We read and hear a lot in the media these days about the farm crisis. No one needs to tell farmers and ranchers that it isn’t just hype.
As I write this column at the end of August, the Portland cash price for soft white wheat hovers around $3.10 a bushel. That’s at least 30 cents to 40 cents a bushel less than Washington State University’s Herb Hinman figures it costs Washington’s farmers to grow wheat. And this doesn’t include shipping costs to Portland, which makes the price farmers receive significantly less. Hinman is an agricultural economist who studies production costs.
The USDA Market News report for Aug. 25th showed prices moving up to $3.24 by late October. That’s still below the cost of production.
A lot of farmers, and not just wheat producers, will have cotton mouth this fall as they sit across the table from their bankers to negotiate loans for next year’s operating budget.
Bob Harris, vice president and ag loan officer for U.S. Bank’s Inland Empire Business Banking Group, urges farmers and ranchers to work closely with their commercial lenders to avoid pitfalls and receive advice that may help them survive the current crisis in the agricultural economy.
Harris says the foundation for sound economics is a financial plan that includes all income and expenses. It must be complete and accurate.
Ask bankers to analyze the balance between long-term and short- term debt. Some short-term debt may need to be shifted to long-term debt, but Harris urges caution when considering using long-term assets such as real estate as collateral for loans.
“A lender’s primary concern is not the value of the collateral, but cash flow available to repay the loan,” he said.
Harris also said it is absolutely essential to give your banker any bad news about your financial position. Failure to disclose negative factors can create problems for both producer and banker.
Another key is to deal with financial problems as quickly as possible. No one likes to talk about financial problems, but Harris says producers must swallow hard and get the job done. “Talk to your banker early and often,” he says. “A good way to avoid serious financial problems is to identify and resolve problems early.”
But Harris says it’s also a good idea for producers to set their problems aside at times for some good old fashioned rest and recuperation. “One of the best ways to think through business problems is to get away from them,” he says. Take a weekend off, and don’t use it to attend a farm show. Just get away and relax.
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