Prices are down and times are tough for farmers and ranchers, but this is not a rerun of the 1980s and isn’t likely to turn into a full-blown crisis, Clark Jackman, regional vice president for the southeast region of Kansas Frontier Farm Credit told an overflow crowd attending a WIBW Radio Farm Profit Conference in Melvern, Kan., on March 7.
Jackman pointed to very low interest rates, stable land values and strong farm balance sheets in terms of debt ratio as positive signs that farmers will weather the current market downturn.
That’s not to say there are not farmers in big trouble — with some even exiting the industry, as income levels that peaked in 2012 continue to fall.
Some thriving, some not
“What you have in good times and bad are three levels. The top level is making money: more in some years and less in others. The middle level is hanging in there, making enough to survive but not enough to thrive, and the bottom level is losing money and exiting the industry,” he said. “The challenge is to learn what that top level of producers are doing, and try to do what they are doing,”
Jackman said the thriving producers in that top tier do have some things in common — even some that can be learned and used by those in the bottom tier.
“Those producers are proactive; they make decisions and take action — that can be as basic as talking to a landlord to negotiate a reduced cash rent, documenting living expenses and trying to reduce spending, or negotiating on the price of inputs,” he said. “They also have a marketing plan, know their cost of operation and are quick to sell when they can earn a profit.”
Those below the red line, he said, tend to be slower to make decisions or changes, and they often have not developed a marketing plan.
“In many cases, they are making purchases based on avoiding taxes,” he said. “Often, they have marginal resources and a net farm income that struggles to support family living expenses.”
He said some of those disadvantages cannot be overcome easily. Some have not been farming long enough to have the advantage of equity built up from the “glory days” of 2012 to 2014, or they may not have enough scale of operation to take advantage of leveraging opportunities.
Marketing plan essential
However, he said, producers facing tough times should give extra thought to a marketing plan that can help them understand the cost of production and improve their risk management system.
“It is absolutely essential, especially in tight times, that you understand your cost of production, have documentation of living expenses and have the proper tools in place to manage risk — including the right levels of crop insurance,” he told the group. “When you understand your cost of production, you know where your profit line is.”
He also urged farmers to look at their debt picture and to stabilize it as much as possible.
“Move everything you can to a fixed interest rate,” he said. “And don’t hesitate to get the right people involved to help you. Not everybody can be good at everything. If you need help, then find a family member with that skill, or hire help to get your plan in place.”
Jackman said he sees land values holding relatively stable, even as they continue to soften. He said he believes interest rates will increase slightly over the coming year, maybe as much as half a percentage point.
“The good news is, I don’t see any major negatives ahead. I think we can expect to see corn around $3.50. If you see a $4 on the board, sell. I see beans around $9.50. If you see $10, sell,” he advised.
Also on the positive side, he said, is a bump in cattle going to feedyards, which increases demand for feed. In addition, there’s and a report from the United Nations that sees the need to increase the available food supply for a rising human population.