This year's agricultural scene was a lot like following a Chicago
Cubs season. Initial seasonal rains brought high hopes. With each
month of excessive heat and lack of rain, hopes for a World Series
playoff diminished. By midseason field checks, expectations for a
trophy crop dropped. Gradually, it became a concern of having any
win and the ability to stay in the game.
Then, end of season in
the ninth inning, many grain trucks coming into home base for the
final count were tagged out at the elevators by referees with black
lights and aflatoxin test kits.
But, the larger question to be answered yet remains: What will
happen to the farmers financially? It is easy to speculate that the
losses in this year's crops will have an impact on the finances of
all those who work throughout agriculture.
One of the important financial aspects of farming is the
availability of farm loans. Eli Klokkenga, loan officer and farm
manager at State Bank of Lincoln, gave his opinion of what will
happen next year in the area of farm loans.
"You will probably see a lot of short-term loans going out," said
His reasoning for a large number of short-term loans being issued
is that farmers may need a little extra money to get by until they
receive insurance payments for their crops. Farmers who have their
crops insured will likely be waiting longer than usual to receive
"Because there have been so many claims, there may be a delay in
insurance payments to the farmers," said Klokkenga.
However, while the insurance payments may be later than usual
this season, the change on long-term farm loans may not be very
noticeable. As a result, Klokkenga expects that the next year may
see farmers conducting their business as usual.
But how could that happen with such low crop yields being sold?
Klokkenga believes that some farmers may receive higher revenue
than usual this year due to the amount of money they will be
receiving through eventual insurance claim payments. Insurance
payouts restore the previous financial state.
But there is also another reason why this might be the case. The
prices for crops that are brought in this year are expected to be a
lot higher than usual.
As of Oct. 12, it was projected by the USDA that December prices
could be as much as $7.50 a bushel for corn and $15.37 per bushel
for soybeans. These prices determine the insurance payout that
farmers will receive.
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Another factor that could contribute to potentially increased
revenue for farmers is whether or not they sell any acreage.
The value of tillable land has increased dramatically over the
last five years. While the average price per acre is still between
$9,000 and $10,000 for good-quality farmland, Klokkenga has seen
sales figures jump as high as $15,000 per acre at land auctions.
"That is near the top of the price range," he said.
Potential buyers of such expensive farmland would have to borrow
more in order to pay for it. However, due to decreasing interest
rates over the last few years, buyers have not shied away from
taking out loans to buy land.
"Agriculture has been very profitable in the last five years, so
agricultural lending has been positively affected," said Klokkenga.
Because of the profitability, farmers had been frequently looking
into expansion and improving equipment. But because of the drought,
the state of agricultural finances may not change very much this
Klokkenga says that as a result of farmers earning high revenue
from insurance claims, as well as the profits from crops that were
saved and any acreage that is sold, "there should be little change
on the amount or frequency of long-term loans next year."
While more short-term loans may be issued, for farmers it will be
to carry them over until insurance payments come in.
Both Cub fans and farmers are model optimists -- in it for the
long run with their faith taking them into each new season.
For farmers, partnering with financial providers brings long-term
success and security.
Note: Eli Klokkenga has been an employee of State
Bank of Lincoln for seven months and has been part of the agricultural loan
industry since May of 2011.
Be sure to check out all the articles
Outlook Fall 2012 magazine:
Yields: Complicated by aflatoxin
Hybrids saved us
Insurance claims in drought
Impact of drought on ag loans
Droughts: 1988 vs. 2012
Roundup: A view from all sides
How were the
farmers markets affected?
Introduction: Troy Rawlings