Preparing For The Next Farm Crisis

Farm Crisis 2014Much has been written and reported in recent weeks about “the next farm crisis” and comparisons to the 1980’s farm crisis are inevitable. But are they accurate? More importantly, what can Iowa farmers do to prepare for the economic pullback that most agree is on the way, even if they can’t agree on the severity.

I posed these questions to Matt Mann, Farm Manager with Iowa Land Sales and Farm Management to get a sense of how Iowa’s farmers are reacting to the news and preparing for what’s to come. 

How Bad Will It Be?

Concerning the depth of the coming decline, Mann said, “There will be a downturn, but I don’t think we’ll see foreclosures and bankruptcies causing ‘For Sale’ signs to pop up in farmyards all over the state like we did in the 80s.”

Mann points to the key differences between the farming economy of the late 70s leading into the farm crisis and today’s economic climate to explain why this downturn isn’t likely to be as severe. Specifically, he contrasts the record high interest rates and enormous debt loads of the 1970s to “Today, when we have almost the exact opposite of that scenario with historically low interest rates and a period of three or more years of record profits for a lot of farmers.”

But Mann goes on to say that, while cash resources will do much to ease the pain of the coming lean years, the secret to surviving – and even thriving – in the coming slump will be intensive planning and management.

How to Prepare

Mann believes that preparation begins with conversation. “You need to make sure you’re on the same page with your farming partners, whether that’s your spouse, your parent, your sibling, or your son or daughter – talk about what’s coming and start planning now.”

From there he recommends calling on other experts to help you formulate the best plan to get through a variety of scenarios. “Be proactive, meet with your banker early on, get your financials up to date, have that conversation with them and work through the ‘what ifs.’”

But that’s not all. He goes on to say that it’s just as important to talk with your insurance agent to make sure you have the best possible protection for crops, equipment, and property, as well as your life and health. Then speak with your commodity broker about the most profitable way to market your crops based on changing markets.

“Now is the time to be expanding and strengthening your advisory group and then calling on their expertise. Get the right insurance agent, find the right banker, partner with the best commodity broker – put together the strongest support team you can to help you work through the coming lean times.”

Of course, Mann also points out that a qualified farm manager can be a valuable member of your team, as well. “As the business of farming changes and becomes more complex, it becomes more and more challenging to stay abreast of all the details,” he says. “And that’s particularly true of absentee owners and retired farmers who are renting their land – they need to make sure that they are being properly represented. Whether that be a proper lease in place that has minimum fertility requirements or simply when the cash rent is due, those types of details are going to becoming increasingly important. And those are among the countless details that your farm manager will make sure are being looked after.”

Asked what advice he’s regularly offering his existing farm management clients, Mann said the best thing most farmers can do is “to hold true to the principles, objectives, and goals that defines their current farm management strategy. A lot of our clients who have made good improvements, whether that be drainage tile or fertility- those investments that have been made will allow their farms to perform well which will help offset even a reduction in commodity prices- a farm that has been well maintained and improved will produce good yields.”

What Not to Do

Having identified communication, cooperation, planning, and continued land stewardship as the right things to do, I asked Mann what the wrong things were. He singled out buying more land without a down payment as the most ill-advised thing someone cold do right now. “Now isn’t the time to be highly leveraging yourself by purchasing a farm by borrowing against other assets. The rule of thumb for most folks, especially those who did live through the 80s farm crisis, is if you don’t have cash for the down payment, then don’t buy the farm.”

The Current Climate

In light of the fact that everyone seems to agree that some measure of pullback is inevitable, I was curious how the Iowa farming community in general was internalizing the news – are farmers feeling pessimistic or optimistic about next few years and their ability to survive whatever may come?

“I think most farmers are being realistic more than optimistic or pessimistic,” Mann said. “They know that farming isn’t easy and not everybody can do it – they just happen to be among the few that can and do. And when you’re part of this profession and lifestyle, you come into it with a pretty good idea of what you need to do in order to survive all kinds of challenges.”

He goes on to explain that, while many of today’s younger farmers may have been in diapers during the 1980s farm crisis, they have parents and grandparents that remember all too well it and have instilled in them that the sky won’t always be blue.”

Nonetheless, Mann admits that it may be the younger farmers who will feel the greatest pain in the coming dip. But it’s not as though they’ve never known hard times before. The floods of 1993 and the soybean aphid infestation of 2003 are two more recent occurrences that, while not on the global scale of the 80s crisis, still impacted several counties in Iowa and dealt some real setbacks to the farmers who were affected.

Mann said that young farmers can survive these blows because “Farmers are becoming better and better business people and are increasingly surrounding themselves with true experts, whether that be a farm manager for the absentee owner, or a consultant for seed selection or agronomy, or working with a third-party broker to ensure they’re making the right marketing decisions.”

Build Your Crisis Team Now

If you haven’t previously worked with a farm manager, now might be the time to consider it. “It really comes down to how much hands-on involvement the farm owner wants to have,” said Mann. “Our services are scalable for the farmer who simply needs a trusted advisor to the absentee owner who needs us to handle all the day-to-day to operations and everything in between.”

The important thing is that a good farm manager will be another valuable member of your farming team and can do much to help coordinate the efforts of the other members, even so far as to help select them if you haven’t already.

At the heart of it, surviving any crisis comes down to planning, preparation, and informed decision making and those are precisely what your farm manager provide.

If you’d like to discuss your current level of preparedness and how a farm manager can help you navigate the rough waters ahead, please contact Matt Mann of Iowa Land Sales and Farm Management at 641-990-4016 or Matt@IowaLandSales.com.

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