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Does your farm business have a 'plan B'?

Does your farm business have a 'plan B'?
Can your farm weather low crop prices? Or profit from them?

Presentations at this year's Top Farmer Conference at Purdue University focused on the agriculture economy and the idea that low crop prices are here to stay—at least for the next few years.

Related: Innovative ways to cut 2016 crop costs

As a result presenters said farmers need to prepare for years of tight margins and be ready to make long-term decisions to survive with $4 corn and $9 soybeans. While soybeans are currently over $10 a bushel in the Chicago market, ideas presented at the conference are November soybeans will average closer to $9.50 the next few years.

Part of those farm business preparations should include a "Plan B," or an exit plan, should conditions deteriorate or improve.

You can buy very good used machinery vs. new in the next year to keep cash available, says Mike Boehlje, pictured here at the 2015 Farm Futures Business Summit.

"One of the considerations for a Plan B would be if we think they (low crop prices) are going to persist for a longer period of time," Mike Boehlje, a conference presenter and an agricultural economics professor at Purdue, told Farm Futures on the sidelines of the conference.

That Plan B may include shorter farm land rental agreements. Instead of a three-, four-, or five-year agreements, agree to a one- or two-year terms.

Other 'Plan B' considerations would be:

1. Delay the purchase of new equipment or buy well maintained used farm equipment instead of new.

2. Enter "rent-to-buy" arrangements on farmland rather than buying it.

3. Be prepared for a 20% to 25% decline in farm land values.

4. Build working capital and cash to take advantage of opportunities that down cycles often bring.

5. Consider opportunity to rent - cash rent is forecast to decline through 2018.

6. Prepare for lower returns on corn and soybeans through 2018.

A key point Boehlje makes is that farmers must anticipate trouble before it arrives. Such anticipation will make it easier to convince lenders to revamp credit terms or approve new credit.

"If trouble is here they (lenders) get nervous about approving credit. They may put conditions on, even charge you a higher interest rate as a risk premium," he said.

Related: How to wow your ag lenders

Also, prepare for unexpected improvement in the farm economy and move quickly before land and equipment prices go up or become unavailable. Have cash or credit available for such purchases.

"Right now is a perfect example. You can buy very good used machinery in the next year as a very, very good discount," he said.

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