If you got into grain farming after prices started increasing in 2006, this is likely your first experience with a major market downturn. You have been farming in the boom times and the shift to the current situation can be a hard one to make psychologically.
Farmers are playing the ‘blinking game’ when it comes to cash rent. Currently cash rents are still higher than budgets can justify. It’s like each farmer is staring at another, hoping the other will back off and let go of high cash-rent farms first.
If you started farming recently, there’s a good chance that your cash flow and equity situations will not be as strong as more experienced farmers. You will want to have a good working relationship with your banker with open communication to make sure temporary cash flow problems will not put you out of business.
Be proactive to let them know about potential cash flow problems before they occur, not after. Possibly the best single action you can take is to find a mentor who made it through the 1980’s farm crisis intact.
Just how will this end? Unfortunately, I don’t see how this will end well -unless we have a return to $5 per bushel corn. No, I don’t think this will be anything like the 1980’s farm crisis that forced so many farm liquidations.
On average grain farmers have much lower debt loads and aren’t leveraged to the degree they were 30 years ago. Interest rates are nowhere near, and are unlikely to go anywhere near, where they were in the 1980’s.
All that said, we’re still going to have some tough times in our grain sector in the next few years. For many the upcoming years will likely be the worst they have ever seen. Some will be forced out of business, others will voluntarily leave. The extent to which this occurs will be driven somewhat by where grain prices end up.
But it will also be driven by how farmers plan for this downturn today. The worst thing that could occur is that collectively, grain farmers get caught in the cash- rent ‘blinking game’ for the next three years while grain prices stay at, or below current levels. If this occurs and no one blinks, we’ll lose a lot of grain farmers and those that survive will likely see significant decreases in net worth.
Or someone blinks – voluntarily and deliberately. Just remember: this isn’t a game, it’s for real!
- Greg Halich is an Associate Extension Professor in Farm Management Economics at the University of Kentucky. He can be reached at [email protected] or 859-257-8841.