Record farm income and appreciated farmland values have boosted farm business balance sheets.
But farmers making record profits still may need to ask for a higher line of credit to stem rising input costs. “Higher costs in 2009 are likely to mean higher break-even prices for corn and beans,” says Leslie Miller, Iowa State Savings Bank, Knoxville. Ag banks may not feel much of a ripple from the subprime mortgage meltdown. But volatility of input prices, concern about land values, and lack of convergence between
terry Jones farms with his brother near Williamsburg, iowa, and is a partner in Russell cash and futures markets may trigger consulting group. He says banks may be more wary but still view farming favorably. tighter loan standards and scrutiny of cash flows, profit, and working capital.
capital is the issue, as credit lines SURE programs will be important.” boost liquidity first get stretched across multiple years. As farmers sign and date a current A survey of bankers in the 10th
I recommend a separate operating financial statement, they should ask Federal Reserve Bank District shows line for this year’s purchases of 2009 for an 8½×11-inch copy to provide a slight drop in expected farm income. inputs, in order to track the balance to suppliers and merchandisers. It also reveals a sharp rise in second- of 2009 prepaid expenses and to off- They also should ask for a current quarter loan demand from farmers set as assets when completing a new statement from suppliers. “You may seeking loans to pay for 2009 inputs. financial statement this winter.” be asked to sign a confidentiality Available funds aren’t a problem.
Miller agrees. “If a farmer comes statement,” says Moe Russell, Russell Marketing will be a key factor. “Bank- into our bank to pay for next year’s Consulting Group, Panora, Iowa. “If ers will ask farmers to hone their anhydrous, we set up a separate the statement hasn’t been audited or marketing strategies and skills,” Miller note,” she says. “It increases the lacks a qualified opinion, ask if you says. “We’ll be working with farmers credit line, but most have the net can visit with your supplier’s lender. to provide them with higher levels worth to support it at this time. Or, consider taking delivery when of marketing education. They’ll have
“As a rule of thumb, higher inputs you prepay for these inputs.” more need to use and to understand
create more risk. Farmers will need Johnson agrees. “Knowing who the Board of Trade.”
more net worth behind their loans,” you’re doing business with is criti- Keeping the lines of communication
she says. cal,” he says. “Farmers who prepay open with your bank is a priority. If
inputs or take deferred payment on you spot a potential issue, take the ini-
net worth must remain healthy grain or livestock [for tax purposes] tiative to address it with your lender.
To protect high-value crops, lend- are likely unsecured creditors.” Finally, farmers need to use 2008 ers also will expect farmers to create dollars to bolster liquidity by paying a floor against potential losses. industry financing packages debt and prepaying expenses. “Cash is king for a farmer expand- Alternative input financing is “Some machinery needs to be ing with limited equity and borrow- available from many retail suppli- replaced, but farmers need to closely ing power,” Johnson says. “Utilizing ers, including John Deere, Rabo figure what’s available after their input crop revenue insurance coverage, costs,” Miller says. and understanding the ACRE and
References:
Archives