we've seen unrest and we've seen them before and we will see them again. Well, not everything pertains to everybody. Certainly if you're in the places where these things are part of what's going on around you, you have to be ready for those and you have to have some kind of continuity plan in place to address those. Certainly there weren't riots and unrest everywhere, but if you were in Seattle in chop, then absolutely in that district, you need a continuity plan for your business to continue working. Certainly hurricanes don't hit everybody, but where they do hit, we have to be aware of them. Then other things like just the economics, what are prices doing? Production economics, prices go up and down, inventories go up and down, the cost of production a lot of times goes up while the prices go down. So how do you address those issues? What is your plan for making it through that? So those are all kind of obvious. The things that sometimes we don't tend to think about, we'll call them the less obvious, but just as severe and just as important as death, we often have certain folks that are critical in our operation that know everything about the operation. They know everything that's going on. They know all the passwords. They know when to do this and when to do that. But if we lose someone like that, do we have a place to address that divorce? Divorce none of us want to think about that. Certainly we've seen that in all segments of our society. Probably firing is no exception to that rule. So we have to be prepared for that regulatory issues. What happens when you've based your whole crop on a certain science or certain chemistry being out there and then those chemistry changes? Or you're basing your industry on irrigation and all of a sudden the water is not available. What is our continuity plan? How do we address that? Weather, I know I mentioned natural disaster, but sometimes just weather in general, droughts and rain and floods and all are necessary natural disasters. They're just weather. They're going to happen. We have to be prepared to address them. One down there at the bottom employee liability. I think it's something that a lot of times we don't take into account. That really goes into business planning. You have to business plan. I have to have a business entity set up to protect yourself from that. But there's always a liability involved when you've got people working for you. But where you're liable for their actions. So all of these things come in place. Sometimes we don't think about them near as much as we do the others, but we have to be prepared to address those as need be. So an operational continuity plan, kind of what we're talking about is got to be part of your business plan. You should have a business plan as part of the setup of your operation. It doesn't have to be complicated. A lot of times when people want to have a business plan template, well, business plans are not complicated. They just tell you kind of where you're at and where you're trying to get going and how you think you're going to get there. And this operational continuity plan is a part of it. I'm going to mention this here and I'll mention it again later. You've got to have an exit plan as a component of your business plan and your operational continuity plan. There has to be a plan in place for that time when you suddenly look around and say, I can't continue to do this. We have to liquidate. We have to get out of this. How are we going to do that? So back to our business plans. I said our continuity plan needs to be part of our business plan. A couple of things. Own business plans in general. First of all, they should be written down. Anytime you write something down, it makes you think about it more. It makes the ideas more concrete. They're not as abstract. When you write things down, it also helps you kind of put in perspective some of the things that you might want to look at as far as strengths and weaknesses of your company. Write them down, look at them. How are you going to address those things? Business plans have to be realistic. It does no good to write a fairytale business plan that there's no way you can make it work. There are industries. There are certain segments of industries that is not realistic for some of us to be in. We should match our strengths to our business opportunities and we should be realistic. We should also be as thorough as possible. We have a real tendency to do outlines and form ideas based on some real basic things. That's great. That's how we start. But as we go through and develop our business plans and our continuity plans, we should be as thorough as possible. What do we look at when we're doing a continuity plan? It's not an overly complicated thing. There's usually not much of a template you would be working from on this. What you would try to do is list or state all the problems that you think might could possibly happen even though they might be a little bit out there, a little bit abstract. Try to list them all. They come up with a solution for those problems. None of us predicted COVID-19. None of us predicted Hurricane Michael being what it was. We have to have a plan in place. Some of those are more abstract than others, but we have to come up and list all the problems that we think could possibly happen and have a solution in place for them. So start by stating the issue or the events that you can throw. They can throw your business plan off track. What could throw your cash flow off track? What could make you not able to pay your bills? What