Despite a nice grain market rally this summer, corn and soybean farmers still face financial stress if expected record yields become reality this fall, further depressing long term prices.
“Unless something new comes along we’re going to have large crops, putting pressure on prices and pressure on farmers who missed the June rally,’ says Jerry Lehnertz, senior vice president at AgriBank, which provides wholesale funding for the Midwest Farm Credit Associations.
One bright spot on the horizon continues to be animal agriculture. Low prices make for lower feed costs and creates opportunity for producers to make money, he notes.
Even so, agriculture is now entering a fourth year of negative or minimal crop margins. The numbers tell the story. Earlier this summer Kansas Ag officials revealed the state’s average net farm income fell from nearly $129,000 in 2014 to about $4,500 last year. Based on Kansas Farm Management Association data, that was the lowest average net farm income since 1985, one of the worst years on record for U.S. agriculture. in Nebraska the average net farm income in 2015 was $29,432, 80% lower than the previous year, according to data compiled by Nebraska Farm Business financial analysts. In Iowa, the average net farm income was $18,000 in 2015, down from a 10-year average of $80,000, according to the Iowa Farm Business Association.
That’s why ag lenders are urging customers to communicate early and often regarding plans for next year.
“Farmers who once did not need loans for their business may now need to borrow money,” says Lehnertz. “You may need to rebalance your balance sheets. Some five-year terms for real estate loans may need to be moved to 15-20 year terms. Farm Credit Associations are seeing farmers come in the door looking for loans on 2-year-old combines. So it’s important to be an active communicator with your lender.”
It’s not possible to borrow your way out of debt, but you may be able to service more debt if structured properly. If you need to borrow more, take a look at divesting assets. You may have purchased 80 acres and 40 is not tillable; consider selling that unproductive asset. You may want to sell equipment that you no longer use, to build capital.
You may also need to shed big boy toys: boats, summer homes, high-end pickups. Can you live without those things?
“Most people are doing the right thing and positioning themselves for the future,” says Lehnertz. “Some are selling acreage based on their age, or maybe they just don’t have the passion to farm that they used to, based on these prices.
“I do think there’s a segment of the farming population that would have retired in 2012 if we hadn’t seen $6.50 per bu. corn,” he adds. “It was really difficult to walk away from that positive growth in net worth. But now that the game has changed, we’re seeing some people make the decision to cash it in. These people don’t want to stay in the game just to watch their net worth erode.”
Prudent managers will still rule the day, he adds.
“There’s a group of farmers who purchased equipment in 2013-14 and some of it is underutilized,” he concludes. “If they can make that asset efficient, keep costs under control and find ways to reduce investment per production unit, they should be just fine.”