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Corn+Soybean Digest

Are You Upside Down?

My Road Warrior travels took me to the Land of 10,000 Lakes, Minnesota, to address two groups of agrilenders and agribusiness management professionals. Informal discussions led to a conclusion that high input costs combined with the rapid decline of commodity prices is now resulting in a potential for 2009 that grain producers will be upside down on the income statement for the first time in many years. This is a classic liquidity lag stage one situation, as discussed in this column well over a year ago.

Working with farm management staff and Extension personnel around the country finds that grain producers who did not forward contract could lose up to $200/acre. Of course, this will depend on rental and ownership cost, cost of inputs, drying and weather conditions to grow the crop. As farms become larger, there is a potential to wipe a half a million dollars or more off the balance sheet very quickly.

Moving forward, one must carefully analyze rental arrangements and land purchases. Economically, variables can go south very quickly analogous to the general economy.

Second, some individuals are utilizing minimal fertilizer maintenance for 2009 to gauge the economy; for others, it is business as usual. Conducting cash flow scenarios – perhaps as many as five different scenarios – with probabilities of each scenario materializing can help in prudent decision-making.

Finally, a group of young producers in one area of the county have decided to rent their rental and owned land out, sit on the sidelines and live off the profits garnished in recent years. Tough choices are coming in 2009 and beyond.

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