could shut your business down? Think about these and how you're going to address each and every one of those. Sickness, we've mentioned these before, death, employees coming, going, interest rates going up and down. If you're based off operating loans and floating type loans and all of a sudden interest rates go up, can you cash flow? How much is your business based on prices that you're going to receive? And what can you do if those prices suddenly just fall out of the sky? If we have trade issues, if we have embargoes, if we have disease, if we have whatever and prices fluctuate, how do you address those? And of course, we're third divorce in there again because that's just a fact of life. I would say with so many business and business owners and business entities that affects that business. So you come up with an issue and then you try or a problem, a potential problem and you try to address how you would attack that issue on each and every one of them. So if we say sickness, we're worried about sickness in our business. Not certain that we didn't predict COVID-19, hard to predict that, but say flu, influenza, it can be just as devastating as COVID-19 at times. So you have sickness in your business and somebody sick. How are you going to address that? How about one example would be management responsibilities. If I'm sick, we'll go to my wife and my son will do the manual labor. That's a small farm situation there, but that's possibly reasonable. If you're sick, but they're not, we could certainly delegate in that way. That's a possible example. What about employees? What about if employees get sick or employees leave, they get better job offers. You have to hire an employee right in the middle of harvest season. What do you do then? Maybe you say I will develop a comprehensive training plan where all my employees are trained in multiple disciplines where different folks can do everything. We're not just depending on one person being there and if something happens to them, the whole situation shuts down. Maybe on prices you want to try to come up with a continuity plan to address prices. How you will handle prices if they go down and certainly prices go up. We like that, but if they go down, what in the world do we do? Maybe you say, well, I'm going to purchase whole farm revenue protection insurance. I'm going to get something out there to protect my pricing and my production. There's options that are out there. Again, each and every farm is going to be different. Think about this. Let's throw a scenario out there. If you were an Alabama cattle producer in 2019 coming into 2020, what we saw were prices were already pretty low. That's certainly lower than what cattle producers would have liked them to be in. We had an inventory that was really large which we knew was going to pressure prices. We had the hopes that trade was going to help us out. Some of our prices, but we knew a lot of proteins were going to be out there in competitive proteins. We already had pretty low prices and we were kind of anticipating that, but we were also hopeful for higher prices. Well, that didn't happen. COVID-19 comes in and drives prices even lower. I mean, pretty dead gum low in certain situations. They temporarily shut down some localized auction. So if we wanted to sell cattle when the shutdown first happened, if we wanted to sell cattle, we couldn't even sell cattle. They were ours until these things opened back up. Now they did open back up and it was temporary, but they temporarily shut down some of the processing sector which had a domino effect back through the feeding industry back to cow-calf operators in Alabama where the backup's there and it could take a long time to work through that. Some essential workers have to miss time. So if you needed to load animals, truck drivers have to be able to drive trucks. Some of these guys got sick, will get sick, have gotten sick. How do you address that? Maybe COVID limited some supplies that were essential. Maybe you didn't have all the feed and minerals and health supplies you needed and certainly they got there, but it took a little time and they were limited, you know. So when you look at those, and those are the types of things you want to look at when you're talking about your continuity plan. Those are some problems that we saw and maybe potential problems again. How would we address some of those? So if we went right now, so we didn't have a continuity plan, but we said we want to work on a continuity plan right now, we've seen that we need one after this COVID deal that we've went through. So what are some options for that cattle producer in that situation or any situation as he tries to plan? Maybe they say going forward, we're going to lower our stocking rate so that our cattle can be kept longer than planned on our farm without significant feed cost. We know that in the short term, that may be painful. That's going to make us kind of adjust our business plan. Our stocking rates going to go down, but we're going to be more sustainable that way when something like this happens again, same way with a drought or floods or anything like that that affects our forage. That's out there or maybe even affects our ability to market animals at a good price. Hey, we may need to hold these cattle a little bit longer if we lower that stocking rate. Maybe they can be kept longer than we planned on farm. How about implementing some rotational grazing strategies? Same type deal. We're going to better utilize our forage resources. We're going to work this into