From The Fields: Expect Turbulence
By Nicholas Felder
“Ladies and gentlemen please make sure your seat belt is securely fastened and your seat backs and tray tables are in their full upright position.” As many of us know, these instructions are for the safety and soundness of all those aboard commercial aircraft during what might not be a perfect landing. Well, we might all want to heed that advice and reiterate that to all our customers as soon as possible.
As of the date of this article, the American grain producer is facing $6.60 corn (which oscillated from $4.85 to $7.60 down to $5.65 now $6.60) and $13.94 soybeans (same $12.50, then $15.85, then $12.85, then $14.75, now $13.94) which isn’t all bad! However, all the pilots (and the passengers alike) who are flying across the 2022 crop year aren’t exactly sure where the runway is located and in what condition it stands. As they peer down towards harvest and post-harvest, they must deal with a dense layer of fog comprised of inflation, a strengthening dollar, global unrest, weather, mid-cycle fall elections, and the USDA’s export sales reporting system that went down just as these markets couldn’t get any more volatile. Basis spreads between new and old crops are leading the charge to what looks like a pre-harvest rally. However, the Dow and S&P markets are falling precipitously, leading some experts to believe a demand drag on domestic use is the next big hurdle for the 2022 and 2023 crop marketing cycles. Sell now or later? And, if that wasn’t enough, producers and lenders looking at the 2023 growing/feeding/milking year are facing decisions on things like fertilizer and chemical pricing, even before the ’22 crop really starts to turn away from its summer green. Can we really achieve a “soft landing” of any fashion in this environment? It’s the question both farmers and politicians are struggling to answer.
Change and interruption are inevitable in a global and electronic economy. Too many hands in the pot waiting to grab their “fair share,” while people and animals across the globe fight to find their next meal. However, preparation and a good commodity marketing offense is the best defense for headwinds of the nature noted above. It really all begins with cash flows that are created well before final planting decisions made. Then, regularly updating the living, breathing document as itemized expenses change or planting and crop maintenance is completed so it can be an accurate tool to price whatever commodity being produced. These strategies don’t have to be complex; just planned and emotionless. Nickels saved through discipline and, many times, luck create opportunities to land as softly as anyone is able in today’s environment. A producer can’t farm next year if he doesn’t make it through this year.
We all know that equity may be the key to growth, but liquidity is the key to longevity. As we transition into the autumn harvest season, your fellow banking professionals ask that you be that trusted advisor who is slightly risk averse, but supportive of growth and profitable ventures. There is still money to be made and balance sheets will improve if producers are intentional in their actions and lenders the same. The sky can be prevented from falling if we work together!
Thank you all for your service to the industry, diligence and support of America’s producers, and presence within your local communities. Wishing all a safe harvest season!
Nicholas Felder is vice president, commercial and ag banking, with MidWestOne Bank in Lancaster. Felder currently serves on the WBA Ag Section Board of Directors.