In the past years, the agricultural economy has taken a hit due to low commodity prices, weather events, trade issues, just to name a few of the reasons. This did not only affect farms but also businesses that service them. In most cases, the farms have been owned for generations creating quite an emotional connection. This makes the decision very difficult to make changes, such as downsizing, selling off some assets, overcrowding barns, alternative crops, part-time jobs off the farm, working longer hours, or asking the lender to restructure. How does an Ag lender help these folks make the right decision? It is a multi-step process and timing is critical.
Some farmers who survived this downturn may have some collateral damage with vendors, lower feed or crop inventory. Prices are coming back to profitable levels, which is great news, but how can we protect ourselves from this happening again? The weather seems to be more challenging every year, record rains are causing wet spring planting and extended harvesting season. Can we turn things around before spring of 2020 so we can have some breathing room? Is it necessary to sell out some equity? Most farmers rely on their real estate for their retirement. Land values have remained steady through the years, so that is a positive. Other questions to think about, “Is there a next generation? Is my facility dated? Is there enough business IQ to see a future?”
These are some things that other farmers have done to help themselves through these times and plan for their future. Know your position financially; update, understand and review your balance sheet and income statement regularly. Build working capital so it can help protect you when the next downturn hits. Do we market our product or just sell on the open market? Studies show that farmers that market their products consistently make better profits. What marketing product should I use? DRP, DMC, LGM, Broker, Coop, or Milk processer? Know the cost to produce the product. Figure out if there is any fixed expense you can protect yourself from to avoid raising costs for the upcoming year, such as feed, fertilizer, seed, etc. If we don’t understand what it costs to produce, then it does not matter how we market our product. Conduct quarterly meetings with your team (Vet, Nutritionist, Banker, Breeder, Advisor, Crop Consultant) to generate ideas on how to improve your bottom line. These team members visit many different farms that have unique ways of doing things which could benefit others by sharing ideas. Look at all your expenses. As little as a 5% improvement in 10 different expenses can really add up. Building working capital should be one of the first goals of every farm to help with the high and low times of the year. Review the land you may rent or own and ask yourself if it is profitable or is it costing you? Should I be “double cropping” some acres to supplement higher rents and if so, is this even a possibility?
As lenders, we all need to step back and put ourselves in their shoes and help them work through the details of what needs to get done. Be honest with your farmers, don’t leave hard or conflictive details out of the conversation because you might offend someone. Lenders need to do this in a caring manner with true compassion for the industry and the people.
Chris Schneider is vice president of agricultural banking with Investors Community Bank in Manitowoc and serves on the WBA Agricultural Bankers Section Board.