Managing for Profit

Is another farm crisis looming?

With lower commodity prices and interest rates projected to climb in 2015, could another farm crisis similar to the one in the 1980’s be looming?  David Lynn is Senior Vice President of Financial Services at Farm Credit of Mid America. Lynn notes there are similarities between the significant uptick in interest rates in the 1980’s and a projected rate increase in 2015.    He says things are different today on the lending side.  In the 1980’s variable rates were primarily offered.  Today Lynn says Farm Credit and others are able to offer fixed rates, which offers protection and hedges against increasing input costs from the interest rate side.

Lynn tells Brownfield producers are also much more poised for a downturn in commodity prices,  “They’ve got stronger balance sheets, stronger working capital.  (they’re) Not nearly as leveraged as back in the 80’s.”

Lynn says the current health of the farm credit system is strong as evidenced by  investors that buy farm credit bonds.  He says there’s been a significant increase in interest the last few years, due to the health of the system.

Although Lynn remains optimistic about agriculture in the next 5 to 10 years and beyond, he admits farmers will be dealing with tighter margins this year due to lower commodity prices and input costs remaining stable or possibly rising.  Given the current environment for farmers, Lynn suggests knowing your input costs.  He says during the marketing year there will probably be opportunities to market and lock-in prices that would be at break-even or better.  He also encourages producers to be familiar with what the operating terms of their input loans and long-term business are.  He says look for ways to lock in interest rates while they’re still low.