When nothing cash flows
By James D. Ritchie

Farming is not in the same kind of economic crisis agriculture faced in the early '80s. What we have now is more of a cash-flow crunch. But if it goes on much longer, the situation could deteriorate into a genuine crisis.

Last May, Congress passed a $15-billion emergency farm appropriation, the third federal bailout in as many years.

About half of that amount will go directly to farmers in "Freedom to Farm" transition payments. The rest will go to prop up and reform crop insurance during the next two years.

"That was about the same story last year," said Larry Ward, vice president of Ag Financial Services for Farm Credit Services in Harrisonville and Warrensburg, Mo. "In our area of western Missouri, about 20 percent of total farm income in 1999 came from government payments. Without that, very few grain producers would have made any net income at all."

Nothing in sight indicates that 2000 will be different. With the addition of market transition payments and an estimated $6 billion for loan deficiency payments (LDP), the government will put $20 billion in farmers' mailboxes. And LDP outlays could be even larger than estimated. Farmers are expected to harvest corn from 73.l million acres, up 4 percent from a year ago. The biggest soybean crop ever--73.5 million acres--is about ready to combine. That production could push prices even lower.

"One problem with LDP: the more you grow, the more you stand to collect," said Ward. "Producers in short-crop areas don't have as many bushels to earn payments."

The squeeze has been going on for several years now, Ward notes. The separation between big farmers and midsized farmers is getting wider.

Farmers like Bryan Robertson are feeling the pinch. Robertson and his father, Neil, farm about 1,500 acres in Barton County just east of Lamar, Mo.

"We're going to need to make some major decisions, either get bigger or change our mix of enterprises," said Robertson. "We need to upgrade some equipment, and we have delayed making machinery trades--but that catches up with you over time."

The Robertsons also manage a 170-cow beef herd.

"Cattle are the one bright spot right now," said Robertson. "In fact, we have converted some cropland to grass this year.

"We've tried to maximize our marketing alternatives," he added. "We have done some forward contracting, and we buy crop insurance to cover our production expenses. We look at every selling opportunity we have, but marketing alternatives are very limited right now."

"Over the past two or three years, most crop farmers have used up their liquidity," said Ward. "Their equity now is in land and equipment, and they are eating into that. That is not a good way to make financial progress."

The average age of farmers has begun to creep up again, too.

"With our farmers, the average is approaching 60 years old," said Ward. "As farmers get older and get out, their land is typically picked up by a few big producers with the equipment to take on more acreage."

That's part of the bind with more modest-sized producers, Robertson admits.

"Older farmers are getting out in this area, too," he said. "But the current farm economy won't service more real estate debt. And as soon as land becomes available for lease, there's a line of potential renters waiting to snap it up."

In terms of debt, most farmers are still in better shape than they were 20 years ago when agriculture went through the wringer of the early 1980s.

"For one thing, neither lenders nor farmers are making the same mistakes we did back then," said Ward. "Land prices have been going up, but we haven't inflated net worths that much. We look at balance sheets and try to keep about the same level of net worth. Borrowing on appreciated land values is part of what got us into serious trouble 20 years ago."

Farming is not in the same kind of economic crisis agriculture faced in the early Œ80s. What we have now is more of a cash-flow crunch. But if it goes on much longer, the situation could deteriorate into a genuine crisis.

And, the "get-bigger-or-get-out" pressures are still going to be there. For farmers who cannot compete for more land, marketing becomes more and more important.

For all farmers, regardless of size, a sound marketing strategy is essential to survival--something more well planned than simply praying for a crop failure in Illinois.