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Farm financial crisis should be in its final stage

The nail in the coffin for some U.S. farmers now is cash flow.

Richard Brock

January 4, 2019

3 Min Read
Delta Farm Press

2018 is now behind us and it is time to look ahead as to what to expect in 2019. It is always best to have a plan “A” and a plan “B” because inevitably, there will be changes along the way that will cause adjustments to our long-term plan.

Every year is filled with opportunities. Sometimes they are difficult to see. Good managers recognize those opportunities and take advantage of them when they occur. In 2018, the best marketing opportunity for selling corn and soybeans occurred in May, right after the Memorial Day weekend. If that opportunity was missed, there were not any good catchup opportunities the rest of the year.

As we start the new year, there is no shortage of dismal forecasts in the grain and cotton markets. Always remember that market bottoms are made on negative news, not positive. These are all markets making bottoms, and marketing opportunities in the months ahead will be much better than what we are looking at today. Here are some thoughts.

Corn: Long-term corn prices are headed higher. Short-term, between now and planting time, probably not. We anticipate more positive news coming from lower yields on this past year’s crop than was forecast previously, and not as large of an acreage shift from soybeans to corn as some are expecting. Carryover supplies are large but manageable. Expect highs to occur late in the marketing season.

Soybeans: With all of the negative news on China and tariffs, how much worse can it get? That is the good news about soybeans. Surprises in this market will be on the positive side. The lows were made in September and the highs in prices will likely occur late in the growing season. This is not a time to be pessimistic. Better times lie ahead.

Cotton: As in soybeans, the negative news is getting built into market prices early. This will discourage increases in planted acreage and will encourage increases in demand. Between now and springtime is not a likely time to have strong prices. Weak prices now will discourage acreage increases.

Bigger picture

Stepping away from individual commodities, the farm financial crisis should be in its final stage. The nail in the coffin now is cash flows. Any producer who missed the bear market in 2013 by storing grain and not forward selling has not had many opportunities to recover. That was the most important year of the last 10. The difference in cash flows between a farmer who was not an aggressive seller and one who was amounted to over $300 per acre for two years.

Thus, the financial situation became tight quickly for those who missed the bear market. The first two years were years of eating through cash reserves. Then came a period of eating into equity. Now bank examiners are putting ag lenders in a position of making decisions that some prefer not to face. If a producer has not cash-flowed in the last three years, odds are reasonably high that that loan is going to be classified as non-performing. Banks do not like non-performing loans on their books.

Throughout the country, that is creating both a crisis and an opportunity. One solution that many people are opting for is to sell off part of their land holdings in order to stabilize their financial positions. There will be some 80- to 100-acre parcels for sale to help shore up financial statements. This creates an opportunity for young producers wanting to expand, and yet allows the producer who has gone through some difficult times to stay in business.

We at Brock Associates wish everyone a happy and prosperous year in 2019!

Source: Brock Associates, which 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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