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Survive ‘the down years’

By Staff | Sep 14, 2016

"Part of your plan may include restructuring debt and/or liquidating assets to get your finances in order to weather this storm." John Rosemboom, vice president of Heartland Bank, in Manson.

MANSON – Now that $7 corn is just a memory and low commodity prices are stressing balance sheets and cash flows for most Iowa farmers, is there any hope in sight?

“Although the outlook feels dismal, Iowa’s agricultural bankers are here to help,” said John Rosenboom, vice president of Heartland Bank, in Manson. “Iowa banks are well capitalized and are ready to help their customers through this cycle.”

The current downturn in the ag economy isn’t a repeat of the 1980s, Rosenboom said. Unlike the farm crisis days, farmers are better off financially in 2016, with more equity and less leverage.

“Also, Iowa banks have strong balance sheets and are ready to help their customers out of this cycle,” Rosenboom said. “If your situation appears to be heading in the wrong direction, be proactive and meet with your banker.”

Plan now

Farmers and landowners also need to open lines of communication. As lenders run the numbers for 2017, rented acres are not penciling-out well once again.

“It’s important to have conversations with land owners on 2017 cash rent,” said Rosenboom, who is seeing more flex leases being considered to protect both the tenant and landowner. “They’ll need to sit down with a sharp pencil and work on the 2017 cash flow.”

Lower prices and tighter margins that stress profitability make sound management decisions more important than ever, according to Rosenboom.

He suggested starting by cutting all unnecessary expenses. Farmers will need to look into a mix of cutting expenses, diversifying the operation with livestock and/or searching for off-farm income, he said.

“Living expenses, although a sore subject, will need to be addressed immediately,” Rosenboom said.

Lenders have the tools to help create cash-flow and break-even projections as farmers plan their 2017 budget. Since ag lenders work with many producers and different types of farming operations, they can also offer helpful insights.

“Part of your plan may include restructuring debt and/or liquidating assets to get your finances in order to weather this storm,” Rosenboom said. “Your ag banker should also be familiar with other sources of financing and/or USDA loan guarantees that will enable them to provide the necessary funds to keep your farm operating.”

Even in a downturn, there are opportunities. Younger farmers who’ve built working capital and done a good job managing debt may have opportunities to purchase land in the future, Rosenboom noted.

“Also, there are some good programs offered by the Farm Service Agency that work in conjunction with your local bank to help land purchases cash flow,” he said. “The best advice is to begin planning for tomorrow today.”

Prepare for success

Going forward, marketing plans will also be imperative for getting sales made in the short profitable windows that have been popping up in recent years.

“The good operators know their cash flows, work closely with their lenders and build marketing plans before the seed is out of the bag,” said Rosenboom, who added that options may help protect against volatility before or after making sales.

Beware of emotions taking over when marketing grain, Rosenboom said.

“Instead of seeing bushels in the bin, farmers need to see dollars,” he said. “While some producers hit home runs in the recent past by holding on until it felt right to sell, good operators with a grasp on cash flow, along with a solid marketing plan, come out as winners over the long haul.”

Successful operators also manage debt wisely and build working capital during the good years to help them weather the challenging times. It’s the same strategy used by many Iowa banks, whose roots run deep in their communities, according to Rosenboom.

“Many of these banks’ history goes back generations,” he said, “they’ve been through these cycles before and they’re here to help their customers and communities succeed.”

Success requires a long-term view, especially in agriculture.

“Don’t let the stress of today’s markets paralyze you,” Rosenboom said. “Start working with your ag banker now and develop a plan to survive this down cycle so you can enjoy the next up cycle.”

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