Contending with a Cash Crunch

Teresa Olson
By Teresa Olson January 8, 2018 08:43


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It’s a reality that credit for farming is tightening up throughout the corn belt and great plains.  Some farmers have used up their working capital (a measure of cash or grain available for sale to meet a farm’s financial obligations), leaving them with no money to operate on, and the situation hasn’t improved with better yields over the last two crop seasons.  Here are some signs:  John Jensen, a retired ag banker in Iowa, now works as a farm financial advisor.  He uses FINPACK , a financial software package that was developed in the 1980s to help the Farm Crisis victims.  Mark Holkup, recently retired farm management professor at Bismarck State College (North Dakota) estimates that a third of the producers that were hit by severe drought last summer may be challenged.  His successor, Kyle Olson says “about 10% of the balance sheets are looking pretty tough.”  In Nebraska, Tina Barrett (Exec. Director-NE Farm Business, Inc.) thinks about 5% of the service’s 600 members will struggle to get renewed.  In Minnesota, a hotline and Extension-based financial counseling was revived last winter, and Dale Nordquist (Assoc. Dir-U of MN Center for Farm Financial Mgt) says some calls are coming in.

If you’re a farmer in this predicament, don’t let ego, embarrassment, fear or denial get in your way.  Jensen identifies four areas that can be addressed to help re-balance an operation’s financial picture:

  • Know real costs of operation.
  • Know living expenses.
  • Know cost of production.
  • Know how much it takes to run the farm (i.e., utilities, taxes, fence/building costs, etc.)

He also lists several warning signs that you may be struggling:

  • Working capital has been gone for two years in a row.
  • Inability to make payments on term loan debt, resulting in loan rewriting.
  • A financial recovery plan is impractical or realistically impossible.
  • Rolling more debt into a new combine than what the old combine is worth.
  • Inability to pay off loans even after taking advantage of the government’s excessive machinery tax depreciation rules.
  • Crop yields are consistently running lower than county averages.

Jensen suggests finding a good lender and communicating with him on what needs to be done to get out of debt, but he also recommends talking to other lenders to get a second opinion (some lenders can give bad advice too).  Visiting your local Extension office and doing some extensive self-analysis might also help.

Even as bad as the financial situation is for some, it’s still easier to get out of debt than it was back in the 1980s.  Banks are less stressed, a strong economy offers off-farm work, land prices are still strong, and even in Kansas where farmers have survived  years of depressed wheat prices, few are insolvent.  They’re not candidates for bankruptcy as they show positive equity or net worth.

Tina Barrett gives this advice when tackling your plan to get out of debt:  Be Prepared. Be honest.  Be accountable.

My advice is…Don’t Give Up.

-Terry Olson, Titan Outlet Store Team



Teresa Olson
By Teresa Olson January 8, 2018 08:43
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