Hand with calculator

ORANGE CITY, Iowa — Even with milk prices trending up, there is lots of uncertainty still in the marketplace, according to Iowa State Extension Northwest Iowa Dairy Specialist Fred Hall. Continuing weather struggles, trade and tariff issues and forage quality and availability all weigh heavily on ag producers’ minds as they struggle to finish the 2019 season.

In the next few months, lenders and borrowers will be sitting down and reviewing loan portfolios. Bankers will be asking more questions and looking for more information to evaluate loans.

“With cow numbers moderating and storage levels slowing or declining, there is the expectation that milk prices will continue to improve in the dairy industry,” Hall said in an Extension news release. “Current domestic consumption seems to be holding, but there’s lots of signals out there that point to a decline in the global and U.S. economic health. A recession in this country would certainly put the damper on things.”

Hall shared three recommendations for what every ag borrower should have ready when they walk into their lender’s office for an annual review.

1. Bring the right information. Provide the lender with your operating plan and financing needs for the coming year.

Assumptions for financial projections need to be supported with yields, prices and other performance information that is realistic. The plan should include a risk management component that addresses marketing, crop insurance and cost control strategies.

If you are not using accrual accounting, start. It is the basis for many of the ratios and indexes bankers use.

2. Working capital is king. Be attentive to working capital, the difference between current assets and current liabilities of the business. Some ag economists refer to working capital as the first line and best “defense” against financial stress, and ag lenders tend to watch this very closely.

What is the status and trend of this component of your financial condition, and, if declining, how can it be improved?

3. Build trust. Trust is an essential component of any sound business relationship. The borrower deserves to know if the lender is concerned with the business while also providing assistance and advice toward the resolution of any issues. In turn, the lender needs to learn about financial difficulties directly from the borrower and on a timely basis.

“One key thing that lenders look for is current information on markets, trends and industry changes,” Hall said. “The Iowa State University Extension and Outreach Dairy Team hosts the annual Siouxland Ag Lenders Seminar to bring the current needed information to both lenders and producers.”

Lenders who serve agricultural clients are encouraged to attend the Siouxland Ag Lenders Seminar on Nov. 7 at the Triple Box in Orange City. The seminar will focus on market outlooks for livestock, grains and dairy along with the issues of farm technology, new record data and reporting plus tax laws affecting agriculture.

Understanding the current market trends and risks is a necessary part of farm management assistance, Hall said.

“Lenders and consultants working with dairymen have the additional necessity of understanding a complex system of milk marketing, labor inputs and federal policy implications,” he said.

Hall recommends that producers invite their lender to attend with them, just one way of building trust between the two parties.


To access more information or register for the seminar, visit https://tinyurl.com/y234qjfx. For more information, contact Fred Hall at 712-737-4230.

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