LOUISVILLE, Ky. — The continuing economic downturn in agriculture is leading to more conversations between lenders and farmers about finances and credit, according to an official with Farm Credit Mid-America (FCMA).

 

“We’re talking more about breakeven points, working capital, fixed and variable costs,” said Evan Hahn, FCMA’s vice  president credit-agribusiness. “It’s a good time to look over records. I recommend talking with lenders early and often.”

 

Depending on their situation, some farmers have found a little more difficulty in obtaining credit, he noted. “Some are having challenges and some aren’t, and we’re here to help customers through those challenging times,” he explained.

 

“The difference is between those with high and low fixed costs. Those with high fixed costs are having challenges sooner than those with low fixed costs. Variable costs are coming down.”

 

Fixed costs are land – either rented or owned – plus equipment and labor. Farmers should try to negotiate lower cash rents, he said. “They should also look over what equipment they have and determine what they need,” Hahn noted.

 

“They should look at what they need to be efficient. They can maybe look at ways to cut employees to get by with a leaner labor force. It’s easier to justify a little extra labor when times are better.”

 

The loan renewal season wasn’t as bad as some had expected, said Howard Halderman, president of Halderman Farm Management and Halderman Real Estate Services, based in Wabash, Ind. He spoke with lenders over the winter at farm shows and seminars.

 

“There were more challenges and it took more effort, but they felt all or the majority (of producers) would be renewed for 2017,” he said. “The lenders said the season was more difficult.”

 

Given the current profit margin situation, lenders are concerned about a farmer’s ability to repay a loan, said Jim Radintz, deputy administrator for farm loan programs for the USDA’s Farm Service Agency (FSA). “There’s plenty of funding available,” he noted. “Lenders aren’t short of money to loan. From what the lenders tell me, it’s more about the perception of higher risk.”

 

Fiscal year 2016, which closed at the end of September, was record-breaking in terms of loan volume, Radintz said.

 

“This year, we aren’t quite at the same pace as last year, but we’re still seeing robust loan demand.”

 

He recommended farmers stay in communication with lenders and be forthcoming and transparent. They should also have a good marketing plan and risk management strategy.

 

Halderman’s company manages about 650 farms in 19 states, including Indiana and the four surrounding states. Of those farmers, one defaulted and another opted to get out of farming. “Historically, there’s some degree of turnover,” he stated. “But it didn’t all of a sudden jump to 15 to 30 leaving, where you’d say, ‘Oh my land, the sky is falling.’”

 

Some lenders might be taking a second look at the amount of loan collateral they require, he said. “It’s possible that some lending institutions are asking for additional collateral,” he explained. “They’re using an abundance of caution.”

 

Farmers facing tightening finances need to know their cost of production for corn and soybeans, Halderman said. “Hopefully they already have crop insurance. They have to be an aggressive marketer. If I were a producer and knew my financing was tight, I’d be an aggressive seller if the market allowed me to make a profit. “If I can sell above my production costs, I’m going to sell.”

 

Producers should also communicate with their lenders and share with them how they’re trying to be more efficient and lower costs, he said.

 

Farmers may also talk with peers or university experts, Hahn noted. “The drop in commodity prices happened so quick and so severe that it was going to catch some people, regardless,” he said. “The goal is to work through the downturn and make adjustments as quickly as you can. There’s still a fair amount of optimism out there. In agriculture in general, you have to be a little more optimistic.” 

 

Congressional testimony Scott Marlow, executive director of the Rural Advancement Foundation International, painted a more pessimistic picture in April testimony before the U.S.

 

House Subcommittee on Commodity Exchanges, Energy and Credit. His organization provides counseling to farmers under financial stress.

 

“Our calls are up, especially from commodity farmers who have been turned down for their operating loans,” he told the subcommittee. “The severity and sense of frustration of those calls have increased.

 

No matter how we measure the severity of the need, whether the number of farmers or the level of crisis of the call, this year is significantly worse than last year.

 

“My first point to you is that these numbers represent families that are struggling to stay afloat, to care for their land andtheir families, and to find a way to bring their kids back to the farm. Their hope is that they can show their kids that rather than leaving the farm for a better life, that farming is the better life. With the current income projections, we know the toll financial stress takes on farm families.”

 

Marlow said in order for USDA loan programs to be successful, they need sufficient funding to meet demand, along with enough people to properly administer the programs.