Overcoming the fall cash flow crunch
The cost-price squeeze for many farmers could mean tight crop profit margins and cash flow constraints this fall. Some farmers avoided cash flow concerns by pre-harvest marketing a portion of their 2019 crops while others may self-finance their farming operation. With a later than normal harvest, expect some challenges ahead for farms without access to credit and holding large quantities of unpriced old crop and now new crop bushels. These farms likely face a cash flow crunch as storage costs and interest charges accrue.
The 2019 Market Facilitation Program (MFP) will help, but do not expect these payments to be large enough to provide a large benefit if cash flow problems exist. The statewide average payment is $66 per acre paid in 3 different portions. That amount is less than 15 percent of a typical total crop revenue per acre. Such MFP payments would reflect roughly 36 cents per bushel on 180 bushels per acre final corn yield. For soybeans, the total payment would be about $1.32 per bushel on 50 bushels per acre final yield. Consider adding these amounts to your cash prices offered to reflect a net selling price per bushel. Using local processor bids offered at harvest, you’re close to $4 per bushel corn and $10 per bushel soybeans at harvest and avoid additional costs associated with storage.
Also consider overcoming your cash flow challenges by identifying what and when bills and loan payments need to be made. One example is crop insurance premiums are due before December 1 to avoid interest charges of up to 15 percent annual percentage rate. For other bills, perhaps a partial payment can be made without triggering additional penalties and interest charges.
If you know cash flow is already going to be a problem, communicate early with your creditors. Many primary ag lenders spent the past few winters restructuring existing farm loans to stretch out principal payments and free up depleted working capital. These same lenders might be reluctant to restructure loans any time soon without a commitment from the borrower to improve their cash flow management to meet existing debt obligations. Farms without access to typical operating loans should use caution before advancing family living and farm related expenses on credit cards or higher interest-bearing debt.
Focus now on understanding other crop marketing strategies and tools rather than just storing bushels unpriced. With more farms facing cash flow constraints this fall, consider the delivery of bushels at or soon after harvest. Corn basis this fall could be the most attractive in 5 years when compared this same time frame. Communicate with your grain merchandiser regarding how various marketing tools could be used to shore up cash flow needs and avoid additional storage charges.
For bushels you plan to store, the USDA Farm Service Agency (FSA) offers a low-interest, 9-month non-recourse marketing loan on harvested grain. Note that county loan rates increased in 2019 as a result of the new farm bill. The loan amount is dependent upon bushels committed and your county loan rates. The new national loan rates are $2.20 per bushel for corn and $6.20 per bushel for soybeans, respectively. On-farm stored bushels will need to be measured and commercially stored grain be placed under a warehouse receipt. Thus, the marketing loan program is not necessarily a marketing strategy for cash grain, but access to cheaper interest rates for up to 9 months.
Consider the use of the ISU Ag Decision Maker web page on crop marketing and storage decisions. This site contains information files, decision tools, voiced media and related training material. www.extension.iastate.edu/agdm/cdmarkets.html
Steve Johnson is an Iowa State University Extension and Outreach farm management specialist. He can be reached at email@example.com.
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