How is your health, as a farmer?
I am not talking about physical health. I am talking about your financial health.
Agricultural bankers are concerned about how their farm loans are doing, sometimes more than the farmer. I spoke with a representative of the American Bankers Association. He has a report on your health and what you should do to keep it good.
AUDIO: Edwin Elfman, American Bankers Association
Edwin Elfman serves as senior vice president for agricultural and rural banking at the American Bankers Association. The organization had their annual meeting ahead of the National Farm Broadcasters Convention where I spoke to him.
Edwin Elfman: The biggest thing we’re hearing from our bankers, from across the country, right now is there’s concern on the producer level about liquidity and working capital, almost the same things we’ve been hearing for a long time. We’re not totally surprised there, but we are eating up working capital. We have to look at cutting some costs or ask, “How do we make this all work in the new normal of this Ag economy?”
Bankers themselves are worried about credit quality.
There’s always concerns around credit quality because if you’re having a lot of issues on the farm and are not making those necessary cuts, credit might not be as good in the future. It is right now. The real question for us is, “Are we in the new normal on the ag economy?” We’re plateauing right now. We’re not getting better, getting worse or holding steady, which I know doesn’t sound great for a lot of folks who are out there going, “This isn’t great. Right?” But the important thing is if you talk to your banker, have a plan, communicate, communicate, communicate, and I’ll say it again, communicate with your banker. That helps improve your financial health. You have a plan, you work through it. You can expect the unexpected. You can work through things when they come up. If you don’t have that talk on the front end, it’s not going to catch you by surprise in the back end.
Ken Root: That’s not good. Some farmers are emotional about all these decisions. From what I get from bankers, accountants, et cetera, that is one of the worst things you can be when you must make a decision.
Edwin Elfman: Right, you can’t be emotional about any of this. One of the big things I should point out is just because you had one loan last year and a smaller loan this next year, it’s not that the banker gave up on you or doesn’t think you’re worthy of that money. It’s got more to do with the word commodity prices, as commodity prices continue to drop. Cattle prices continue to drop. Hogs are in a whole different place right now, although we’ll see where they are in about six months. Then everything that’s going on in China. When you take that into account, you have to realize that it’s based on cash flow. It’s not based on emotion.
Bankers are trying to help farmers get through this plateauing period and to the other side in a healthy position, so they can continue to be the farmers. They are. Are you requiring more balance sheet proof today? Is it more by the numbers or is it still by the reputation of the individual or a combination thereof? It’s always a combination of the two. It really is.
If you have crop insurance, it’s probably going to help you on your position at the end of the year, right? But if you’re someone who’s been a good manager for a long time, you communicate, you let the banker know when you’re going to go do something. If you’re looking at alternative sources of credit, be it third party or whoever, communicate with your banker so you’re all on the same page.
It’s always that combination – The numbers and the reputation we create, the profile of the individual we’re working with. We’ve got growers now that think the new normal is not going to give them enough revenue. They’d like to make more revenue and they’re getting some things that they are attempting. One of them is growing hemp or changing to some type of livestock or direct marketing. How do you approach a banker to be able to tell them that you’d like to look at another enterprise? I would approach them the same way as if you wanted to add 800 acres of corn – Walk in, have a plan, explain why you want to do that and why you’re going in that direction. Especially on hemp. Hemp is this brave new world for a lot of us to look into.