2020 Agriculture Outlook

The Iowa farming economy has had its ups and downs in the past five years, resulting in both positive and negative financial experiences for Iowa’s farmers.

Some positives include corn yields that are higher than average this year in northwest Iowa; and an average cash price per bushel of corn statewide that is at its highest since 2014, according to Iowa State University Extension and Outreach. Click here to download the full report, which includes soybean prices.

Despite the trade war between China and the United States, Market Facilitation Program (MFP) payments ranging from $40 to $79 per acre in Iowa will help lessen the impact of reduced exports to China incurred by Chinese tariffs imposed on agricultural products.

Prepare for Lending Conversations

Whether the current farming economy has resulted in positive outcomes for your operation or has caused challenges, your banker is one of the people you can reach out to for information and resources. Here are few things you can do to make sure your business is ready to thrive in good times and make it through the bad times.

1. Communicate regularly.
   Even when things are going according to plan, periodically checking in with your lender is time well spent. This can reinforce your partnership and give you peace of mind knowing that things are going according to plan with the bank.
   
   Open up the channels of communication with your lender and banker right after getting your crop harvested for the year and after your fall fieldwork is complete. Start scheduling appointments to touch base with your lender to give them an update on yields and how things are looking on your end. If you did lose money, you and your banker can start planning right away. There is nothing fun about waiting until March or April, when you’re making plans to plant, to find out if you have input financing for your farm.
    
2. Know the difference between accounting and finance. 
   They work together. Accounting looks backward and shows what happened, while finance looks forward. Ultimately, bankers use forward-looking financial forecasting, not accounting, to determine creditworthiness. Run what-if, forward-looking scenarios with your banker.
    
3. Know your cost of production.
   Accurate record-keeping is crucial as the margin for error shrinks. Know your cost of production. If your farm has multiple enterprises, ensure accurate accounting between them. It will let you make decisions on where to invest your capital. For example, a dairy farm raises corn that is used to feed the herd. Know the profitability of your cropping operation separately from that of the dairy. The dairy should show it “paid” market prices for the feed to the cropping enterprise.
    
4. Conserve your cash.
   The amount of working capital available to farmers has been declining over the last four or five years, so farmers need to do whatever they can to conserve cash. If interest rates are low, lock in longer-term fixed financing with lower debt payments. The only way to increase working capital, other than through profits, is to contribute money from outside the farm, such as liquidating retirement funds or selling land or equipment. You can also refinance existing operating debt against land or equipment in order to extend payments and enhance cash flow.
    
5. Focus on what you can control. 
   During these tough times, it’s easy to dwell on the things we can’t control like weather and commodity prices. Instead, try focusing on sowing the seeds of future success by giving more attention to key areas you can control. In time these seeds will grow and you will reap a bountiful harvest.

An agricultural banker at Northwest Bank can help make sure your finances are taken care of during good conditions — and during the challenging years. Contact us today to learn more.

The Author

Eric Walhof

Regional Bank President

LinkedIn Email

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