Drop Land to Save Cash

November 29, 2017 10:42 AM
 
Bankers say to evaluate each piece of ground to see if it adds to profitability

As combines rolled this fall, the yield story seemed to repeat 2016. The bountiful bushels were piled on top of 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,’” says Jackson Takach, an 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,” says Alan Hoskins, president and CEO of American Farm Mortgage. “We’re standing here again saying yields were better than expected, and yet we see people continuing to do some of the same things we saw last year in respect to not having a marketing plan in place.”

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

“The producers who are faring the best are the ones who 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,” Hoskins says. “That decision is based on the land not contributing to the well-being 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 set for December.

“While it is not a widespread wheels are coming off, I think there are definitely some producers out there who through discussions with their bankers or discussions with their accountants are recognizing they’ve built some good equity, and maybe it is time to exit the production market-place,” Hoskins says. “It doesn’t mean they have to exit agriculture entirely, but we definitely, at least in our area, 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,” Takach says. “I think this year and 2019, 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 corn, soybeans and wheat, so it’s going to take a few more years to churn that out.”

For farmers facing a dire situation just trying to survive, bankers such as Hoskins say it’s not time to panic.

“Look at each piece of land you operate,” Hoskins says. “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 might 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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