Mediated ag debts, and

amounts owed, continue decline

For the second year, the number of lenders sending notices under Minnesota’s Farmer-Lender Mediation program was lower than at any other point in nearly a decade. The overall amount of debt taken to mediation also decreased.

For the fiscal year ending September 30, 1,659 notices from creditors were filed, with 499 requests sought by debtors. A year ago, the same figures were 1,566 and 569 from creditors and debtors, respectively. The requests addressed a total of $70.3 million, compared to $92 million the year before.

But officials at the University of Minnesota Extension cautioned that debt is vulnerable to volatility in the agricultural economy. Increased crop yields and prices in recent years also drive up costs such as land rental and land purchase prices.

“Two years ago, we saw increased yield and increased prices for commodities,” said David Werner, chief financial officer of the University of Minnesota Extension, which administers the mediation program. “That also drives up cost of farming. Plus, farmers are now facing those higher costs at a time when they’ve had variable yields and lower prices.”

The 2014 Farm Bill has the potential to alleviate some of the financial stress that farms may experience the next couple of years, said Kevin Klair, Extension agriculture economist and director of the Agriculture Business Management program at the university. Farmers are currently making farm program decisions that will lock them into five-year commitments under provisions of the farm bill, Klair said

“It’s important as ever to make the right choices as the new farm bill goes into effect,” he said. “We encourage farmers to attend one of the upcoming educational seminars presented by Extension and the Farm Service Agency to help learn about the decisions the new farm bill requires.”

More on farm bill education is available here:http://www.extension.umn.edu/agriculture/business/farm-bill/

About Farmer-Lender Mediation

Minnesota law requires creditors with a secured debt of more than $5,000 against an agricultural asset to offer mediation before proceeding with foreclosure, repossession, cancellation of a contract or collection of a judgment.

Farmers who are offered mediation can take advantage of a 90-day period to work with lenders to renegotiate, restructure or resolve the situation. A team of mediators, financial analysts and other University of Minnesota Extension professionals serve as neutral parties to guide and manage mediation.

Mediation is an informational, confidential process that generally requires less cost and time than adversarial court action. To be eligible for mediation, an agricultural borrower must own or lease more than 60 acres and earn more than $20,000 in gross agricultural products the preceding year.

Extension’s Farmer-Lender Mediation Program is part of the United States Department of Agriculture’s Certified State Agricultural Mediation Program. The number of notices received is far more than the number of farms involved in mediation. Most Minnesota farm enterprises involve multiple family members and each member or entity whose name appears on a debt obligation may receive a notice offering mediation.

For more information on Extension’s Farmer-Lender Mediation Program, visit

http://www.extension.umn.edu/agriculture/farmer-lender-mediation/

North Dakota weed control officials to meet

BISMARCK – Weed control officials from across the state will gather Tuesday, Jan. 6, for the 2015 North Dakota Agriculture Commissioner’s Weed Forum.

The forum is held in conjunction with the annual meeting of the North Dakota Weed Control Association (NDWCA), Wednesday and Thursday. Both events take place at the Baymont Inn and Suites (formerly the Best Western Seven Seas Hotel), 2611 Old Red Trail, in Mandan.

“The forum is an opportunity for county and city weed officers and weed board members to network with weed scientists, pesticide industry representatives and state and federal weed control personnel to develop effective and cost-efficient weed control programs and strategies,” said Agriculture Commissioner Doug Goehring.

Tuesday’s sessions includes presentations on risk management, the North Dakota Pollinator Plan, pesticides and environmental concerns, biocontrol, state-funded weed control programs, open meetings and records laws and using social media.

All sessions are open to the public.

Spotlight on Economics: Preparing for 2015

By David Saxowsky, Associate Professor, NDSU Agribusiness and Applied Economics Department

It is no secret that crop prices this season are lower and production costs higher. For those who are old enough to remember the 1980s or who have studied that time in U.S. agricultural history, the question may be: Will we see a repeat? No one knows the answer, but there are some fundamental management thoughts to consider as we begin 2015.

Cost of Production

Farm managers will want to project their 2015 production costs and cash flow within a few months. However, now is the time to determine 2014 actual production costs, so take the time to retrieve and review them. Do not just rely on your recollection of what you were thinking last winter; review your computer files or paper documents. What turned out different during 2014 than you expected nine months ago? Which costs were higher or lower? What commodities generated more or less revenue than projected? Can you identify why actual costs and revenues were different than expected? Can some of the divergences be attributed to differences among projected and actual quantity of inputs and yields?

Costs

As commodity prices decline, will some production costs also decline? Will rental rates decline, for example? It always seems that costs go up faster than they come down, if they come down at all. Rental rates that increased inordinately in the past few years may feel some downward pressure, while rental rates that increased more moderately are likely to remain near current levels.

Will interest rates rise? Another unknown answer. How would higher interest rates (that is, your cost of capital, especially borrowed capital) impact your costs, earnings, cash flow and asset values? Have you had an opportunity to analyze the impact of a change in interest rates? Do you need to make an extra effort to maintain an effective business relationship with your lender? Have you taken the time for a thorough conversation with your lender?

A comprehensive review and understanding of what happened in 2014 should assist farm managers in preparing financial projections for 2015.

Family Living

For the past several years, producers have had an opportunity to reward themselves for years of hard work, but now may be the time to review and possibly adjust family living expenditures. Perhaps we need to shift back from “what we reasonably want” to “what we need.” Earnings and cash flow for 2014 and 2015 should be considered in developing a reasonable expectation for family living.

Marketing

How are current prices and costs impacting your 2014 and 2015 cost of production, earnings and cash flow? An accurate cost-of-production projection should underpin your marketing plans. Do you, as the manager, know what price you need to receive to pay costs, including a family living allowance?

Do crop producers need to refine their marketing strategies? Marketing is expected to be more challenging in the future than it has been the past few years. Do we need to “dust off” and apply some of those past marketing tools? Most likely, yes. One may ask if producers should consider selling portions of the 2015 crop preproduction.

Asset Values

Now is the time to consider how the current financial situation in agriculture is impacting the value of assets, such as equipment and land. Are the market values of equipment currently declining more rapidly than your depreciation calculation? Is market pressure likely to moderate land values in the next two years? How are declining asset values impacting your business risk- bearing capacity as revealed on your balance sheet?

This also may be the time to do the obvious, such as adjust plans for equipment, building and land investments.

Volatility

But as my colleagues remind us, agriculture is a global industry. When global carryover stocks are low, a production problem anywhere in the world during the winter could raise 2015 commodity prices quickly. It is just as important at this time to consider the volatility in agriculture as it is to focus on recent declines in crop commodity prices. Do you know what you will do with your earnings if crop commodity prices rebound? Will you pay debt, invest in farm assets that positively impact your bottom line, consider nonfarm investments or investigate alternative uses for your capital? These questions are appropriate for livestock producers at this time because they are on track for some extraordinarily strong profits.

Closing Thoughts

This discussion does not address production practices and technologies, crop insurance, farm program participation or detailed marketing plans. However, those decisions are all based on information derived from the fundamental business management tools of enterprise analysis, income and cash flow statements, and balance sheets. Regardless of your personal or business situation, those basic management tools provide the foundation for your business decisions. Visit with a lender, NDSU Extension educator, financial planner or other professional consultant to refresh your understanding and application of these management tools if necessary.

Production agriculture will remain a rewarding and exciting career, but we cannot lose sight of the importance of using fundamental management tools.