Economists provide tips for farm families to weather difficult times
Tough financial times have hit communities across the United States and beyond, but the problems are not just urban and suburban. Many farm families--particularly those in pork and dairy production--have been hit hard by economic forces, many of which were beyond their control.
"I have had several hog and dairy operations that have been severely impacted by the markets of the past 18 months--some to the extent they may not stay in business," said Kansas State University agricultural economist Duane Hund. "In fact, I have two who are selling out because they can't afford to continue on."
"Of course when bad economic times hit an industry, those who have taken on additional debt because of recent expansion or who recently entered the swine or dairy business, will typically be the first to exit," Hund said. As administrator of the K-State Research and Extension Farm Analyst Program, he works one-on-one with farm owners and managers to determine their financial position and improve it.
Hund said that farmers and ranchers who have equity built up and have older facilities that are paid for can weather economic storms longer than other more financially vulnerable operations.
"Nonetheless, even some of those (producers) are questioning their ability to stand additional losses if they continue," he said. "It's hard to start and stop a dairy or swine operation. It takes a lot of startup time and the fixed costs for things such as facilities and insurance continue on whether animals are present or not."
"From a farm financial management point of view, I would urge people not to retreat from or deny their financial challenges, but rather to objectively assess and understand them," said Dan O'Brien, K-State Research and Extension agricultural economist based in Colby, Kan. "I think this would help them to take the steps necessary to deal with and remedy critical issues facing their family farming operations. They need sound financial advice in a time like this--and they will need accurate financial numbers to be able to assess their farm situation."
"Keep your professional advisors in the loop, and communicate with them regularly," advised LaVell Winsor, also an economist with K-State's Farm Analyst program. "A lot of the problems right now are industry problems, but producers should identify any 'holes' in their operation, and take steps to improve those problems."
Key stakeholders need to have a clear understanding of where the operation is financially, Winsor said. She recommends that producers analyze their expenses and reduce them where possible.
"If you're not familiar with risk management tools such as hedging, learn now and lock in profits when available," she added.
"Keep a close eye on money being taken out of the business for family living or other expenses and if you don't already have one, now's the time to create a family budget," Winsor said.
Hund suggested three key steps that farm operators should take, especially in difficult times.
"Farmers should know where they stand financially and keep close tabs on equity positions, as well as profit and loss statements at least on a quarterly basis if not monthly," he said. That takes a lot of accounting but it is vital to keep close reins on an adverse situation.
"Second, I encourage producers to carefully budget for personal living needs," he added. "For example, compare the situation to a household with two wage earners where one is laid off. When income is reduced or cut in half in this example, everyone in the family knows they must instantly rally together and learn what they can do to live on one person's paycheck. It's easier to do in this example because they have steady income week to week. Now compare this to a farm family whose paychecks come once or twice a year at harvest time. The farm family is often challenged to budget accurately due to the fluctuation in income. They are used to borrowing from the bank to plant their crops and pay living expenses so they don't always have as tight a grasp on the personal living withdrawals.
"Finally, and this is tough--every family needs to come to a point where they say 'enough is enough. We can't adversely impact our equity position any further because if we do, we may reach the point of no return,'" Hund said. "It's one thing to work hard and break even. It's quite another to work hard and lose money in the process. That's like paying for the privilege to work instead of the other way around."
Hund noted that many of the difficult financial situations are not particular to farming. Private businesses in town suffer the same issues in a challenging economy.
"Families in economic challenging times need to communicate with others as well as within their own businesses," Hund said. "Too often farm and ranch operators shoulder the burdens silently and get eaten up by the stress, so that when things turn around they may not be in a position to stay with it."
"The facts are, not every business survives economic downturns," he said. "But every family can survive with faith and a shared purpose to support one another while they seek solutions. Clear heads filled with 'can do' attitudes will most often rise from the ashes of adversity to fight another battle and win in the end. They just need to know that they can do it."