Whether it's replacing an old irrigation system that's drowning in inefficiency or finding a better way of marketing, change is eminent in today's farming. And don't be surprised if your lender strongly recommends that you develop a specific marketing plan that will protect against price wrecks.

For fear of being wrong, lenders have often refrained from requiring, or even giving advice on, hedging, the use of options, forward contracts or other risk management tools.

"But I wouldn't be surprised if lenders take a little more active role in marketing this year," says Darrel Good, University of Illinois extension economist. "There could be cases in which a producer doesn't get a loan without locking in price protection or obtaining (revenue-assurance type) insurance."

Terry Shelby is a cotton grower and president of Great Plains National Bank, Hollis and Eldorado, OK. He says there may be occasions when customers short on collateral or with tight cash flows are asked to take price protection - if there are sound marketing opportunities.

"I would be very leery about requiring a producer to hedge his crop," Shelby stresses. "There can be margin calls or he may face a disaster that would cut short his production. However, I would talk to the producer and outline how a hedge may be in his best interest.

"But if cotton prices hit 65-70cents, in some cases I would strongly urge customers to buy put options to at least cover their breakeven, or even lock in a profit."

Shelby says that if cotton prices are low at harvest, he sometimes recommends that some growers sell on the cash market, take the loan deficiency payment, then buy call options to capture additional return from any increase in prices the next year.

"If July 2000 futures are in the 55cents range, producers should consider spending about $15 per bale on call options," he says.

Shelby, a student of risk management, constantly monitors futures quotes and local markets. Like about anyone who uses futures or options, he won't claim to be an expert on knowing what markets will do. But he and other lenders know when there are opportunities to at least secure a floor price that will prevent disaster.

"Some lenders are now asking producers to seek marketing help through consultants or other sources before they'll review their loans," says Richard Brock, president of Brock & Associates and Soybean Digest marketing analyst. "Lenders feel that the situation with low corn and soybean prices is making it more important for some producers to use price protection."

Dean Ziegler, loan officer for Farm Credit Services, Minot, ND, says big operators are encouraged to have a sound marketing plan in place when seeking financing. "We want them to have a program that includes some price protection," he says.

"We're working with some local commodity investment firms to put together hedging and forward pricing plans for producers," says Ziegler. "It's a three-way-agreement program in which we set up a separate direct hedging account with the investment firms for the producer. Hedges are covered by a specific line of credit. That's a step in the right direction to help producers become better marketers."

Brad Stockstill, loan officer with National Bank, Hillsboro, IL, is working closer with producers on marketing.

"This situation (low prices) will wake up more producers to the fact that they need a better marketing plan, and should take positions to cover their price," he says. "I think more will look to us for assistance or recommendations on when to put a floor beneath grain prices. They know they can't continue to take what the market will give them."

Through seminars and other marketing training programs, bankers are educating producers on marketing. Comments from Ziegler echo those from other lenders.

"Some customers have been using risk management for quite some time," he says. "But for a lot of middle-of-the-road type managers or older producers, it's tough to get them to use these marketing plans and the tools available."

Oklahoma grower and banker Shelby admits that there have been times when he should have locked in a price.

"Hindsight says producers should have marketed their 1999 cotton in late '98 when (December '99) futures prices were in the mid-'60s range," he says. "However, we didn't think prices would go that low (at or near the 52cents/lb loan rate)."