“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.” This passage from Ernest Hemingway’s “The Sun Also Rises” is reflective of the current farming landscape.
Farmers are facing uncharted waters, as today’s challenges are much different than the 1980s, says Nate Franzen, president of the agribusiness division at First Dakota National Bank in Yankton, S.D.
“In the ’80s, land values fell, and we had a quick correction,” he says. “This time it is really a grind.”
The Stark Landscape. Franzen says around 60% of his bank’s farmer-clients are making money, while 40% are losing money.
“The folks we’re worried about have been in that 40%-loss group for three or four years,” he says. “They are depleting working capital and have already done a restructure to try to replenish working capital. There are people out there with equity, but they are having a heck of a time cash flowing.”
“Agriculture is in a cash-flow decline, not an asset decline,” adds David Kohl, professor emeritus of agricultural finance at Virginia Tech University.
Farmland values continue to defy gravity in many regions. In fact, the average farm real estate value for the U.S. is $3,160 per acre in 2019. That’s up $60 from 2018, according to USDA.
These land values have provided a way for some farmers to increase working capital. “They have put assets up for sale to get cash,” Kohl says.
Management IQ. Franzen says the farmers who are overcoming the current economic climate have what he calls a strong management IQ. “Smart farmers are financially savvy, really know their numbers and understand the key indicators of success in their operations,” he says.
How can you increase your management expertise to work through challenging circumstances? Franzen encourages farmers to:
- Manage your business throughout the year, not just at the beginning of the year.
- Be nimble and flexible enough to adjust quickly.
- Use good data to make decisions.
- If something isn’t working, figure out how to stop the bleeding fast.
- Focus on what you can control.
Also, try to stay positive during this down cycle. “Never equate your self-worth with your net worth,” Kohl reminds farmers.
Surround yourself with positive people, he suggests, and invest in yourself with exercise, reflection, a good book and time off the farm. Find a way to give back to a charity or those less fortunate than you. Good times don’t last forever and neither do bad times.