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Soft Hard Times for Farmers, Financial Associate Says

There’s help for stressed-out farmers.

You’ve heard a lot by now that this farm economy is not like the 1980s. But Iowa State University is seeing a resurgence of a farm financial planning program that was launched during the 1985 Farm Crisis.

FINPACK was a program started in the 1980s to assist farmers in financial stress. With the assistance of a financial counselor, a computerized analysis of the farm business is conducted using FINPACK software. A FINPACK analysis may provide a more in-depth evaluation of the farm business, which many lenders require before extending further credit, according to literature provided by Iowa State University Extension and Outreach. John Jensen, farm financial associate with Iowa State University Extension and retired agricultural lender, has been in the kitchens of farm families who are feeling the pressures of this weakened economy. Recently, sat down with Jensen to visit about what he is finding out in his visits with financially stressed farm families. What does this FINPACK program do for farm operations?

JJ: This program is designed to help farmers get a set of neutral eyes on their financial situation. It’s not a guarantee for fixing a problem. But at least farmers have a chance to ask questions of an Extension agent vs. the person (banker) forcing them out of farming. The FINPACK program always existed but faded after the 1980s Farm Crisis. What’s the reason for the resurgence?

JJ: During the 1990s and the first decade of the 2000s, farmers paid considerably less attention to FINPACK to the point of forgetting about it. About three years ago, Iowa State University started to see the need for this type of financial guidance in farming. It has since ramped up the program to be able to take on distress cases. You were in the banking business in the 1980s, so you have a unique perspective when you talk to bankers about this current downturn, I imagine?

JJ: I’ve been in ag lending for over 40 years, working in banks and other financial settings. In the last year, while watching farmers operate in a third year of tight margins, bankers have learned that it is not 1980s bad, but the signs are there for more farm stress. We’ve had the runup in land prices, historically high cattle and crop prices, and a lot of spending to avoid income taxes during the glory years of 2010-2012. What I have learned from bankers is that working capital has eroded in the last two years and, in some cases, has disappeared for some farmers. In this last year, with commodities prices reaching multiyear lows, a lot of corn and soybean farmers just didn’t meet cost of production levels. Looking ahead, I expect to hear from bankers, that working capital is in a worse situation, and debt refinancing to restructure long-term debts against land and even operating debt. Now, that sounds just like the 1980s. I expect that to intensify this winter, to some extent. With these farm families you’ve sat with in their kitchens, where does the rubber meet the road with their stresses?

JJ: Interestingly enough, farmers are just as strong consumers as anyone else. So, as farm incomes went up, they spent more on family living. They now have pressure coming from anything from new vehicles; a new or renovated home; expensive vacations; newer, bigger, better electronics; and campers. It’s hard to pull back from that new living level. I’m hearing that bankers want more land as collateral. If the assets are there and the financial situation has deteororiated enough, requesting more collateral – typically land – is part of that situation. And typically, landowners do not like to hear that request. What other elements of the current farm economic stress are out there?

JJ: After meeting with a handful of farm families, I’ve observed that these may be soft hard times. The farm stress has not gotten critical yet. People don’t realize this, but examiners can walk into a bank and tell the lender to liquidate farm loans. In the 1980s, banks were doing things that regulators were telling them to do. I’m not hearing that happen, yet. Walk me through a few of your recent cases. Can you break down the farm families’ stress points?

JJ: In the first case, a farm family asked to have me look at just one entity of the entire family farm operation, and that entity was broke. I was able to offer thoughts to help relieve some financial stress through the selling of some equipment, concentrating on paying down debt. What I’ve learned with these farm families is that they failed to share all of the information. I walk out of their kitchen, sit down with the information back at my office, recalculate the numbers offered, and things don’t jive. That tells me there is more to the story than they are saying. I follow up with a report that summarizes what I found and some suggestions. But, I haven’t received any feedback. I don’t know if I was on track or off track. The third case involved a farm family who has a major health situation and is trying to get help from a state agency to help build up their farm enough to be able to get off of Social Security disability. So, this is a case that is admirable on this family’s part to try to improve their health and financial situations. One of the three farm families is on the brink of bankruptcy. The second case didn’t involve dire straits, but, I offered ways that they could approach their bankers, using current assets and income, to take some pressure off of their farm operation. What is the level of optimism for the industry with bankers and producers, regarding the circles that you run around in?
JJ: For both bankers and farmers, the biggest concern is where things might be headed. There’s grave concern where the farm economy might be headed. Farmers are the optimistic bunch. I’m reminded of the story of the cattle feeder who lost money for nine years and still thought that he could make it all back in the tenth year. Bankers have a higher level concern, but that doom and gloom is not universal. If a farm family takes the step to meet with an associate like you, will their banker be favorable to that attempt by their customer’s attempt to be proactive?
JJ: I don’t know. Even as I retired from being an ag lender, I didn’t know about this FINPACK program. I would guess that most bankers don’t know about it. Two of the three family farms in distress have come through ISU Extension. Somebody calls the Extension, and they were given my name. What could keep farmers from calling for help?

JJ: Everything is confidential. We don’t share the information collected with anyone. It’s up to the farmers if they want to share this information with their banker. Do you anticipate more requests for your financial expertise assistance in the new year?
JJ:  The yells for help are more seasonal than not. But folks can need help anytime of the farming year. Typically, renewals of farm operating lines of credit occur from November through March, and  December through February, primarily. So, this is when we will start to see problems surface, if there are some. If there are some real serious financial problems, those cases can drag out through the whole year. I could visualize the demand for our FINPACK services stretching into next summer. What is your message to farm families seeking your advice?

JJ: I tell farmers to be proactive, get your banker involved, don’t try to hide the problems from the banker. Instead, try to make the banker part of your team in solving your problems rather than creating a them-vs.-me attitude. If farm borrowers get bankers involved, they have already removed one barrier to getting the discussion going.

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