Pain in Ag Spreads Beyond the Farm03/14/2016
Net farm income is expected to be at its lowest level since 2002, according to USDA. Producers will struggle throughout 2016. But are we alone? No. All ag businesses depend on farmers, so when the farmers struggle, everyone else does too. Adjustments are slow, but steady.
We hosted the Brock Agricultural Economic Symposium last week in New Orleans. The group consisted of producers, lenders, ag businesses, and landowners. What’s interesting is the perspective these individuals shared. I’ve found that everyone with ties to agriculture is being challenged right now—not only producers. It’s not something that’s voiced frequently, especially in small towns. That’s why it’s helpful to meet people from other areas—you hear a more honest opinion.
The news is all about the struggle of the producer, but let’s take a look at challenges of other sectors.
Lenders. They may not be more concerned than farmers, but they are much more vocal about it. The problem is, lenders have responsibility without authority. They share the risk, but have little say so in the day-to-day decision making atmosphere. In all honesty, they don’t want to make day-to-day decisions, but are forced to step in sometimes. For example, we heard reports some lenders are budgeting cash rents in an attempt to maximize loan repayment. They’re also asking more questions about our marketing services to help producers make more calculated decisions.
Ag Businesses. Companies including equipment dealers and input suppliers are laying off employees and becoming quite creative marketing their products. For example, I’ve seen enticing lease and buying deals. Both are advertising internal financing—even though you’ll struggle to actually secure the money after the purchase. They have cut back on operating loans this year, or at least made it much harder to qualify. It’s all a game to corner buying power, but it shows they need your business.
Landowners. Landowners expect a steady return on investment—nothing new there. We hear so many stories of landowners holding all the cards and being inflexible, but they need cash flow as well. Sometimes the landowner needs the rent for land payments and family living, and not because he or she is greedy. Just like the producer, the landowner struggles when he sees a decline in income as well. For example, land is unspoken for in many parts of the country due to rent negotiation problems. The tenant can’t cash flow it and the landlord can’t stomach a reduction.
The good and bad news is everyone is in this together. About the time everything properly adjusts, the farm economy will change. Everyone is playing cat and mouse, but at the end of the day, good decisions are not easy. We will get through this cyclical time through good communication among all parties. Dad told me some years you just want to hang on. Keep your confidence, and remember as producers, we are not alone.
Source: Katie Hancock, AgWeb.com