An update last month from Iowa State University (ISU) Extension stated that, “Cash flow management is becoming even more critical in row crop agriculture. While most lenders like to emphasize strong balance sheets, it’s the ability to generate cash that pays the bills. Some farmers did a good job of forward contracting 2017 new crop bushels, hedging or buying put options and will avoid many cash flow concerns this late fall and winter. However, those farms holding large quantities of unpriced crops could see cash flow challenges and may want to focus on understanding other marketing strategies and tools rather than storing bushels unpriced.”
The article, which was written by Steven D. Johnson, also pointed out that, “If you know your cash flow is already going to be a problem, communicate early with your lender. Many lenders spent the past couple of winters restructuring existing farm debt to stretch out principal payments and free up depleted working capital. These same lenders could be reluctant to restructure loans anytime soon without commitment from the borrower to improve their cash flow management to meet existing debt obligations.”
The ISU update also pointed out that, “Most cash flow problems will appear by late December and January. Expect some lenders to require the use of the USDA Farm Service Agency’s (FSA) guaranteed loan program before advancing additional funds. Completing paperwork and getting necessary loan guarantee approval could take several months. Farms without access to typical farm operating loans should use caution before advancing family living and farm expenses on credit cards or higher interest-bearing debt.
“FSA offers a low-interest, nine-month non-recourse marketing loan on harvested grain, but requires that the on-farm stored bushels be measured or the commercially-stored grain is under warehouse receipt. This marketing loan is limited to the county loan rates, which in Iowa are below the national loan rates of $1.95 per bushel for corn and $5 per bushel for soybeans. Thus, the marketing loan program is not a marketing strategy – just access to cheaper interest for up to nine months.”
