Higher Prices Brings More Risk With Business Partners

November 18, 2010 01:48 PM
 

With corn prices above $5.00/bu. and soybeans in the teens, and cotton at prices not seen in years, markets are vying for acres. Lots of them.

"I still think there is risk of the market going higher," says Sam Hudson, a market advisor with Water Street Advisory. "I also don’t see inputs dropping that much."

Hudson is counseling his clients to lock in input prices when they are relatively sure that they will have a comfortable margin for their anticipated 2011 margin. At the same time, he is telling his producers to hold as much of their sales as possible until they have a better idea of how much they will produce.

While producer may welcome these lofty market conditions and potential for even higher prices into next spring and summer, it also means the global markets will be more competitive and farmers need to ensure they’ll get what they pay for, says Paul DeBriyn, president and CEO of AgStar Financial Services.

"We’re definitely at a point where farmers really need to be diligent about their business relationships, who they do business with," Debryin says. "Use common sense as it relates to due diligence to make sure they’re doing business with a trustworthy business."

Dryin says there are obviously reasons why farmers want to delay payment or receive payment as they begin looking at year-end finances, and they should do this. Farmers just make sure you don’t take for granted that their business partners are going to do everything that’s in their best interests.

DeBryin offers these tips as potential signals for potential trouble at your supplier or commodity buyer:

  • Changes in behavior; are you being treated differently than you have in the past?
  • Are you seeing a lot of changes in the management or the people you do business with.
  • If it’s a cooperative, look at their financial statements.
  • Don’t be afraid or bashful to ask questions of the management or the board of directors about their financial position.  
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