Grain producers haven't had much to like about profit margins in recent years, but there are farmers making them work, says Farm Credit Services of America chief credit officer Tim Koch.
"From our vantage point into the ag economic sector, that's a fairly significant number of producers. Overall financial health is pretty good in agriculture," he says. "We're kind of at this divergent point. Unfortunately, those that are struggling seem to be getting more focus and more attention."
Koch says the cost-containment route is pretty much exhausted, and now farmers need to be good managers of their businesses, not just their production. That means not only knowing the specifics of the cost of production but also following through on the marketing plan. He adds the most successful farmers are those who do long-term strategic planning.
As agriculture consolidates and more farmland is tended by nonowner operators, what matters most on a farmer's balance sheet isn't equity but cash-flow.
"Successful producers will find a way to leverage that equity in whatever mechanism affords them the best return. That may or may not be ownership of real estate as we go forward," he says.
Farmers will begin to demand a return on any ground they rent, and Koch says it's the tug-of-war between landowners and operators about cash rents that will have the largest long-term impact on a farm's financial health.
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