Low commodity prices make operating loans tougher to get but still necessary to Idaho farmers and ranchers.
Agricultural producers traditionally borrow at the first of the year to finance the production of the year’s crop. The operating loan is then paid in the fall when the crops are sold.
“Lower commodity prices, like for grain, make operating loans more necessary but also more difficult to get,” said Dustin Orr, branch manager for Farm Credit Services of Rexburg. “Cash flow is the key. Customers need to have some of their own skin in the game.”
This means the producers should have some of their own cash flow as well as some financial reserve. Orr said he likes to see the producer have about one-third of the operating expense be liquid and available.
Unfortunately, lower commodity prices for grains have depleted many producers’ reserves. Farmers routinely bank profits for the next season. However, if they barely broke even or went in the hole because of low commodity prices, their reserve is much less.
“There are a couple bright spots for commodity prices,” Orr said. “Cattle are looking good and possibly potatoes. Alfalfa is looking pretty good.”
He said the 2018 tariffs and trade disputes have not negatively impacted growers here nearly as much as soybean producers in the Midwest.
Higher interest rates and a stronger American dollar pose additional challenges in the world market.
“Producers who are more diversified have an easier time when one commodity falls,” said Lance Bethke, of Farm Plus Financial, Idaho Ag Credit in Pocatello.
However, many producers are locked into producing grain as a rotation crop for their overall program. This means they must plant grain no matter how low the prices are.
This scenario leaves many producers searching for other ways to afford their way of life or plans for the future.
“Some farmers are consolidating their operations,” Bethke said. “As they get closer to retirement or if they have no heirs, some sell a piece of property to erase debt or lease the land out to other producers. Land itself is an important commodity.”
Dallas Ward, Wada Farms CFO, has viewed farming from both sides of the equation. He has been employed by Wada Farms for the past 20 years. Before that, he farmed his own place for 12 years.
“I enjoyed farming my own place for as long as I did it,” he said. “Then, Mr. Wada offered me a job and I took it. My ranch was paid for and I didn’t want to risk my equity so working for Mr. Wada seemed a good way to go.”
Ward said small, medium and large farming operations all face challenges. Big farms have a lot of employees and must make payroll. There also is a lot of high-priced equipment and all types of maintenance involved.
“Farming has always been challenging,” he said. “I’d say it’s gotten more challenging the past six years or so with the grain prices dropping so much.”
He said grain and potatoes are at barely break even prices but he always hopes for improvement there. Some small and mid-sized farmers are choosing to either sell or lease their land instead of risking more equity in their operations.
‘The land stays in production, though,” he said. ‘It’s just someone else taking the risk.”
Despite all the hardships, Ward said he would encourage anyone who wanted to experience farming to give it a shot.
“Have at it,” he said. “All of life is a battle. If farming is what you want to do, do it. There’s a huge upside to farming. You are involved in the creation process and helping crops to grow. It’s very satisfying.”
The cost of farming equipment has risen sharply in the past few years and that has to be factored into the overall cost equation, as well. This has resulted in some farmers joining forces in cooperatives to share with high-dollar equipment.
For example, rather than purchasing a combine, some farmers will pay someone to custom cut their crops. This saves them the cost of several hundred thousand dollars worth of equipment and its maintenance. It also helps the custom cutters pay for their equipment.
Some producers, such as dairy farmers, may get out of that business because of low milk prices. They might, instead, sell the cattle and use their land and equipment to grow cattle feed and alfalfa.
Many producers also work a full-time job as well as farming. This is common for smaller operations.
“We are not seeing any great changes on how farmers are borrowing this year,” Orr said. “Things may be a little tighter but the farmers will keep farming. The people of the world need food and America is the greatest provider of that food.”