This past week I was with young producers and agricultural lenders in both the North and the South. Next week I will be in Alberta, Canada and Kansas at the Kansas Agricultural Bankers Conference.

Perspective/Quote
"If you got the dirt, you can’t get hurt, but it won’t work!"

This perspective and quote says a lot. Many producers faced with cash flow problems are having difficulty paying down operating loans and account payables.

There is an urge to use equity and net worth if you are in a strong position to refinance short-term obligations to long term debt. This strategy may be plausible once every 3-to-5 years and have a strong equity position (like over 70 percent). Agricultural lenders will generally accept this loan request because they have land and dirt plus facilities to cover obligations for a last resort situation, which is liquidation.

However, if you find that you utilize this option every 1-to-3 years, it may be indicative of major problems in business or personal spending habits.

This strategy generally results in a loss of 5-to-7 percent of your equity base for each refinance occurrence because operating loans and account payables have been expensed with little net income. I have observed 60-to-70 percent equity positions decline to between 20-and-30 percent over a decade.

Global Outlook
Will the Japanese Bank Accounting Rule changes, which require more liquidity, result in pressure on our equity markets and treasury bills since they need to generate cash?

Dave’s Sport Pick
Isn’t it interesting? Having great athletes doesn’t win championships but chemistry and teamwork does. Team chemistry and sacrifice for the good of the team works in all aspects of life!

I am off again to Canada!

Final Note
Send questions. I would love to know what is on your minds. My e-mail address is: sullylab@vt.edu

Editors note: Dave Kohl, Soybean Digest Trends Editor, is an ag economist at Virginia Tech. He currently is on sabbatical and working with the Royal Bank of Canada.