farmgate: Quick Question: Will There Be Financial Stress On Farms In The Near Future, And Will You Be Able To Handle It?
Your grain farm income for the past two years has likely covered production costs, allowed some investments, and to improve the quality of life for your family. However, heading into 2009, your production costs are projected to be higher than potential marketing revenue, and you have a hollow feeling in your stomach about your financial position at this time next year. You are not alone.
Market volatility and high financial risk were prevalent last year and will remain close to you this year as well, say ag economists from Minnesota, Nebraska, Texas, Washington State, and Delaware. They surveyed farm lenders, ag educators, crop insurance agents, crop consultants, elevator managers, commodity market advisors, and others who are close to farmers. The responses paint a fairly clear financial picture of the 2009 farming year.
Of the 2,300 ag professionals who were surveyed, 84% believe farmers will experience financial stress in the next three years; with 45% believing the chance is high, and 39% believing it is very high. The remaining 16% think there is a moderate chance of financial stress on the horizon.
When lenders are broken out of the mix, 54% think the chance of financial stress is high in the next three years, and 26% give odds on it being very high. Only 20% think there is a moderate chance of financial stress, with none in the category of a low chance for stress.
But what about right now? Are producers feeling financial stress at the outset of 2009? Nearly 25% of producers say there may be 5% of farmers who are feeling the pinch, and another 25% say it is more like 10% under stress now. About 12% think more than 30% of farmers are feeling pressure. But when farmers were asked about the future, nearly 30% think farmers will feel financial stress in the next 3 years, and more than 45% say between 10% and 30% of farmers will feel the pressure by 2012.
What is contributing to the financial stress? The cost of inputs and market price volatility are the top two reasons, and both have a high to very high impact on farm stress. In the moderate impact category are such issues as negative cash flows, inadequate business planning, lack of management skills, and a tighter credit market. Factors that cause stress, but in a declining rank, are, machinery decisions, loss of off farm income, failure of input suppliers, failure of commodity buyers, changes in farm policy, rising interest rates and declining land values.
As farmers visit their lender, many of them are finding stricter requirements to obtain credit. While not all producers have found that lenders want more documentation, 56% say the requirements have changed slightly and 17% report substantial increases.
As the changes affect farmers, the question becomes how well equipped they are to weather the financial storm, if there is one. Unfortunately, only 8% of farmers feel they are well equipped with financial management skills to manage their business during a period of financial stress. 74% say they are moderately equipped, and 18% admit being poorly equipped. Combining the first two categories indicates over 80% feel some skill in managing their financial future if there are hard times ahead.
Summary:
No one really knows what will happen to the agricultural economy in the next three years, but most of those close to farmers believe there will be difficult financial times ahead. And they doubt that farmers are really able to weather any financial storm. While farmers also feel there will be difficult times for their farm in the next three years, more than 3 out of 4 think they will be reasonably equipped to handle whatever comes their way.
Posted by Stu Ellis on February 18, 2009 12:51 AM to farmgate