Strict lending times require ag producers to focus on profit margins, marketing plans

     Ames, Iowa (Oct. 23, 2008)- In the most strict lending times rural America has seen since the 1980s, producers across the board are examining their balance sheets and marketing options with a greater sense of urgency.
     "In the wake of the financial fallout the nation has experienced, farmers and ranchers will be forced to re-think the way they conduct their farming businesses," said National Farmers Ag Policy Analyst, Gene Paul. "There will certainly be profit opportunities, but we anticipate price volatility will be even greater than we've seen this decade, and windows of opportunity to lock in profits will be narrow-perhaps as brief as a few hours in a given day."
     A University of Illinois Farm Economic Update report indicates lenders are expected to increase requests for producer cash flow projections and other documentation. The reason, greater regulatory oversight requirements-not a loss of trust in a farmers' operation. And, in the midst of a recession, financial officers may be less concerned about capital issues, and more concerned about producer profit margins.
     "Producers will be forced to take a hard look at locking in inputs, as well as contracting ahead to secure a profit for a couple of reasons," said Paul. "One, of course is to ratchet up their chance of securing an overall profit for the year, and also because their lender may strongly suggest they do so."
     National Farmers marketing advisors are recommending to grain producers that they be able to show their lenders forward contracts on corn and soybeans covering their investment in high input costs. Producers should also demonstrate to their lender that they understand their production costs and provide the loan officer with a grain marketing plan incorporating put options, forward contracts and a system of marketing grain during historically favorable time periods of the year.
     Livestock producers will want to have all their production costs and risk management strategies in place before they meet with their lender-and that meeting should take place sooner rather than later. Grain markets typically are at their lowest pricing points of the year now, so producers should lock in feed costs by using call options at harvest time. In the upcoming months, marketing corn by feeding it to livestock may be a good strategy.
     National Farmers recommends producers list their inventory in advance with a marketer, so that when an opportune time arrives to sell, that marketer will be able to pull the trigger at a moments notice.
     Amidst an economic cloud of uncertainty caused by the deflationary U.S. housing market and stock market free-fall, the raw commodities farmers produce can help build a solid economic foundation for the country.
     National Farmers is a group marketing and bargaining organization for the nation's farmers, ranchers and dairymen. Producers can receive marketing advice at 800.247.2110.