In the next 10 years a whole bunch of farmers will retire or leave land to another generation, opening up opportunities for a new breed of farmers. That’s how it should be, but now there’s a wrinkle, and it’s a big one: Will those young farmers have the financial smarts and bankroll to step in when the opportunities come along?
A few years ago the answer might have been a resounding “Yes.” Young people came back to the farm and looked longingly at the margins their parents were getting and said, “I could live with that.”
A few years of disappearing profits later, and we’ve all sobered up. Some of the best farmers have eaten through working capital and scrambled to stay above water.
Many farmers don’t know if they are bleeding financially; they’re in for a rude awakening. In our August survey of 1,125 farmers, 49% expected 2016 farm income to be even lower than 2015. Yet, many are doing things to stop that bleeding. Consider these nuggets from that survey:
- 64% plan to use existing seed varieties with no new traits to save money on 2017 crops
- 84% will run their existing line of equipment for another year
- 25% will buy used equipment to lower costs
- 59% say off-farm income will be more important to their family in 2017
- 78% plan to purchase generic chemicals to save money on 2017 crops
- 63% say they are ready to stop renting some of the land they farm if rents are too high
Positioned for 2017
Borrowing is not going to get easier this year. According to a Kansas City Fed third-quarter survey of farm lenders, over 7% of farm loans have had major or severe payment problems, more than double the averages in 2011-13. The use of farm real estate as collateral on non-real-estate farm loans increased sharply from a year ago. The share of collateral on loans of more than $250,000 that was comprised of farm real estate increased from 10% to 32%.
What do lenders think when you walk through the door? If you do these five things, financing shouldn’t be much of an issue:
- Lenders will work with farmers who can communicate and execute a plan, whether it’s for marketing, cash flow, or both.
- Understand breakeven analysis and keep family living expenses low. Look for that extra dime in your marketing plan. Watch for opportunities to keep yields above average. A lot of that is just paying attention to details.
- Lenders need to know how you will pay them back. You can walk into their office, tell them about the 50 acres that just came up for sale next to your farm and expect to be approved — but that’s not how it works. They need to see that you’ve done your homework. They need to see your accurate balance sheet, income statement, accrual income adjustments, and other key financials. They need to see the numbers before they can pull the trigger.
- Be conservative with your money. “This will be a learning experience,” says Dan Gieseke, Missouri Farm Service Agency farm loan chief. “Many have not been through a tough time. They need to be conservative now, so they can be ready to take advantage of opportunities when they come along.”
- Use records to do analyses. “My fear is that farmers don’t use them,” says Purdue economist Freddie Barnard. “In the ’80s, we got beat up. But the tools to do the analyses then were not out there. There are tools now. Just use them, and try to make informed decisions.”
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The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.