Lenders tell Purdue what they see down on the farm
WEST LAFAYETTE, Ind. Two years of low crop prices have caused lenders to focus on the finances of the farms in their portfolios, and prospects are mixed.
"Most farmers have seen an erosion of their financial position," says Chris Hurt, a Purdue University agricultural economist. "And while some will have no financial difficulties, some are being pushed beyond their financial limits."
Those who face the most hardship share several characteristics. "Farmers who raise hogs, have large amounts of debt, and were hit by the drought are the ones who will post a loss this season," Hurt says.
Hurt asked 43 agricultural lenders to answer broad questions about financial difficulties their clients may be facing. "The lenders who did respond thought 47 percent of their clients would have cash flow problems in the next year, and more than half would lose some net worth. They thought 7 percent were at risk of losing the farm operation," Hurt says. "On a positive note, they expected that 26 percent would have no financial difficulties."
As far as who's in trouble, the bankers indicated that hog farmers, those with medium-size crop operations or younger operators may be facing the most difficulty. The top three reasons, as reported by the bankers, were low prices, weak marketing skills and low yields.
As for what farmers might do about their financial straits, bankers said they thought farmers would first seek off-farm jobs, reduce inputs, sell excess assets and negotiate lower cash rents. Next on the list were improve marketing skills, quit farming, improve financial management and sell land.
Hurt says bankers perceive a decline in farm financial well-being, with about 1 farmer in 20 facing grave financial problems. "Lenders said they will be looking for detailed plans from those farmers on how they expect to meet expenses or how they plan to exit the business," Hurt says.
He says he expects medium-sized farms to be affected more than their colleagues on either side: "Larger farms have more of a cushion, they can spread their costs over more acres. The smaller farms already subsidize their operations with off-farm jobs. The concern is over the middle-sized farm that has the same level of fixed costs and family expenses, but fewer bushels of corn and beans to cover it."
And the root cause of the problem remains the same the lowest crop prices in 25 years because of large global crop production and weakened export demand. "Adjusted for inflation, soybean prices have hit their lowest since we started measuring," Hurt says.
CONTACT: Hurt, (765) 494-4273, firstname.lastname@example.org
Compiled by Chris Sigurdson, (765) 494-8415, email@example.com
Purdue News Service: (765) 494-2096; firstname.lastname@example.org