News

Arkansas lender warns of Mid-South farm financial crisis

An ag lender in Arkansas says there’s a generational financial crisis happening in the mid-south.

“A farmer can’t borrow their way out of a problem and a lender cannot loan their way out of a problem.”

Greg Cole with AgHeritage Farm Credit Services tells Brownfield farmers are coming off four years of losses, and this is the worst extended period of negative margins since the 1980s.

“There’s several differences though between now and the 1980s,” he says. “Then, we had interest rates a lot higher than they are now. But the other thing is land values. Land values are still positive and that’s providing lendable equity for borrowers to stay in.”

He says short-term survival comes down to equity, how many big-ticket items farmers own without owing any money on it.

Cole says farmers exiting the business could be the younger generation with depleted equity or farmers in their 60s who have decided to retire to preserve their remaining equity. He says many of the farmers in the mid-south sticking around for another year have eroded almost all their equity.

“Some of them, you could argue, from a financial standpoint they’re at the point of no return, because they have so much debt on their balance sheet.”

He says long-term viability comes down to profitability and cost control.

“Profit sustainability isn’t in the money you make, it’s in the losses you prevent. If you have shallow losses, you can get over them, but if you have big losses, you might not ever recover.”

Cole says preventing large losses and managing debt determines if equity stays.

“Making sure you’re on top of your marketing, you know operating costs and you’re playing the cards that you’re dealt in the best way.”

Cole says the recent government aid might reduce some of the damage, but it doesn’t fix profitability. He says the downturn could permanently reshape farming in the mid-south with fewer producers and more consolidation.

Hear Brownfield’s interview with Greg Cole.