WEST LAFAYETTE, Ind. — Farmers need to position themselves to better survive an economic downturn in the agriculture industry, according to a couple of professors in Purdue University’s College of Agriculture.

While they don’t expect a bust in the farm economy after the recent boom, they do foresee lower prices for crops and weakening in demand over the next few years.

"If you look at this longer history of revenues, boom times are generally periods of strong demand, a lot of export demand, generally low interest rates and a declining value of the dollar," said Michael Boehlje, distinguished professor of agricultural economics.

"Now, the busts have been exactly the opposite. Demand fell off dramatically, exports particularly, the value of the dollar went up and interest rates went up."

Today, there is moderation in the growth of demand – but not a collapse – from biofuel, in the livestock sector and for exports, Boehlje added. The value of the dollar and interest rates are going up, but not quickly, he said. For those reasons, "we can argue that we’re going to have more of a soft landing or a moderation rather than the collapse you saw after the boom of the 1930s and the boom of the 1970s.

"Is this simply an adjustment down that’s going to happen for, say, 2015-2016, and then we’ll be back to really good incomes again? History would suggest that it probably is going to take a longer time to get the demand growth to pick up," he said.

Boehlje and other university officials spoke during an Oct. 31 webinar from Purdue’s Center for Commercial Agriculture.

Any strategy for farmers wanting to weather the potential storm should include protection of working capital, holding on to cash and restructuring debt, Boehlje said.

Working capital is the difference between current assets and current liabilities, and provides a financial cushion, he said.

Equipment dealers with too many pieces of used machinery may try to make it difficult for farmers to hold on to their cash, Boehlje cautioned. "In the next two months, they are going to give farmers the best deals they have ever seen in their lives to buy that used combine," he explained. "A one-year-old combine with a full warranty (with) no hours on it; they’re going to be willing to sell that combine for a 30, 40 percent, or even more, discount.

"Farmers are going to be so tempted to buy. If you’ve got lots of working capital and you really need it, that’s one thing. If you’re going to have to destroy your working capital to do it, that’s going to be a tough decision. But you need to seriously think about saying no."

As a part of their strategy, farmers should set a cost structure for what they pay for inputs, Boehlje noted.

"In the commodity industry, those that are successful are low-cost producers," he explained. "It isn’t rocket science. If you lock yourself into a high cost structure, you just really have a hard time getting out from under that problem, whether it be in terms of improving your yields or trying to sell your crop at higher prices. It’s really tough."

Crop farm incomes in Indiana are down 30 percent this year and are expected to drop another 35 percent in 2015, said Chris Hurt, professor of agricultural economics. Hoosiers had crop farm incomes of more than $3 billion in 2011 and 2012. Those incomes are expected to decrease to $1.7 billion this year and $1.1 billion in 2015.

While prices, and thus revenues, may change quickly, an adjustment in the cost of production often lags, he noted.

"If the marketplace, if the price, is going to be at these lower levels – more like $4 corn and $10 or slightly under on beans – that says we have to bring costs down by something around 20 percent," he said. "Now we don’t know how this will all be resolved, but I think we’ve got to have cost adjustments as we go into the future."

The outlook is better for livestock producers, Hurt said.

Indiana animal farm incomes, which represent about 30 percent of total receipts, will be $1.1 billion this year – a record high. They’re expected to be at a near-record high in 2015 at just below $1 billion.

Red meat and poultry producers were able to push prices up for their products by limiting the amount of those products, said James Mintert, director of the Center for Commercial Agriculture. In 2005, 2006 and 2007, the U.S. red meat and poultry supply was more than 220 pounds per capita, he noted. In 2014, that amount has dropped to slightly more than 200 pounds.

"As production costs increased in the last six or seven years, and feed costs were the primary growth factor there, the industry needed to find a way to recapture that increase in production costs," he said.

"Effectively, the way the industry did it was by putting fewer pounds of meat in front of U.S. consumers on a week-to-week, month-to-month, year-to-year basis."

Mintert expects a larger hog slaughter in 2015 and 2016. Producers may start to struggle beginning in 2016, in response to the increased supply and lower prices, he said.

It may take longer for the cattle industry to rebound. Cattle slaughter numbers, which dropped from 2013 to 2014, will continue to go down over the next two years as herds are rebuilt, he noted. Mintert stated he doesn’t expect to see an increase in slaughter numbers until 2017.