When Tyler Ramsey joined his father, Myles Ramsey, as the fifth generation on the family farm near Kenesaw in south-central Nebraska, he began a lesson in risk management a lot sooner than he bargained for.
It was 2012, and corn prices for the market year extending into 2013 hit $7.50 per bushel in parts of Nebraska.
Fast-forward four years to last week. Corn prices at rural Nebraska elevators brought less than $3.25 a bushel in many parts of the state.
“My son has only been in for four years, and this is the first time he’s ever seen sub-$3.50 corn, so it’s quite an eye-opening experience,” Myles Ramsey said. “Let’s say we’re focusing on expense management now.”
Nebraska farm income has cratered along with corn prices, falling almost 40 percent to $4.6 billion in 2015 from about $7.5 billion in 2013.
Consequently, Midwestern farmers still waiting for agriculture market conditions to find a bottom have driven record-breaking demand for bank loans to finance operating costs.
That demand has been so high for so long that it’s got Nathan Kauffman thinking such loans may be more difficult to come by later this year.
“Something to pay attention to over the next six to nine months is credit availability,” said Kauffman, the Federal Reserve Bank of Kansas City’s Omaha branch executive.
“We’ve seen in the last couple of quarters that, for the first time in a while, bankers have responded that there are less funds available for ag borrowers compared to the previous year,” he said.
That’s not to say farmers are being turned down for loans just yet, but farmers certainly are in a difficult position relative to three or four years ago, said Daryl Wilton, chief credit officer for Cornerstone Bank.
The York-based bank has about $489 million worth of farm loans on its books.
“Probably what we’re seeing is roughly 40 percent of our people made money last year and the other 60 percent either lost a little or lost a lot,” Wilton said. “But I would not say that we have denied anybody” a farm loan.
Still, expense management is crucial in times like these, on the farm and in the home.
“If it’s a case like we’re in now, it certainly helps to have one member of the household working in a place where they have health insurance coverage, and that lets you slim down (expenses) a little,” Wilton said.
According to a report published by Kauffman and a fellow economist last week, there could be a lot of slimming down to come in 2016: Farm income in the Fed district including Nebraska continued its slide during the fourth quarter, the report said.
That’s not only because of persistently weak prices for grain commodities but also because it was a particularly tough year for people in the cattle market. After a banner year in 2014, feeder cattle prices fell more than 25 percent in 2015.
“We’ve seen as much volatility in cattle prices as I can recall,” said Tom Jensen, First National Bank of Omaha’s senior vice president of ag lending.
Jensen said the cattle industry represents 63 percent of First National’s total farm lending portfolio, which at $1.5 billion is the 10th-largest in the country. Though higher farm loan demand is a boon for the bank, it comes at the cost of some potentially uncomfortable conversations.
“No one enjoys having these discussions, but I think laying out expectations long before you run into issues can help solve these problems,” Jensen said.
For example, the prudent farmer today is far less likely to make a high-dollar purchase of something like a new combine or center-pivot irrigation system.
As sales of the latter go, dealers like Mid-Continent Irrigation in Fremont also have to ride out the lows of the ag cycle.
Service manager Jake Clark said the Valley Irrigation dealership’s sales of center pivots fell to 50 machines this year from 330 three years ago.
Now, Clark said, the business has to focus not on sales but on service, maintenance and add-on equipment to make existing machines more efficient.
“We have to streamline our operations and make sure we get things done right the first time,” Clark said. “We have to cut costs any way we can, just like the farmer does.”
Back in Adams County, Myles Ramsey said he knows the drill.
This year won’t be one where he spends extra money to build nutrients in the sandy soil characteristic of the area, for example. And to his banker’s delight, he’ll also keep personal expenses in check, “when we’re going out for meals or planning a vacation,” he said.
The market for corn and soybeans grown on the 2,600-acre operation hasn’t bounced back as he thought it would this year, and if it doesn’t, that could keep the trend of increasingly older farmers moving in the same direction it has for more than 30 years.
“My nephew is actually coming back to farm a small parcel of land this year,” Ramsey said. “We’re making an attempt to work him in, but the economic environment is not such that we can let him jump in at a large scale.”
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