10/12/2009

The big bad wolf has been sighted in agriculture’s neighborhood. If your financial house is made of bricks, no need to worry. If you have sticks and straw, it’s time to consider what you need to do to reinforce the structure.

For the past year, experts have issued cautions about counterparty risk. Higher input prices led the way, but now some of your buyers are showing concern. If they have forward contracts with you, don’t be surprised if they ask for your financial statements. They just want to be sure you’ll be around in a few years to deliver. 

Farmers with ample working capital probably don’t need to worry, say experts like Roger Schlitter of Roger’s Farm Financial in Mason City, Iowa. They’ll likely weather the potential storms just fine. They may even prosper.

Schlitter urges producers to take a close look at their finances. Even with lower inputs forecast for 2010, the cost of production for corn and soybeans looks to be above the average sales prices. Conditions are likely to tighten.

This is sure to push some farmers out of business and it will force others to contract, either through giving up rented land or selling assets to free up credit and create operating cash.

If you’re financially well-positioned and have a sound risk management plan in place, the bankers will look your way.

If the big bad wolf comes knocking, you can rest easier in your house of bricks. You may even think about adding on.

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