By Glenn Leighty
Everyone is in a frenzy, worrying about the crop prospects, and wondering if they will have anything at all. I feel fairly certain, there are many areas which will not even have a combine ran over the field.
Most discussions use as a point of reference the '83 & '88 crop failures. I have been thinking back to the parameters we were dealing with at that time compared to today, here is what came to mind.
- Interest rates in '83 were in the mid to hi teens, and I believe '88 was around 12 - 13%. Interest rates today, are the lowest in years. FCS is in the 4.5 – 4.75% today.
- There were no gov't payments then, as we have today. (DCP,etc., while not a lot, is available to help.)
- Crop insurance covered yield only. Today's products, if properly matched to the borrowers risk profile, covers price, and yield, and guarantees "X" # of dollars per acre. This normally protects the variable cost of planting the crop. If you can cover the out of pocket costs, you can live again to fight another day. If you can't, your choice is to either mortgage something and term out the carryover, or sell something.
- Land values bottomed around '86, and farmers had no equity to shore up their borrowing power. Land prices today are the highest in history. There should be some security to collateralize a loan. (Not so in '88.)
- The general economy in Southern Indiana is pretty good. If you are willing to work, there are some jobs out there to help cover living expenses. While these jobs may not be the most desirable vocations, they will help shore up the cash flows.
- By the late '88, most operations machinery lines were getting pretty well worn out. If you look around most farms today, about the total line has been replaced in the last 5 years. I think most operations could go at least 3 to 5 years without the necessity of high capital purchases.
- We now have the ability to grid map soil test our farms, and put the fertilizer where it is needed. That technology did not exist in the '80s.
- Most operations have some working capital going into this year. By '88 most operations had no cushion or big negative working capital, which was being rolled year to year.
- There are marketing tools available to help mitigate price risk, which did not exist in the '80s. A properly executed options strategy can offset a portion of market volatility at a known cost.
- Today's farmers are more attuned to risk management, and have access to tools to reduce financial exposure. There were limited programs available 20+ years ago.
Many younger producers have never lived through a downturn. While it is not an enjoyable experience for anyone, it creates better managers. Adversity creates opportunity. Our young operators, if focused, could turn this into the opportunity to expand.
If I had to choose between a crop disaster in the '80s's or today, I would take today, hands down. In conclusion, good times don't go on forever, neither do the tough times.
Editor's note: Glenn Leighty, Jr. is a 5th generation Lawrence County Farmer, from St. Francisville, in Southeastern Illinois. He has worked in Agricultural Lending, since the mid '70s, and is the Farm Loan Manager for the Farm Service Agency, in Vincennes, Indiana, He is active in the operation of the family farm with his son Greg, who handles the day-to-day management. The farm's main products, are corn, and seed beans.