The financial stress in agriculture this year looms large for farmers, many of whom are modifying input decisions and making other adjustments that might help them pencil out a return-on-investment with their 2024 crops.
“Farmers that are looking at their numbers on an accrual adjusted basis are becoming aware of the challenges, candidly, more quickly than the folks that are just focusing solely on cash basis profitability,” says Alan Hoskins, president and national sales director at American Farm Mortgage and Financial Services.
Over the past six to nine months, Hoskins says he has seen farmers do some “course corrections” in order to give their operations a firmer financial footing. He told AgriTalk Host Chip Flory on Tuesday that some of the modifications, though not all, can still be made today.
“There are three prevalent things I’ve seen farmers do,” he told Flory. They include:
1. Lock-in loan rates. Hoskins has seen farmers work with their lenders to get variable interest rates locked in. In some cases, Hoskins adds, the lender has been able to provide flexibility so growers could take advantage of those cases where loan interest rates decreased.
2. Consider equipment needs. “Some operations have done a good job of looking at how they might be able to pare down some equipment that’s not needed as much as it might have been at one time,” he told Flory.
Farmers have then turned around and used those dollars as a working capital supplement or for debt reduction, Hoskin says.
3. Reduce use of inputs. One option Hoskins cites is where soil test evaluations have indicated nutrient reductions could be made in a field or parts of a field without financially negative impacts on crop yields resulting.
None of the three decisions is easy, Hoskins adds, and he encourages farmers to look at their cost-reduction options from a numerical perspective rather than making an emotional response to their financial situation.
“It’s easier to adjust projections using numbers,” Hoskins says. “What I find is people make better decisions for their farm when they can see the potential ramification of their decision, rather than when they’re just concerned about spending additional dollars on the crop because of where the markets are.”
Economic Pressure On Lenders
Flory said he has heard that some banks are calling in farm loans early for some Iowa operations.
Hoskins says he has not heard of any specific instances this year.
“Please understand, I’m not sitting here saying there aren’t potentially specific instances of what you’re saying is true. But I don’t know of any personally,” Hoskins told Flory.
Hoskins adds there can be multiple reasons a bank might call a loan early.
“It might be the result of a discussion the lender had with a borrower, especially if performance wasn’t meeting a certain threshold that had been discussed previously, usually multiple years ahead of time,” Hoskin says.
He adds another scenario that occurs sometimes is an individual loan will be called in if the institution is electing to exit from a specific area of the lending marketplace.
“So, with each individual circumstance, there can be a different reason that the loan was called in,” Hoskin says.
Flory asked Hoskins what his thoughts are on how to “keep 2024 from stinking” following 2022 and 2023, which were more financially positive for U.S. agriculture overall.
Hoskins says he encourages farmers to keep their outlook on making sound financial decisions in 2024 that will help them stay in business beyond this year.
“If I’m a producer, I’m thinking about how to use my assets to most effectively work for me, and I’m keeping a long-term focus, not a 2024-only focus,” he says.
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