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Cushion yourself

Gil Gullickson 01/26/2011 @ 11:02am Crops Technology Editor for Successful Farming magazine/Agriculture.com

Aspeaker at a 2007 farmer meeting salivated like a puppy eyeing a pork chop as he described agriculture’s rosy future.

This was about the time when corn and soybean prices were making their ascent into the $5-per-bushel (for corn) and double-digit-per-bushel (for soybeans) ranges. During the question-and-answer session, though, one farmer summed up the audience’s mood.

“When,” he asked, “does the other shoe drop?”

In some ways, the current spike in grain prices and land values mirror the skyrocketing 1970s.

The go-go lenders are back. Input salespeople are your best buddies. Outside investors are eyeing farmland and agricultural companies. Could a 1980s-like crash be ahead?

Differences exist.

Many farmers have stronger balance sheets that can fuel land and input purchases. Ethanol production, solely the domain of major agricultural processors 25 years ago, is now funded by many farmer investors. Foreign demand seems solid due to China’s demand for U.S. grains.

Still, it’s a good idea to keep the following advice in mind from Brent Gloy, Purdue University agricultural economist, as you navigate your farm’s future.

1. Use Debt Cautiously

Debt can allow you to access good opportunities, such as farmland. “If it’s too good to be true, it probably is,” says Gloy. “But occasionally, things come along that are good opportunities. Use debt wisely and in moderation. You can’t use it all the time. But when you look at studies of businesses lasting 50, 75, or 100 years, almost all have in common carrying a moderate amount of debt.”

2. Keep Some Cash

If you’re having good times now, squirrel away some money you have and put it in cash to tide you through future rough times.

“Don’t just think about working capital,” says Gloy. “Working capital differs from the cash reserves you need.”

3. Be The Decider

Ever ask a barber if you need a haircut? Or ask a seed salesman if you should buy seed? Of course you need these goods, they’d say. Their advice is tailored by their point of view. Gloy notes it’s important to seek input from others, but you should make the final decision. After all, since you have your best interests at heart, you’re the best decision-maker.

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