How to Get the Support of Your Banker

Posted in: Production by admin on January 1, 2007

The world market for pork meat has been more difficult for the Canadian industry in 2005 and 2006. The world exports of pork meat that had an annual growth exceeding 10% since 1993 have now plateaued. Canadian production represents only 2% of the production worldwide; however, Canada is a very large exporter with 21.8% of the world exports in 2004. We are extremely dependent on the export market. 50% of the Canadian pork production is exported; since Canadian consumption of pork is relatively stable, most of the increases in production are directed toward the export market. As a result of the decrease of the US dollar relative to international currencies, Canada becomes less competitive on the American and Japanese markets. Canadian exporters had to turn to other markets (Australia, Mexico, Taiwan, Russia, etc). We have also been the arrival of new international competitors (e.g. Chile). In addition, our traditional opponents (e.g. United States) seem to do better and the markets are always more demanding. The number of producers and pork production itself has diminished, thus producers are in financial crisis. The implementation of strategies to control disease is essential. The producers and meat processors will have to lower their production costs to improve their competitiveness, to better coordinate different aspects of the industry and to better serve specialty markets (which are less sensitive to market prices). Even with all the unfavourable events affecting the swine producer’s earnings and although the risk rating of this portfolio is deteriorating slightly for the last 2 years, the National Bank of Canada remains confident that the majority of our best clients will overcome the current crisis. Historically, our swine producers, processors and exporters have overcome the challenge of that competitive market. What is a good business plan in today’s pork market? A good business plan explains to your partners why the company will succeed in the context of the actual swine industry market. This written document must describe the future orientation of your company and demonstrate your strategies to minimize the risk associated with your industry. Agricultural bankers expect regular business plan updates from the biggest borrowers. However, small farm owners generally prepare a brief business plan at startup, when transferring the company or when a major change occurs within the business (very often when a new investment or an additional loan is required). Your banker’s evaluation of your business is a mix of objective factors (financial ratios) and subjective factors (your integrity, your entrepreneurship and your management qualities). In difficult periods your integrity, your management aptitudes and your previous accomplishments will make all the difference for your banker’s confidence. Make sure that your account director knows your company and your team well. Be transparent and require the same transparency from your banker. Have a good analysis of the situation and an accurate estimate of your financial needs. At the beginning of a low cycle, be certain to have the liquid assets to survive the crisis: A cash flow budget to the best of your knowledge according to your production costs and the anticipated prices (for pigs and grains) by the analyst remains the best tool. The pork market continues to have price cycles. A good business plan is necessary in all parts of the cycle. It will help your business thrive during good times, prepare for poor times and help keep your banker and investors confident throughout.

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