The Stock market's wild ride and the credit crisis have farmers wondering what it all means for their businesses. Although crop production in the Midwest has been healthy the past few years, there's certainly a well-founded fear that bank and credit difficulties will have unintended consequences for agriculture.
After all, farming is a very capital-intensive business. Rural banks are like an oil pipeline pumping cash into farm operations that need financing to produce crops. Will these banks be able to do this for the 2009 crop? How about financing for new equipment ordered when the economy looked good?
If you don't know the answers to such questions about your own operation, you had better make a beeline for your lender right now. Sit down and talk with your lender about the credit line and if it has been reduced. Before making other purchases, be clear about what financing is available and when.
Money for banks will be extremely tight. Although traditional rural banks may be in good financial shape, they still borrow money from other banks to cover clients like farmers. The credit crisis may have jeopardized your bank's ability to find outside financing.
The credit crisis will have far-reaching effects that may extend into farming. But farmers didn't go through the difficult 1980s without learning some good lessons. This may be why the mortgage crisis doesn't extend to farmland loans. Make sure you stay on top of your business by knowing if you face money limitations this next year.