After another year of low commodity prices and expected record yields, Bill Watson, president of UMB Bank’s agribusiness division, knows farmers are facing financial challenges.
“We’ve still got some pretty depressed commodity prices,” he says.
Heavy rains throughout soybean growing regions delayed harvest and gave prices a modest boost, but they remain low.
“As long as we have these big stocks,” Watson says, “we’ll see a pretty tight lid on commodity prices.”
The biggest and most efficient farmers — and those without debt — are faring the best, but many farmers are feeling the effects, he says.
“The smaller grain farmers, they’re struggling,” Watson says. “Those without much debt or equipment payments are kind of doing OK. … Even folks that are cash flowing, they’re not cash flowing like they used to.”
The prolonged lower commodity prices have caused producers to think harder about borrowing money.
“I think people are very, very cautious about adding debt, as they should be,” Watson says.
Scott Brown, an ag economist for the University of Missouri, says the situation has been challenging.
“I continue to be worried about the financial situation that a lot of our producers are in,” he says.
Adding to the challenge in 2018, much of Missouri and some other parts of the Midwest faced drought conditions.
“Not only do we have short crops, but they’re being paid less for them,” Brown says.
The lower prices have come on the heels of some very prosperous years, but Brown says those may have been the exception.
“I think the last few years may be more the norm than what we came out of in 2013 and 2014,” he says.
A more widespread drought could actually help, although the situation is different than in 2012, Brown says.
“I’ll remind folks that we have higher stocks of crops than we did heading into 2012,” he says.
Still short crops could have an impact on prices, and African swine fever in China could boost the U.S. pork industry, Brown says.
On the positive side, land values have mostly held even.
“Land prices are still stable, especially on quality land,” Watson says.
Some lower-quality ground has seen a slight decline in value, Watson says.
Even as farmers are more cautious about borrowing money to buy land, there are still situations where they’re looking to buy.
“Sometimes the land adjacent to your farm comes up for sale,” he says. “You might not get another chance to buy it. Lots of ground only comes up for sale every 25 or 30 years.”
“You’re still going to see people looking to expand if the right opportunity arises,” he says.
As for dealing with the financial challenges, Watson says it can be hard to pencil out a profit with corn and soybeans.
“They need to be sure that they’re watching their costs clearly, and be aware what those are,” he says.
Watson says it’s also important to have good communication with lenders, especially as tough financial times can cause a strain.
“If the farmer can’t make the payment, that’s when the dynamics between the farmer and the lender begin to change,” he says. “If they think they’re not going to be able to make the payment, talk with your banker about it now. That communication is really important for farmers to have with their bankers. There are some things lenders can do to help.”
These ways to help could include stretching out payments or skipping a payment, Watson says.
You don’t just want to wait until the payment is due and say, ‘I can’t make it,’” he says.
Watson says the current situation is different from the 1980s Farm Crisis in a couple of key ways.
“Even though we’re in a rising rate environment, we still have much lower interest rates than the ’80s,” he says.
Also, land values have held mostly even, protecting farmers’ net worths and in many cases keeping them from being over-leveraged.
Watson says there are possible ways for the situation to improve.
“Things can change,” he says. “We can maybe reconcile some things with China. Weather patterns are very important.”
The check from the USDA for soybean production should help farmers this year, but Watson says it’s important to sort out trade decisions long-term.
“The bean (assistance) is an important check,” he says. “But what happens going forward? The two big boys, the U.S. and China, are still nose to nose at the table. China does need to get soybeans from somewhere. A lot of this is about world demand and supply.”
Brown says the new trade deal among the U.S., Canada and Mexico still needs to be approved by each country’s legislature, but it should provide a boost.
“You for sure see it as a long-term positive for agriculture,” he says.
Watson says farmers are hopeful.
“Farmers are always optimistic,” he says. “You’ve got to be optimistic to be a farmer.”