Lenders Expect Farm Financial Performance to Moderate in 2014
Strong financial positions and smart risk-management practices will help farmers face upcoming challenges. Farm Bill expected to have neutral impact on performance.
A recent poll of chief credit officers for Farm Credit lenders in America’s heartland found that after years of exceptional growth, farm financial performance is expected to decline in 2014 as commodity prices moderate from recent record highs.
Saint Paul-based AgriBank conducted the poll in July among chief credit officers for the bank and its 17 affiliated Farm Credit Associations, which provide agricultural loans in a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. Farm Credit is the top source of loans for agricultural and rural borrowers in these states.
Sixty-seven percent of those surveyed said farm financial performance would generally be slightly worse this year compared to last year, while 22% said it would be worse. Several noted that farm financial performance will differ among different market segments.
“The poll reflects the reality that grain commodity prices are lower compared to last year, which will likely have some negative impact on profitability for crop producers this year,” said Jerry Lehnertz, vice president, lending for AgriBank. “On the flip side, most crop producers have entered this lower commodity price environment with strong overall financial positions. In addition, producers who purchase these grains as inputs for dairy products, ethanol, livestock and poultry may see increased profitability resulting from the lower grain prices.”
Risk management takes center stage
According to Lehnertz, despite a worsening outlook for profitability in 2014, a well-planned marketing strategy can help farmers accomplish short-run measurable objectives and long-run business goals.
“We are seeing commodity prices return to Earth after a period of remarkable growth,” Lehnertz said. “Smart financial strategies can help commodity producers maintain healthy financial positions through these challenges.”
Lehnertz identified key steps farmers should consider taking to help them weather upcoming challenges:
- Start by setting well-defined goals and objectives.
- Gather farm-specific production information — historic yields, crop-insurance levels, and fixed and variable costs — to better understand your unique circumstances.
- Look at commodity price scenarios, not just market forecasts, so you can be better prepared for the unexpected.
- Develop a customizable marketing toolbox so you can access the tools you need.
- Be sure to have a flexible marketing plan so you can adjust to changing market opportunities and challenges.
Producers who want to learn more about marketing strategy can contact their local Farm Credit lender or find their local lender at http://AgriBank.com.
Farm Bill implications
The chief credit officers surveyed indicated their Farm Credit borrowers would generally experience a neutral impact from the Agricultural Act of 2014, or Farm Bill. These agricultural lending experts were asked to rate the Farm Bill’s effect on the financial success of their borrowers on a scale of one to 10, with one being negative and 10 being positive. They gave an average rating of approximately five.
Many Farm Bill implementation details have yet to be determined and, with the elimination of direct payments, crop producers will have to choose between several programs that provide income support under adverse price or yield conditions. More than 76% of the chief credit officers surveyed said farmers are talking to their Farm Credit lending officers (or crop insurance specialists) about how the new Farm Bill will affect their operations.
“Producers are actively discussing the Farm Bill, even as many program details have yet to be determined,” Lehnertz said. “The Farm Bill is just part of the equation when it comes to farm finances and risk management. Farmers and ranchers are talking to experts such as Farm Credit to help them navigate an increasingly complex and volatile operating environment.”
