Tens of thousands of U.S. farmers will face financial challenges in the time before and after harvest 2016, cautions Tommy Grisafi, Advance Trading. Because of that, it’s imperative for producers to meet with their bankers before harvest begins to have a candid conversation about the availability of operating loans and any next steps to take.
“I think it’s a very poor decision to try to let your banker track you down,” Grisafi tells “AgDay” host Clinton Griffiths in an exclusive video interview for the TV show’s Facebook page. “Even if you have a problem, that problem’s not going to go away. Some bankers are willing to work with people. If they’re not willing to work with you, you’re going to be in the market for a new banker.”
Be aware many other farmers will be in the same situation, he says. That makes it essential to be proactive.
“I would rather find that out early in this game because I don’t think you’re going to be the only one who needs a new banker this year,” Grisafi says. “You’re going to see a lot of switching. It was hard for a group of farmers to get operating [loans] this year. If they didn’t grow a good crop and sell it at good prices, they were going to be in trouble.”
That advice comes on the heels of July’s Rural Mainstreet Index, the latest available from Creighton University. The 10-state index fell below a reading of 40, marking the 11th consecutive month the index has been below growth neutral. Bankers expect nearly 20% of crop farmers will suffer negative cash flows in 2016, Griffiths says, meaning cash expenses will exceed revenues. Farm loan defaults are set to rise more than 5% in the next year.
In 2017, “if we don’t see an adjustment in inputs, we don’t see any adjustments in cash rents as a whole and we see commodity prices stay flat with where it appears they’re going to be, no question there’s going to be red ink,” says Alan Hoskins, American Farm Mortgage & Financial, in an “AgDay” interview. “To what level is that red ink going to be on a per-acre basis? Obviously it’s going to vary from producer to producer, but I certainly don’t think $50 to $100 per acre would not be out of the question.”
Grisafi notes farmers shouldn’t be afraid to admit if they didn’t make enough sales earlier in the year.
“We all mess up in life,” he says. “[Tell your banker,] ‘I messed up, this is my plan, this is what I’m doing, I’m selling this much grain here, I’m going to cash flow here, I’m going to be a little short here. What are our choices?’”