How the Economy Crunch Could Affect Your Farm

October 9, 2008 07:00 PM
 

Sara Muri, Top Producer Business & Crops Online Editor
 
Riding the current agricultural economy's rollercoaster may be tossing and turning a little more than you'd like. The last few weeks have brought continued plunging in the commodity markets and an extremely weak dollar. While it's hard to determine what the future may hold, you should be aware of the ways your farm might be affected.
 
Bret Oelke, agricultural business management extension educator at the University of Minnesota, says he's been receiving many questions concerning what will happen if and when the funds exit the market. "We are in the process of finding out,” he says.
 
"It is uncertain when prices will stabilize and at what level,” Oelke says. "From a normal seasonality standpoint this is not a good time to sell grains and oilseeds as we would expect to see our harvest lows occur sometime in the months of August through October. But, as you are aware, what we are experiencing is anything but normal.”
 
These non-normal times are surfacing many questions and fears about the financial stability and livelihood on farms across the U.S. The following: availability of money, land sales, cash rents and crop insurance, are some possible areas that could influence your farm.
 
  • Availability of Money: Oelke says he has spoken with a many agricultural lenders over the past several days, inquiring about money availability for farmers. "It seems that at least at this point, interest rates are somewhat stable with both short-term and intermediate-term money in an adequate supply.”
But, he says, depending on where ag lenders receive their money, the situation could change. He says with the additional risk premiums in place along with artificially low prime rates, interest rates for ag lenders could dramatically increase.
 
  • Land Sales: Oelke says after several years of high land values, farmers now have expectations of where land values should fall. But, with the current low commodity prices, Oelke says he has seen more apprehension over the dollar signs associated with land.
"We are starting to see at least some caution on the values people are willing to pay for land,” he says.
 
  • Cash Rents: Oelke says another area the commodity prices decreases could affect is cash rent values. He says after the high cash rent values of last year, this year could prove as a stark contrast.
"One thing that will probably change is how long farmers are willing to lock in prices for their cash rents,” he says.
 
  • Crop Insurance: "Crop insurance will be impacted by the commodity price decline if we don't see stabilization soon,” Oelke says.
Currently, harvest prices are being set for Crop Revenue Coverage (CRC) in corn and both CRC and Revenue Assurance with a Harvest Price (RA/HP) in soybeans.
 

 
You can e-mail Sara Muri at smuri@farmjournal.com.
 

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