Ag Banker Suggests Walking Away From Land Draining Your Cash

November 22, 2017 08:43 AM
 
 

As grain comes crashing in this fall, the yield story is turning out to be very similar to 2017. The bountiful bushels are adding to an already heavy supply, a factor that continues to weigh on commodity prices.

“As the saying goes, ‘History doesn't repeat itself, but it sure does rhyme,’” said Jackson Takach, economist with Farmer Mac. “This year rhymes a lot with what we experienced last year in 2016. The good news is there's an outlet for the supply, so we have a lot of supply, but the demand is keeping pace.”

“It's very much deja vu all over again,” said Alan Hoskins, president and CEO of American Farm Mortgage. “We're standing here again saying yields are better than expected, and yet we see people continuing to do some of the same things we saw last year in the respect to not having a marketing plan in place.”

Hoskins says some row crop farmers are riding the turbulence better than others.

“The producers that are faring the best are the ones that are doing a good job in understanding their break evens, and even in these times where the rent is still higher than it should be, they're looking at realistically is it time to not farm some land,” said Hoskins. “That decision is based on the land not contributing to the wellbeing of the operation.  It's serving as a drain on cash.”

The pressure on cash flow is forcing some farmers out of business. Hoskins says in southern Illinois and Indiana, there are four farm auctions over the next month – a sign that shows the financial stress consuming farms today.

“While it is not a widespread wheels are coming off, I think there are definitely some producers out there that through discussions with their bankers or discussions with their accountants that are recognizing they've built some good equity, and maybe it is time to exit the production market place,” said Hoskins. “It doesn't mean they have to exit agriculture entirely, but we definitely at least in our area we are seeing an uptick in farm sales this year.

While the financial stress on farms mimics the 1980s, economists say it’s not the same as 30 years ago as interest rates haven’t skyrocketed. However, the cycle of depressed commodity prices is something agriculture can’t seem to break.

“I think we're going to have to sustain a few more years of the current economics,” said Takach. “I think this year and '19, there's probably not enough to move the needle. There's not going to be enough demand over the next two years to eat up all the supplies. We have record stocks for both corn soybeans and wheat, so it's going to take a few more years to churn that out.”

For farmers looking at a dire situation just trying to survive, bankers like Hoskins say it’s not time to panic.

“Look at each piece of land that you operate,” said Hoskins. “Determine if it is adding to or detracting from your overall cash flow. Perhaps you can decrease in size and become more profitable by doing that.”

While the situation may be ripe for some farmers to walk away, others will find a way to survive, through grit and the will to endure.

 

 

 

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Comments

 
Spell Check

Indiana Farmer
Fort Wayne, IN
11/22/2017 11:19 AM
 

  How about walking away from all your land instead? How many of you guys are hanging it up this year? My farm likely is. We are no match for the current farm economics that likely don't improve for years and years to come. God bless you guys out there that will soldier on. I am hopeful that things do turn around.

 
 
delta88
Memphis, TN
12/18/2017 09:45 AM
 

  If most operators would do enterprise budgets per commodity per rental tract they would which parcels are operating at a loss and draining their capital. I think a lot of producers are waking up to this. Soon, gone will be the days of "I cant let it go because I cant get it back". In our part of the world people look at overall cash flow across all owned and rented tracts. Painting with a very broad brush. The problem with that is that some parcels are losing money and are being subsidized by the better parcels. Time to wake up.

 
 

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