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Cash-flow difficulties dog south Louisiana producers

Even before the recent hurricanes, many south Louisiana farmers were in financial jeopardy. “There’s been a sense — and it’s gotten worse lately — that a financial catastrophe is about to hit us,” says Eddie Eskew, Jefferson Davis Parish Extension agent. “Everyone is walking lightly.”

Eskew isn’t alone in his descriptions of rural angst. Southwest Louisiana agriculture lenders and industry reps didn’t meet until this summer, but fears about farmers’ financial peril were palpable even last spring.

“We knew a train wreck was just over the hill,” says Jerry Whatley, Calcasieu Parish Extension agent. “A bunch of us got that meeting together to see if we could hold it off. We wanted to get input from the financial community about what could be done.”

Despite the best intentions, few answers to the crisis were found.

“There weren’t any good options then, and there still aren’t. Let me tell you, even at that point, pre-hurricanes, what we heard was terribly unsettling. We were looking at some great rice yields. But getting them required the highest production costs ever. On top of all that, crop prices were in the doldrums.”

The prophesized train wreck is now closer, insists Whatley.

“Now, the situation is even worse. A lot of farmers have lost their capital to the hurricanes — grain bins, equipment, buildings. The second rice crop is a 95 percent loss and the input cost/crop price situation hasn’t improved a lick. We have 42 rice farmers in this parish and we may lose 30 of them by next year. That is not an exaggeration.”

If that proves out, Whatley says significant acreage in the parish won’t be in production. “We don’t have any viable agronomic alternatives other than rice and cattle. And if a rice farmer goes with cattle, he’s got to spend more money building fences and buying cows.”

Before the hurricanes, the LSU AgCenter was concerned with several agriculture sectors. “One was rice because of the high cost of production, low commodity prices and producers having to repay counter-cyclical payments from the 2003 crop,” says Kurt Guidry, LSU associate professor of economics. “It’s very difficult for a producer to come up with a financial plan that shows a positive cash flow for 2006. When you start penciling in $2.50-per-gallon diesel and $400-plus fertilizer, it’s almost impossible. And our producers and lenders are certainly trying. It just isn’t working.”

Projections for 2006 have become a difficult task. Even based on a just-completed record harvest, the ability of rice producers to pay off 2005 debts is, at best, iffy. Chances for higher fuel and fertilizer prices have put a damper on expectations for 2006.

“Even if rice prices improve a bit, that wouldn’t help much — we feel many producers will still have trouble obtaining operating loans for 2006,” says Guidry. “The same was, and is, true for sugarcane. Cane’s troubles have come more from increased cost of production, drought and the lingering impact of Hurricane Lily (in 2002). Since Lily there have been some very difficult production years.”

The recent destruction of Louisiana’s sugarcane fields is “unbelievable,” says Guidry. “The piled up debris and standing water are overwhelming. In spots, floodwater was so high some were using air-boats to get around in cane fields.”

Cotton in the state has also taken a beating. In Louisiana, given decent weather, “producers can make a lot of cotton. That’s especially true since more marginal land has been taken out of cotton production. With strong yields and loan rates and government payments, producers felt the pinch but not to the extent of other crops.”

That’s all gone away due to the hurricanes, especially Rita. “Many producers who had cotton left in the field when Rita hit lost 100 to 300 pounds to the ground,” says Guidry. “The good yields folks were counting on to project positive cash flow took a big hit.”

Guidry speaks with lenders often. All say they have a vested interest in producers staying in business.

“From what I gather, all are willing to work with producers to get things ironed out any way they can. But the unfortunate truth is what they can do is limited. Earlier this year, some lenders were saying we could lose 10 to 15 percent of our producers. That was before the storms.”

Eskew has heard from many farmers claiming they’re getting out. “I’m surprised there haven’t been more, to be honest. Rice prices haven’t changed much since harvest began. And prior to harvest, many producers were saying they’d been unable pay off loans. I don’t think it would surprise anyone if a big percentage of our farmers get out either voluntarily or as a function of not getting loans.”

Still, the expected exodus has yet to happen and Eskew hopes for the best. “There are a couple of ways to look at that: maybe things aren’t as bad as the farmers and lenders say and the good rice yields paid everything off. The other way to look at it is this is just a delayed reaction that will hit everyone in December and January.”

Rice is Jefferson Davis Parish’s number one cash crop. The parish is the state’s second-largest in rice production with 86,000 acres. While the second crop is mostly ruined, first crop yields were exceptional. During dry years like 2005, producers typically have good rice because disease pressure is lessened.

While yields were bumped and disease held back, such conditions led to added expense. “From the third week of March, when planting began, to the first of June, right after permanent flood, we had to pump daily,” says Whatley. “And I mean every day. There was no rain and that made an already expensive crop prohibitively expensive.

“I spoke to a farmer yesterday morning. He’s decided not to farm next year and he owns half his land. But he can’t make it cash flow. I hear that same story everywhere.”

Unfortunately, excellent rice yields don’t matter as much as they should.

“Loans were based on input costs that were much lower than what has played out,” says Eskew. “Not only did inputs start out the year higher than what the loan was made for, but they continued to rise. It’s the same situation for next year. What is a reasonable fuel price you pencil into a budget? Farmers have no idea what input costs will be next March or August.”

Such input cost uncertainty makes lenders even more gun-shy, says Guidry. “Even if your costs of production are high, you should be able to use an approximate figure for fuel and fertilizer. But diesel and fertilizer prices are just going to rise. The best-intentioned budgets are easily messed up in such an environment. This season is a perfect example of that.”

All interviewed say the only potential saving grace is additional disaster assistance from the government.

“That would at least put a bandage over the wound for a while,” says Guidry. “Many, if not most, farmers are in difficult, dangerous financial situations. People need to understand that.”

But most don’t understand it, even in agriculture-based areas.

“The normal person walking down the sidewalk in Baton Rouge has no idea about this,” says Guidry. “The LSU AgCenter is trying to remedy that. The last six weeks, all I’ve been doing is damage estimates for the hurricanes. We’re trying to get as much info out as we can. But there are so many issues facing everyone it’s hard to get their attention. A lot of our attempts are swallowed up by the headlines out of New Orleans and the storm recovery.”

Whatley has an easy, unsettling answer about why few understand agriculture’s plight. “I’ll tell you why only a few are paying this much mind: Americans haven’t been truly hungry in a long time. If they had, we would insist Congress take care of food security. Food would be at the top of the agenda.”

The nation will either pay for food production now or later, says Whatley. “I’m so concerned my grandkids will have to worry about our food supply. If we don’t maintain the structural integrity of American agriculture, we’re being foolish.

“I say that acknowledging that anything man has a hand in will lead to abuses. But I’m willing to accept those few abuses — along with the 99.9 percent of the system that is clean — to ensure the comfort of being able to drive somewhere 24 hours a day to pick up safe food. For me, to even consider sacrificing that ability is something our nation will pay a heavy price for.”

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