Farming and ranching today can sometimes seem like a game of survival.
Commodity prices have fallen sharply since 2012, while input prices remain fairly strong. However, Farmer Mac points to the resiliency and fortitude of American farmers as to why farmers’ finances have held fairly strong, despite years of crumbling commodity prices.
“Farmers possess an ‘X-Factor’ that can’t be captured in a complicated excel spreadsheets and forecasting models,” said Curt Covington, executive vice president of Farmer Mac in the summer edition of “The Feed.”
Covington points to a couple dynamics that are leading to the “better than expected” performance in ag lending.
The first is the fact farmers knew when to tighten their belt, and took action to do so. He said strong farm balance sheets also provided some cushion during the current downturn.
The second factor he points to is lenders having a clear vision to help borrowers, while not panicking when times became tough for many.
“They maintained constant communication with their farm customers, their institution’s leadership and colleagues, and they adhered to their tried and true underwriting standards during the good times to be able to be supportive during the bad times,” said Covington.
Covington said the collapse of the farm economy in the 1980s came hard and fast. He said today, relatively low interest rates continue to support higher farmland prices, which may help explain why farm loan delinquency rates and loss rates are also better than expected.
So, what producers are doing the best in today’s financially environment? He said it’s the producers who pay attention to detail and aren’t blind to the keys of managing financial risks.
“Vocationally, there are some really good farmers out there,” said Covington. “I would also say that we judge the strength of the really top producers - the ones that are in the top quartile - are the ones that really manage their financial management really well, they've managed their risk management properly and they've controlled their expenses.”
He said it’s being able to make good decisions, based on strong information – and not excess noise- that is also leading to the resiliency in farm country.
“They're able to make decisions and make those decisions using a modicum amount of good information,” said Covington “Nothing is perfect, but clearly the top operators we see here are pushing their pencils every day, they're working hard to find ways to control their costs and they're finding ways to improve their marketing of their commodities.”
Covington says it’s pragmatism that ruled the day during the run-up in Midwest land prices in 2012 and 2013; the same kind of common sense – combined with patience- that’s paying off for many farmers today.