Last year was tough financially. And 1999 is shaping up to be just as tough.

To help you get through the next two or three years, now may be the time to develop a closer relationship with your primary lender than you've had in the past.

Lower interest rates in recent months were good news. But in farm lending, interest rate isn't everything. Borrowers want a loan officer who understands their business, says Gayle Kaalberg, ag lending officer with Farmers and Merchants Bank, Lone Tree, IA.

"Those of us in banking have made a pledge to stick with farmers through good and bad times. We're looking at some of the tougher times now," he says.

However, Kaalberg points out, crop producers who have had more than a year or two of financial trouble may need to show lenders why they should stick with them.

"Most lenders aren't asking for any more information than usual from producers," he adds. "But we will need to see the usual financial reports."

The top three include:

* Business and personal balance sheets, showing total assets, income and debt.

* State and federal income tax forms.

* Cash flow statement showing sales and projected sales, income and how income generated will be used.

When it comes to balance sheets, "... be sure you have all your financial ducks in a row," says Don Foley, ag banking liaison with the Iowa Bankers Association.

Include all debt like outstanding accounts at farm supply dealerships, machinery loans, first and second mortgages on real estate and improvements, and any personal debt that may have been used to generate cash for the business or to cover family living expenses.

Credit card debt has risen dramatically among farm families. Interest rates charged by credit card companies are usually well above what your primary lender can offer. If you've paid down long-term debt in recent years but have now accrued a high short-term debt at higher interest rates, you might want to consider shifting some of that to a longer-term, lower-interest-rate loan in order to better manage the payments.

For the most part, though, there are only two ways to improve cash flow. "Cut expenses or increase income by selling more or selling at a higher price," says Marc Mooney, agricultural loan officer at the George State Bank in George, IA.

"While we don't like to do it, one of the easiest ways to trim expenses is to cut back on family living expenses," Kaalberg says. "One of the reasons credit card debt has risen so much in the past few years is that farmers are hesitant to cut back on family living costs.

"As long as farm commodity prices remain low, every expenditure needs to be justified," he says.

Watching expenses is important, agrees Mike Duffy, Iowa State University extension farm management specialist.

"Developing a realistic, workable marketing plan is just as important in projecting long-term financial stability of the farm business," he says.

"Marketing, marketing, marketing," Foley says, is the underlying theme farm bankers and advisors are now telling producers.

Generally, he claims farmers and their bankers are feeling better about their financial situation than they were prior to the 1998 harvest.

"Yields were better than anticipated in most of the Corn Belt and that's positive for cash flow. However, we need to sell the remainder of the 1998 crop, and begin selling the 1999 crop, at the best price possible."

Bankers say now is a good time to calculate 1998 average prices for corn, beans and other farm sales made during the year. This will allow you to compare the year with five- and 10-year price averages for your area, as well, giving you some idea of how to project prices for 1999.

Mooney suggests producers look at their average sale prices for the past three years.

"With actual sale prices and averages for comparison, we can look at the effectiveness of recent marketing efforts," he says. "From this, producers can decide if they need to spend more time and effort in marketing."

Foley says crop insurance is a must in any well-planned marketing program.

Also, if you're adding formal hedging or contracting to your marketing plan for the first time, primary lenders say they'd like to be made aware. Your banker might also be able to help you in locating market advisory help.

There's universal agreement among the banking sector that marketing plans be based on realistic, obtainable prices.

"We've gotten used to prices derived from heavy international sales of corn and soybeans," Duffy says. "Given the continued economic turmoil in the Asian markets, and production competition from the southern hemisphere, it could be some time before our U.S. farm commodity exports improve significantly."

So, Duffy says, growers need to include marketing tools that allow them to take advantage of good prices when they're offered.

"When the last federal farm legislation was enacted, the common belief was that local cash corn prices could not drop back below $2/bu. We now know better," he says.

When corn is $5/bu, anybody with a crop can stay in business, Foley believes.

"When it's $1.80 cash at the local elevator, though, you really need an intensive marketing effort. If your banker knows all there is to know about your operation, he or she can help you decide if you need outside help."