October 11, 2016 Author: Murray Wise Associates
By Joe Bubon
Now that the harvest is under way, there’s no avoiding the question of how lower corn and soybean prices will affect the viability of some farm operations. Most will probably be fine, but others are expected to start running short on cash, and a loss on this year’s crop won’t help. Meanwhile, we’re seeing signs that lenders are concerned about the cumulative impact of several rough years. Many lenders are taking steps to move quickly in the case of missed payments.
Cost-saving measures are helping, but they can go only so far. Farmers and investors have renegotiated rents. Many have cut input costs. Corn & Soybean Digest, in analyzing data from Minnesota’s FINBIN database, noted that, compared to the least profitable 20% of farms, those in the most profitable quintile spent $50 per acre less on inputs and $60 less on rent. The more profitable operations also were more aggressive in cutting family expenses and reducing their investments in machinery.
Operators who are in a strong cash position or have the ability to refinance will stay alive to fight another day, with the cooperation of their lenders. But at some point, we have to ask ourselves whether $3.50 corn and $9 soybeans are an anomaly or a new reality that may well remain in place for several more years. This seems to be the year of reckoning for some.
Farmers have been aggressive buyers when farmland has come up for sale in recent years. As farmland prices rose dramatically, many investors became more conservative, often resulting in over three-fourths of the land for sale at auction going to operators. Now, some of those operators are struggling to earn a return on their expanded operations.
Farmers who take the initiative will be better off. Now is the time to begin conversations with lenders about the long-term restructuring to sustain operations through an extended period of low commodity prices. Sale-leaseback arrangements will help many, but only if farms are structured to profit in the world that exists today.
Part of that restructuring may call for the outright sale of some land, and in those cases, sooner may be better. The intermediate direction of farmland is downward, and prices are still high by most historical measures.
We at Murray Wise Associates are uniquely equipped to help farmers and landowners through a full range of auction, private treaty brokerage, advisory and management services. Just give us a call at 800-607-6888.
Murray Wise founded the Westchester Group in 1986 after acquiring the Champaign, IL division of the Sandage Companies, a traditional farm management and brokerage firm…
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Join us today for an open house 4-7pm! We will have staff on site to give tours and answer any questions you may have. This is a great opportunity to have all questions answered before the June 21st auction that's quickly approaching! http://www.murraywiseassociates.com/farmland-real-estate/auction/ItemId/122/Oklahoma/Pittsburg-County …
The financial woes of US farmers have spread from select sectors in specific regions to swathes of the industry. What will the market look like in a few years’ time? (no paywall) https://www.agriinvestor.com/after-the-bankruptcy-epidemic/ … @MWA_LLC @klazig #agriculture pic.twitter.com/KwfMkbjKR0
Prices for high quality IL land are generally holding firm, even rising in some areas of the state, while farm income has been going down. The pinch on operating income has not had a drastic effect on the value of high quality farmland.
Why is this?
http://www.murraywiseassociates.com/Blog/illinois-land-market-continues-to-show-resilience … pic.twitter.com/Z3AQmZWchx
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