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FFBT: Ag lender says farmers starting to rely on operating loans to cover expenses

An ag lender says some farmers are more reliant on operating loans to cover costs as they prepare for the upcoming growing season. 

Kent Burton with Indiana-based First Farmers Bank and Trust says working capital is starting to erode.

“We are in about the third year of a down cycle and coming to this, folks had plenty of good equity,” he says. “We’ve seen asset values continue to inflate, which helps to hold down leverage, but cash flow is what makes payments, not equity. We’re starting to see more refinances and more term outs.”

He tells Brownfield understanding the cost of production is key to managing volatility.

“Figure out where your breakeven is and what mix of crops makes the most sense,” he says. “Both from what it costs to put the crop out, what the yield potential is, what the insurance for that crop can be, and figure out where you need to be to be profitable.”

Burton says carefully evaluating financial decisions is an essential part of a strong risk management strategy.

AUDIO: Kent Burton, First Farmers Bank and Trust