DES MOINES — The farmers at the Iowa Farm Bureau Federation’s Economic Summit held June 28 didn’t have to be told that 2019 has been a rough year. Between flooding, trade wars and low commodity prices, there has been no shortage of issues keeping farmers up at night.
But experts at the summit said there are some things farmers can do to cope.
“It’s concerning,” said Iowa Farm Bureau Federation President Craig Hill when talking about the economic situation.
The U.S. and world economies appear to be a in a slowdown, and there is legitimate concern a recession could be coming, according to Charlie Happel, chief investment officer for FBL Financial Group, the Iowa Farm Bureau’s insurance arm.
And while a relatively good harvest is still possible in 2019, it would require perfect weather from here until the end of the growing season, according to Dennis Todey, director of the Midwest Climate Hub for the USDA.
“We almost have to have a Goldilocks season for this to work this year,” Todey said — not too hot or dry, not too cold or wet. Just right.
Jim Knuth, senior vice president of Farm Credit Services of America, reminded farmers there is some positive news. Land values have remained surprisingly stable. Although they have dropped from the high reached a couple years ago, land values have not fallen at a dangerous rate.
As of June 1, he said Iowa’s average land value remained at about $108.09 per CSR (corn suitability rating) point.
Long-term interest rates have also remained fairly low, and variable rates are stable, Knuth said.
He said the key to surviving during these difficult economic times lies in good management.
“The pain for this cycle is not being evenly distributed,” he said.
The good managers who are going to survive do several things. They have positive working capital and have pursued additional sources of income, Knuth said. They have good financial acumen and use market tools. They use enterprise analysis and know what parts of their farm make money and what parts lose money. They are good contract negotiators and proactively work with landlords.
They are willing to sell under-performing assets, including land. They have a market plan and sell pre-harvest. They have payment flexibility, he said, and understand the difference between yield and profit. They look at making their farm better, not necessarily bigger.
The good managers are continually making adjustments, and they look at things holistically, understanding how different pieces of their business work together, Knuth said.
Most of all, they understand that, to survive, they need to spend as much time in the office as in the tractor cab or livestock barn.
There are several other items to keep in mind this year, he said. One is that equity, while important, is not cash.
“It does not repay loans,” Knuth said.
Net worth does not translate into cash flow, and right now cash flow is king, he said. That may mean selling an asset is the best choice to keep a business alive.
Finally, he said, hope is not a strategy. Talk to experts and have a reasonable business plan that will provide cash flow in difficult times.