Operational and Financial Risk For Farmers

By Pat Karst

11 /25 /19

Farmers absorb a lot of operational and financial risk. These problems are magnified when revenue is reduced from the impact of lower prices and yields, and variable conditions from the weather and pest infestation. Many variables are beyond the control of a farmer, but there are proactive steps to take.

Farmers' problems are under increased scrutiny due to the fact that farm incomes have fallen precipitously in recent years, with many farms shutting down altogether. While not all variables can be controlled, we can provide guidance about how to approach your creditors and ensure that you can continue to farm through difficult times.

Operational risk

Operating risk falls primarily on farmers, but the effects can extend far beyond the farmer and their family. Landowners whose lease returns depend partially on farm revenue are obviously affected. Agricultural suppliers of fertilizer and pesticides are seriously affected as their revenue declines from reduced sales.

We have seen instances where crops have not been planted due to weather conditions, resulting in unused fertilizer that cannot be stored through the winter. Not only does this create a storage and distribution problem, it is entirely lost revenue for the supplier.

At the next level, banks suffer from late payments and potential defaults. In fact, declining farm revenue damages the entire balance of the agricultural credit system. New loans become more difficult to make, and bankers demand additional security, even from farmers who are well established in the community.

Accurate and realistic financial planning is a farmer's friend during adversity. Sadly, in some circumstances, we have seen community banks advise local farmers to look elsewhere for credit.

Finally, retailers and community organizations that rely on farmers to patronize and support their business and organizations suffer from reduced revenue. Employment suffers and the situation jeopardizes contributions to faith-based organizations and community support programs like food banks.

Financial risk

With 2019 farm revenue forecast declining by 10%, circumstance are not promising to quickly reverse for farmers. While there is a ray of hope in terms of higher prices forecast for corn and other crops, farmers still need to hunker down and accurately assess their operations.

At Halderman, we consistently have identified one perennial foe for farmers: uncertainty. As 2020 approaches, uncertainty is in the air. Some farmers are hopeful that corn can be harvested in a timely fashion and that higher prices bode for a small recovery. Other farmers we have spoken to believe that the current corn crop will be disastrous.

We strongly advocate speaking with your creditors as early as possible to evaluate all of your options. We recently restructured a farmer's balance sheet with the disposition of some land and equipment and sustained the famer's ability to continue farming in the current environment.

Financial hardships can cause a lot of emotional stress and can lead to depression. On a recent trip to North Dakota, we encountered signs along the way for suicide prevention for farmers. All of our sensibilities can be challenged in this environment, and Halderman Real Estate and Farm Management Services continues to stand by the farming community, as we have for many generations.