by Michael R. Hein, vice president of Liberty Trust & Savings Bank in Durant, Iowa. He is also chairman of ABA's Agricultural and Rural Bankers Committee.
As the agricultural economy enters a down period in which low commodity prices have strained farm incomes and concerns about liquidity have reached an all-time high, agricultural bankers are ready and willing to help America's farmers and ranchers.
After many years of prudent management, agricultural banks have strong balance sheets that allow them to help those in distress. Through the prudent use of techniques like loan restructuring, collateral enhancements, USDA loan guarantees and frequent visits to our customers, bankers can assist most of our clients in weathering a downturn. Agricultural banks are important sources of funding for many business and farmers, and are part of the fabric of their communities.
They provide good jobs, are active in civic and charitable causes and are integral to the success of rural areas. Even in times of financial downturn, banks continue to provide the fuel that drives every local economy.
The cycle of agriculture is one fraught with swings that test even the best of farmers and ranchers. Those who have prepared by preserving their cash and paying down debt in the good years will be able to survive and even prosper during tough years. Those that over-borrowed or over-expanded beyond their capacity to manage can get into trouble.
As a farmer or rancher, if you are in a situation where you foresee a problem, don't procrastinate — start to take action proactively, now. Make a budget and take a critical look at your expenses, both business and personal. Use a sharp knife to cut anything that is not needed to survive both personally and in the business. Consider whether your marketing plan will allow you to meet at least a break-even point as harvest approaches. Ask whether your insurance and hedging plans are in place and whether any adjustments should be made. Consider whether you have any assets that you can sell to generate cash if needed.
It's also critical that you take your new budget and expense plan, along with your insurance/hedging and production plan, to your banker and explain your strategy. You may need to restructure your debt, provide additional collateral, utilize USDA loan guarantees, or do a combination of these to have some cash-flow breathing room. Finally, provide some time for you and your family to de-stress. Being a farmer or rancher is hard, challenging work. Don't let the stress cloud your mind and judgement.
The agricultural banking industry stands ready to help the farmers and ranchers of America in challenging times. Be proactive in reaching out to your lender after preparing your plan and budget to discuss your strategy for weathering the downturn, and we will work to assist as many farmers and ranchers as possible.
The good news is that down cycles lead to up cycles. The survivors are those that prepare for the next good times that eventually will come.
Photo courtesy of USDA NRCS