our plan. It's going to help long term. Part of our continuity is going to depend on us having more forage supply than we need on normal years. Maybe we look to start forward contract in our hedging cattle prices. Was there a chance for us to forward contract their hedge prices early in 2020? Yeah, we could look at some future, some options, maybe some different things going on there. A little early for forward contracting, but if we could do that, certainly as we look at doing these kind of things, it protects us long term when we could do that. Maybe we'd propagate relationships to multiple marketing options. In this particular year of COVID-19 in 2020, we saw certain stockyards close. Some did, some didn't. What do you do if the only option you've got is your local stockyards? Well, there are other options that are out there. Local stockyards are great options. Those guys are needed and we appreciate them, but maybe you propagate some relationships to multiple marketing options. It never hurts you to know multiple places you can go with your goods and maybe to get some prices from those guys periodically. Train multiple employees to handle move and manage cattle. We have people that are sick. If we have people that leave us for whatever reason, we're gonna have multiple people that know how to do things. We don't need just one person that does all of the shots. One person does all of the worm or one person does all of whatever health practice or handling practice. Everybody learns to handle different aspects. So if we lose one, two, if we lose some of our health, we can move forward in that situation. That's what a continuity plan is about. We're planning ahead. We've got things in place. We know things that are going to happen in case of those emergencies. We kind of plan ahead on that. So some considerations for your contingency plans or your continuity plans. Maintain some savings. That is an excellent plan for any of us in a form that can be easily turned into cash and that carries a low risk of loss. We never know when some of these events are going to happen. We have to plan in advanced form. Maybe pre-pay some debt in years when cash income is above average. Now, I realize the tax implications for doing this. I realized the kick in the can down the road theory. Got all that. Very seldom do we have multiple years where we make a large amount of cash income above average in any of our ag segments. So consider pre-paying some debt in the coming years when that happens. Spread that liability out a little bit there. Maybe we could carry some adequate insurance. That would help us cover some crop losses or casualties or some of the medical problems or even some of those civil liability as we talked about earlier. Carrying adequate insurance is a part of any continuity plan. All of these can be a part of a continuity plan. Sell off less productive assets to raise cash. The more cash we have, the better we can withstand market interruptions, things that are happening, things that could cost us money down the road. When we sell off our less productive, when we become more efficient in our production and put cash in our account, that helps us in case of disaster. That helps us be able to move forward through this continuity plan. And finally, as we kind of end out, we would just say the part we never want to talk about is the exit plan. Most business plans for farmers don't have an exit plan. We don't want to think we'd love doing what we do. We don't want to think about getting out of it. We'll just work a little bit harder. We'll work a little bit longer. We'll invest a little more of our time and our money into the business and we will make it work. That can't always happen. There is a need for all business and continuity plans to have an exit component to it. They need to be realistic. It's a realistic approach to retaining as much equity as possible. There has to be a point where when it gets to this point, we consider liquidating and we may consider getting back in at some point, but there comes a point where we got to get out of the business. We need to have a plan in place for that. Everybody's will be a little bit different. How we're going to do stuff, how we're going to liquidate where we're going to move assets to, that kind of thing. Certainly a plan in place as far as handling the tax liability of doing that is important, but just having a plan in general is what we're talking about here. Just remember, a hole can become too deep to dig out of. No matter how hard you work at it or how bad you want it, the more you dig, the deeper you get and you won't get out of the hole. At that point, you have to stop digging and figure a way to get out of the hole and not dig the hole any deeper. So again, none of us want to think about this component. It's extremely important though, how an exit plan as part of your continuity plan. So that's the end of our presentation. You know, there's no exact size to a continuity plan. There's no exact templates you have to work to hear. The important part is that you do work through it, that you do sit down and you do think about all the issues and all the problems that you could potentially have and come up with realistic real-world situations. We thank you for the opportunity to talk to you today. Again, if you'd like to talk to me more about this or about any farm and agribusiness topic, livestock economics, anything along those lines, please feel free to do that. You can reach me again at KELLEWIatAlburn.edu or 251-238-0373. Thank you very much.