The Agricultural Act of 2014 was written, for the most part, during a time when commodity prices were high and the agricultural community was benefiting from a period of rising input and equipment sales and increasing land values.
As farmers know all too well, the new farm bill is being implemented in a time of falling crop prices, and all members of the agricultural industry, including ag lenders, are feeling the effect of a downturn or flattening of land values.
“Quite candidly, I look at this very objectively,” says Greg Cole, president and CEO of AgHeritage Farm Credit Services, referring to the impact of the crop-insurance-based provisions of the new law. “With the direction we’re going, we will eliminate some farmers, and we’re going to eliminate some ag lenders. Bottom line.”
Cole, speaking during a session on the new farm bill at the Mid-South Agricultural and Environmental Law Conference in Memphis, Tenn, said farming has become an intellectual business and the margin for error is getting smaller.
“Here’s the deal,” he said. “You do not end up in the bottom 25 percent of that class when you’re a producer and an ag lender. The bar has gone up in America, and I’m not sure the policymakers understand the degree. But I get to see it every day. I see the real numbers and the trends and the dynamics, and it’s pretty obvious.”
Use all the tools
Cole says the lenders at AgHeritage Farm Credit Services, which is the largest ag lending institution in the U.S., urged their borrowers to make use of all the tools, including the farm bill decision aid and the crop insurance programs in the new farm bill.
“Looking at it from a macro perspective, I’ve told farmers to look at what you can live with and what you can’t live with,” he said. “The most important thing I’ve told them is ‘don’t bet your farm on this farm bill safety net and the related decisions, and don’t rely on the government to keep you in business.
“I’ve also told them don’t look for a silver bullet in this farm bill because it’s not there. That’s the one takeaway I’ve tried to give them in this whole picture.”
Farmers need to have a reality check, he said. “The commercial producer who is the owner of that farm is a CEO and, going forward, they have to develop the skill sets and mentality” that a CEO needs to run a business.
“Their success will be directly tied to getting the people and resources around them to influence them into the right decision or make the decision and have a management team that can help with those decisions,” says Cole. “Actually, many of you in this room – you may know it or not – you are their legal counsel.”
Farmers must rely on their attorneys, their agronomists, ag lenders and others. “That’s a skill set that they have to develop; that is that their success will depend on all the talent they can line up to help them make decisions. Those decisions determine profits and losses.”
AgHeritage lenders are also encouraging producers to develop comprehensive business plans with a more long-term view and contingencies. Growers should consider estate planning and their capital expenditures.
“They have to treat it more like a business, and there has to be a thought process to go through,” Cole says. “You look at the magnitude of what it costs to farm now with a cotton picker at $800,000, a $200,000 tractor. Those complex decision, land-leveling, you buy land, you rent land, what terms, there are a lot of variables that go into that.”
Growers need to know their cost of production, both variable and fixed, Cole says. “Are you growing pay checks faster than acres? The reality is a lot of producers don’t know those numbers to the degree they need to know them because that helps with farm bill selection.
“They also need to surround themselves with an ag lender who has the intellectual and financial capital to be there in the good times and the bad times.”
For more on managing a farm under the new farm bill, visit http://deltafarmpress.com/management/new-farm-bill-you-ll-need-be-better-managing-risk.