A new study analyzing agricultural financial conditions highlights the need for farmers to keep a close eye on finances, says Bob Craven, director of the University of Minnesota (U of M) Center for Farm Financial Management (CFFM). The study showed that price volatility and declining margins are impacting farm finances.
“The study results won't be news to farmers who have seen their input costs go up while market prices decline, but it is a reminder that this is the time to sharpen your money-management skills,” says Craven, an Extension farm management economist. He recommends using tools like the U of M's FINPACK to analyze finances and improve their marketing skills through programs like Extension's Winning the Game program.
As part of the study, the CFFM and Extension Risk Management Education Regional Centers surveyed 2,300 agricultural professional nationwide about their analysis of agricultural financial conditions. Key findings include:
Most agricultural producers are in relatively sound financial shape. More than 60% of survey respondents said that 10% or less of producers they deal with are experiencing financial stress now. Another 15% indicated that less than 2% of producers they deal with are currently experiencing financial stress.
The survey respondents predicted an increase in financial stress among producers during the next three years. Slightly more than 28% of respondents expect at least 30% of their agricultural clients to experience financial stress during the next three years.
Declining land values and rising interest rates — two factors that played a key role in the 1980s farm crisis — ranked at the bottom of 13 factors contributing to farm financial stress. Top-rated factors were price/input cost margins, price volatility and negative cash flow.
More than 80% of producers are equipped in terms of financial skills to manage their businesses through a period of financial stress, according to survey respondents.
Responses given by lenders when asked about future financial conditions tended to be less pessimistic than those from individuals who supply goods and services to agriculture. Twenty-six percent of lenders think the probability is very high that producers will experience financial stress in the next three years compared to 39% of all respondents who rated the probability at very high.
Craven says that Minnesota conditions are probably slightly more optimistic than the national conditions reflected in the survey.
A summary of the survey is available at www.cffm.umn.edu.