Ag lenders looking for positive cash flow
Jan 16, 2009 2:22 PM,
By Paul L. Hollis
Farm Press Editorial Staff
Farmers who have not already done so should be prepared when visiting with their lenders to show a positive cash flow for the crops they intend to plant this spring.
“Apparently, in some parts of Alabama, lenders are not looking for equity in crop loans but rather they’re looking for cash flow,” says Bob Goodman, Auburn University Extension economist. “So when you go in to arrange your operating expenses for this coming year, they’re going to want to see a positive cash flow for the crops you’re going to grow. And for this year, that’ll be difficult — but not impossible — to project.”
Goodman spoke at the recent Central Alabama Corn Production Meeting held in Autaugaville, Ala.
Growers should carefully consider all entries on a budget, says Goodman, including fertilizer, seed technology, irrigation, operating expenses and pesticides, to name a few. “In my corn budget, the break-even over expenses is $2.60 per bushel. That’s not an unreasonable price to expect, with corn hovering at $3 plus or minus right now,” he says.
There are several major variables to consider entering the 2009 production year, says Goodman. “Looking at the world supply and demand numbers of agricultural commodities, they tell us there’s too much of everything. Consumption is down, production has been adjusted up, and exports are down. I encourage you to look closely at the crop budgets. And of all the columns in the budgets, the most important one is ‘Your Farm.’ You’ll want to adjust items like fertilizer and seeding rates to match your farm. Take a few minutes before you go in to see your banker and enter those items, especially the big ticket ones,” he says.
Luckily, it doesn’t appear as if fuel will be a big issue this year.
“Even at $4 per gallon, it hurts your pocket book, but it’s not the big ticket item it used to be when we were conducting a lot of heavy tillage. We’re just not using as much fuel as in the past,” he says.
Turning to marketing, Goodman says his philosophy for years has been to “sell it before you grow it.”
“I’m hopeful for higher prices this year, but the markets are unglued. The economy is in shambles, and I have absolutely no idea what to expect in prices for next year. I really think I would take a hard look at what you’re now being offered. What I’m not really sure of is what kind of advice to offer.
“If the economy turns around, all bets are off. If the economy doesn’t turn around, we may be growing for the loan. It’ll be a gamble this year, he says.
e-mail: phollis@farmpress.com
(New Course)
(New Course)
