By Carroll Merry
In the motion picture Close Encounters of the Third Kind, there’s a scene near the end where the humans are using sound and lights to communicate with the alien mother ship. When the alien craft takes over total control of the computers, one of the scientists comments “It’s the first day of school, boys.” There is obviously a lot to be learned from the advanced intelligence.
I can’t help but think that many of today’s farmers and ranchers as well as their lenders and financial advisers are facing their first day of school.
We are now a complete generation-plus removed from the Farm Crisis of the 80s when we saw a near complete collapse of American agriculture. The industry had been through land and commodity price booms with corresponding expansion of farms and ranches AND debt. Then came droughts in 1983 and 1988, commodity prices crashed and the mountains of debt drove thousands to quit farming and many to commit suicide. Banks failed.
Those who survived vowed to never let it happen again. The Farm Financial Standards Task Force was organized and set out to develop uniform financial reporting procedures, formulas, critical ratios and guidelines. Ag Banking schools were established and classes were filled to overflowing. Credit policies were tightened with greater oversight by regulators.
Good times returned.
In the past 2 decades U.S. agriculture has again seen times of great boom with record high prices being paid for both land and commodities. Expansion has been great with neighbors buying neighbor’s land. Young farm couples have had money like their parents and grandparents never imagined. And they’ve used it to buy the best – for him the best and shiniest equipment with all the latest technological toys….for her the half-million-dollar home.
But the storm clouds were gathering.
A few years ago I was involved with an intimate meeting that included Dr. David Kohl from Virginia Tech, Freddie Barnard from Purdue and Tim Ohlde from the Ag Lending School. On the conference phoneline was Dr. Danny Klinefelter of Texas A&M. You won’t find a more powerful and influential group to discuss agricultural finance programs! The topic was financial management education for ranchers and farmers and it was stressed that a time of reckoning was coming. The ‘go-go’ years of the early 2000s could not last.
They also noted that the need for education must also involve ag lenders. Today’s lenders, they observed, are also a generation removed from the 80s and have been through years of relatively easy skating in terms of ag lending. Most have never felt real pain.
Since that meeting in 2011 commodity prices have nose-dived, land values have ‘softened,’ farm profitability is skidding downward and signs of shakiness are being seen all across the ag community. If they haven’t already done so, every producer, lender, and financial advisor is urged to sign up for any and all programs that become available that may help them stay on top of their financial management skills.
It very well may be that for many that ‘first day of school’ has arrived.
Carroll Merry is president of Countryside Marketing, Inc. While he is neither an ag lender nor a financial advisor, he has served as administrator of the Farm Financial Standards Council since 1993 and has been involved with the ABA’s National Agricultural Bankers Conference since 1988, roles that give him a unique perspective as an industry observer.