Risks and Opportunities in Today’s Ag Economy

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Whether we like it or not, an ag economic downturn is settling in. What started slowly in the grain sector a couple years ago is now arguably spreading more broadly across the agricultural industry. And, despite an occasional rally in the grain market, most experts forecast up to several more years of low grain prices and elusive profits for most farmers. However, it is critical to remember that while economic downturns create risks they also create opportunities. Do you know how you stack up in the face of current economic conditions and how you should respond?

Risk or opportunity for you?

During an economic downturn, many folks definitely need to hunker down, cut costs and weather the storm, while others may actually be in an excellent position to take advantage of the uncertainty and expand their businesses. Ag economic downturns typically see equipment values decline along with land values and cash rents. This can create a rare opportunity to expand your operation at discounted prices. But how can some farmers bear the brunt of the increased risks while others are poised to seize on rare opportunities – all during the same downturn? Because financial strength, cost structures and overall finance performance vary significantly.

Complete and accurate financial information is essential for understanding if you face more risk or more opportunity in the current and unfolding ag environment. Proper financial statements measure your financial health and performance, providing critical insight into both your ability to withstand risk and your ability to seize upon available opportunities. Consider the following in preparing your financial statements:

• Include all assets on your balance sheet, including financial accounts (checking, savings, investment, and retirement) and interests in partnerships, and other legal entities.
• Use current and realistic values for all assets including many assets that fluctuate in value over time This includes land, equipment, livestock and grain inventories.
• Include all liabilities on your balance sheet, including bank loans, private party contracts, open accounts with suppliers, credit cards, and any other unpaid bills.
• Recognize that your earnings information (income statement and/or tax return) and family living expenses should reconcile with changes in your balance sheet information.

Critical decisions have to be made during stressed times, and these actions, or inactions, have significant positive or negative implications for a long time. High quality, complete financial statements provide you essential information needed to make the right decisions for your operation.

Using your lender as a valuable resource

Any lender can give you money; your lender should also be able to deliver valuable expertise. But a strong value-added relationship needs substantive two-way communications. You can do your part by asking your lender meaningful, probing questions. For example:

• Have I provided complete and sufficient quality financial information?
• How does my financial position and performance compare to my peers?
• How can I determine if I need to focus on reducing costs and weathering this downturn or if I am well positioned to expand my operation through marketplace opportunities?
• Have I provided complete and sufficient quality financial information?
• How does my financial position and performance compare to my peers?
• Do I need to focus on reducing costs and weathering this downturn or am I well positioned to expand my operation through marketplace opportunities?

These types of questions demonstrate openness, interest and a healthy drive for improvement and business success. And, perhaps more importantly, you can obtain valuable information, perspective and business insights, all while building two-way trust and confidence between you and your lender.

What should you expect of your lender?

Your lender will have various expectations of you, but you should also have things that you expect of your lender; things that deliver meaningful value to you. For example, your lender should:

• Be able to assist you, if and as needed, in developing your financial statements.
• Have deep expertise and substantial history in your industry.
• Be able to answer a wide variety of questions, including the questions noted above.
• Be able to consistently provide you with credible and insightful information and perspective.
• Be able to deliver a long-term fixed rate on real estate mortgages, truly locked in for 10 to 30 years, to provide you and your operation with long-term financial stability and security.

A competitive interest rate is important, but you should also expect substantial value-added expertise and products that help secure your long-term financial future.

Find a value-added lender

In our four-state lending territory, we are having deep and meaningful conversations with our customers every day, and it’s clear they are actively seeking to understand both the risks and the opportunities in today’s ag economy. While many are experiencing financial challenges, others are finding strategic opportunities. The stakes are high. Expanding at the wrong time or in the wrong way can unnecessarily jeopardize your farm operation. On the other hand, not seizing opportunities at the right time can cause you to miss out on rare and profitable possibilities. Make sure you have a lender that can deliver what you need to make the right decisions for your farm, family and future.