The cost-price squeeze for many farm operations means tight crop profit margins and cash flow constraints. With crop market price uncertainty, expect cash flow management to be a bigger challenge.

Farms that did a good job of preharvest-marketing their 2018 crop bushels or self-financing their farming operation will likely avoid most cash flow concerns. Other farms with debt might be holding large quantities of unpriced old-crop and soon new-crop bushels. These farms likely face cash flow challenges and even higher costs as interest charges accrue.

The new Market Facilitation Program (MFP) authorized under the Commodity Credit Corporation and administered by the USDA Farm Service Agency will provide funds sometime this fall.

However, don’t expect those payments to be large enough to provide an extensive benefit to cash flow needs.

Assess farm’s financial situation
Start to overcome fall cash flow challenges by identifying what and when bills and loan payments need to be made. One example is crop insurance premiums due Oct. 1 to avoid interest charges of up to 15% annual percentage rate.

For other bills, can partial payments be made without triggering additional penalties and interest charges? Does your farm operating loan have room to advance funds until crop sales are made?

If you know cash flow is already going to be a problem, communicate early with your creditors. Many primary ag lenders spent the past few winters restructuring existing farm loans to stretch out principal payments and free up depleted working capital.

These same lenders might be reluctant to restructure loans any time soon without a commitment of the borrower to improve cash flow management to meet existing debt obligations.

Farms without access to typical operating loans should use caution before advancing family living and farm-related expenses on credit cards or higher interest-bearing debt.
storing unpriced bushels

Focus early on understanding other crop marketing strategies and tools rather than storing bushels unpriced. With more farms facing cash flow constraints this fall, consider the delivery of bushels at harvest. Communicate with your grain merchandiser now regarding how various marketing tools could be used to shore up cash flow needs and avoid additional storage charges.

You can still benefit from “long deferred futures contracts” or “purchasing call options” using a basis contract or a minimum price contract. Consider delivering bushels to a processor where better cash prices exist reflecting basis. This will be especially true as harvest wraps up and basis begins to improve.

For bushels you plan to store, FSA offers a low-interest, nine-month non-recourse marketing loan on harvested grain. On-farm stored bushels will need to be measured and commercially stored grain be placed under a warehouse receipt.

This marketing loan amount is limited to your county loan rates, which in Iowa are typically below the national loan rates of $1.95 per bushel for corn and $5 per bushel for soybeans. Thus, the marketing loan program is not a marketing strategy for cash grain, just access to cheaper interest rates for up to nine months.

Long-term commercial storage
It could be well into winter or spring before corn and soybean futures prices rebound along with significant basis improvement. Overcoming the fixed costs of commercial drying, shrink and storage costs might prove challenging.

Adequate commercial storage space should be available at harvest, but basis improvement may be limited, especially for soybeans. Limitations of commercial storage costs and accruing interest on existing debt, along with any short-term basis improvement, could negate potential for a positive net return to grain ownership.

Squeeze continues
Expect the cost-price squeeze for many farm operations in the Midwest to continue well into 2019. Focus early on managing next year’s crop costs and making crop rotation decisions. Continued trade concerns will likely impact soybean prices more than corn.

This could mean more Brazilian soybean-planted acres and fewer U.S. acres. Rotating to more corn acres in 2019 could mean more fall tillage, the need for soil testing and fertilizer applications.

Consider the use of the ISU Ag Decision Maker web page on crop marketing and storage. This site contains information files, decision tools, voiced media and related training material. 

Johnson is an Iowa State University Extension farm management specialist. Reach him at [email protected].