Late 2009 Harvest Is Causing Cash Flow Challenges For Farmers

Late 2009 Harvest Is Causing Cash Flow Challenges For Farmers

With this fall's delayed harvest, a number of farmers are finding their cash flow needs are harder to meet.

The 2009 harvest is one of the slowest ever, and an increasing number of farmers in Iowa and the Corn Belt are noticing that their cash flow needs are becoming harder to meet. What can you do? What can you plan for in the weeks and months ahead? 

 

"Farmers were rolling along with a big crop developing for 2009, then ran into a wave of weather-related challenges trying to get the large, wet crop harvested this fall," notes Steve Johnson, an Iowa State University Extension farm management specialist. "How to meet your cash flow needs is an important consideration with the delayed harvest."

 

"Generating cash is a lot slower than usual and you should be discussing plans with lenders, input suppliers and grain buyers," he advises. Also, your farming operation's expenses are increasing as the cost to harvest, handle and dry wet grain is higher this fall. Propane costs for drying are increasing and grain drying charges at elevators have risen. The total bill to dry the 2009 crop will be huge and was not likely built into the cash flow projections for most farms.

 

It's time to talk to your lenders, suppliers about next year

 

Another factor has been those USDA farm program direct payment checks from the Farm Service Agency that were about a month late in arriving this fall. That delay has also caused some farmers to scramble to meet cash flow needs.

 

Cash flow will be a challenge for many farms heading into the end of the tax year. Now is the time to think about how you are matching up your cash flow needs and do some planning ahead. "Since we've been about a month behind normal with the 2009 harvest, additional interest or late payment fees likely were incurred," he says.

 

Futures price volatility for both corn and soybeans along with pressure on basis in November came with the harvest pressure, as the grain market reflected a harvest roughly 30 days behind normal. "Although it's been a busy fall trying to finish harvest, you need to take time and make sure you effectively communicate with your input suppliers and grain merchandisers who may be expecting a payment or delivery of grain on a contract," says Johnson.

 

Think about money owed, and notes and bills coming due

 

With the late harvest and the delay in cash income flowing into the farm business, good communication and planning will make a difference this fall and winter, he adds. You need to be thinking about notes coming due, bills that will need to be paid and what you are paying interest on. If you miss the November 30 deadline for paying a bill or missed making a payment on a note, a late payment and/or interest charge will likely be added.

 

"That's why it's important to communicate with your lender, your input supplier and even the grain processor who is buying your crop," says Johnson. "Let the grain merchandiser know in advance when you want the check, and in what taxable year you want to be paid."

 

Should you shift some of your income into 2009?

 

You may decide to shift more of this income into 2009. Farm expenses were estimated to increase 10% to 15% for 2009, so you likely want to increase your 2009 crop sales to fully use tax deductions and exemptions. "While you're still trying to finish up harvest or fieldwork this fall, keep in mind it's very important to focus on meeting your cash flow needs," says Johnson. "Begin now to do some year-end tax planning."

 

This fall, ISU Extension has been advising farmers to take time to walk their unharvested corn fields and randomly sample corn and have it checked for moisture and test weight. If mold is present, find out where in the field and how widespread the mold is. If mold is significant, notify your crop insurance agent immediately for any potential loss that could be covered. Quality adjustment is provided under crop insurance, which includes mold problems.

 

"Storage and harvest management of your 2009 corn and soybeans will be particularly important," emphasizes Johnson. "Damaged kernels, regardless of the reason, should not be mixed with good quality corn in storage. Farmers should avoid harvesting poorly drained areas of fields, and the immature corn and downed stalks."

 

Summing up, Johnson makes these three key points:

 

* This year's late harvest is raising cash flow challenges as cash is coming in slower, and expenses are rising.

* Talk to your lender and suppliers soon. Also, keep track of interest payments, and other bills that are coming due. Avoid penalties for late payments.

* The increased grain drying expense that his hitting farmers this fall wasn't included in 2009 cash flow projections.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish