Retrospective

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Family living budgets are just as important as farm budgeting.

One of my favorite trips is to the small town of Bruning, Nebraska. After a visit to the local cemetery to pay my respects to Frank and Mary Bruning, who were good friends and mentors in my life, I headed to the Bruning Bank to meet with the staff. One of the longtime bankers pulled out a handout that Frank brought home from the 1985 American Bankers Association’s National Agricultural Bankers Conference in Dallas, Texas. The handout was a part of my keynote presentation titled “A Retrospective Look at Where Smart Credit Decisions Failed in the 1970s and 1980s Transition.” Are these economic times repeating?

  1. Agriculture and general economic conditions change rapidly. With the current inflationary environment, more intense global price competition, and a possible increase in interest rates, could history be repeating itself?
  1. Farm profits and an increase in net worth on the balance sheet were more a result of inflation rather than farm earnings. Recent skyrocketing land values coupled with government payments as a substantial percentage of net farm income may be providing a false sense of security, similar to decades ago. Smart credit decisions can fail quickly when the value of the biggest asset, that is land, falls by 30 to 50 percent.
  1. It is becoming more apparent in recent years that very little financial information was requested and verified by an inspection. This was an issue decades ago and it is still an issue today. Financial information is for both the loan request and for management of the business. Many credit scoring models require minimal financial information, so problems could occur very quickly.
  1. Open accounts and multiple lines of credit were ignored in the supervision process. One of the first signs of credit problems is a buildup of accounts payable and too many sources of credit. Today, these sources of credit can include credit cards which have seen rapid balance increases in recent months.
  1. Another culprit on the list decades ago was understanding family living expenses and the mismanagement of farm family financial management. Today, the problem often lies not with family living costs per family, but the number of people living out of the business. Family living budgets are just as important as farm budgeting.
  1. Poor to average production managers with little sensitivity for price and production changes were among the first to have financial issues during the 1970s farm crisis. Fast-forward to today and it is not only above average production management, but strong financials, marketing, and operational efficiency that is going to be necessary to have a successful business.

It was interesting to observe my old handout. PowerPoint presentations have definitely been an improvement, but some of the principles one decade ago are still very relevant today!

Source: David Kohlwhich is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. 

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