WEST LAFAYETTE, Ind. -– When commodity prices are high and incomes are up, farmers often can borrow money to plant their spring crop with almost no questions asked by lenders. That is not the case this year, said a Purdue University agricultural economist.

As farmers approach lenders about renewing their operating line of credit they should be prepared to answer questions about their profitability, managing risk and working capital, said Michael Boehlje.

“If you look back at the last couple of years, grain farmers have had pretty good incomes — even though operating costs rose quite a bit — so lenders felt fairly comfortable with the profit margins many producers had, meaning it was not as tough getting an operating loan,” Boehlje said.

“This year a lot of lenders are increasingly concerned about risk because of the financial challenges they face from regulators and loan review committees. So most farmers should anticipate providing their lenders with concrete, definitive answers to loan-related questions. Part of your job as a farmer is to sell your credit worthiness.”

Questions about profitability could be among the first asked by lenders, Boehlje said.

“Farmers need to fully understand the profitability of their business,” he said. “If it hasn’t been profitable, they’ll need a plan for turning that around. You want to make sure before you talk to your lender that you have a solid understanding of what you’re reporting on your Schedule F tax form for profits.”

Schedule F is for self-employed farmers. Because producers often adjust their taxable income up or down through the strategic timing of crop sales, the information on the tax form can vary greatly from year to year.

“Your lender is going to ask you if you changed your strategy this year compared to last year in terms of sales,” Boehlje said. “They will want to know if you prepaid or delayed expenses.”

Managing risk questions likely will focus on crop insurance.

“Lenders may be encouraging you to up your coverage level,” Boehlje said. “Maybe you’re buying crop insurance at a 70 or 75 percent coverage level. They may say you might need to up that coverage because your input costs are up and your existing coverage won’t cover even input costs. The lender might want you to have more protection, which means it could cost you more money. There might be some sticker shock if the lender starts talking about 80 or 85 percent coverage.”

Farmers also would be wise to retain adequate working capital when seeking a new operating loan, Boehlje said.

“Probably the most important thing that a farmer can do to protect their working capital is to make sure that they don’t make any capital expenditures out of current cash,” he said. “The quickest way to destroy working capital is to say, ‘Well, I sold some grain and put some cash in the bank, but I do need to replace that tractor.’ Or, ‘I need to buy a new planter, and I’ll just use that cash to do that, and not pay down on my operating line.’

“Be really careful about destroying your working capital position. Lenders are going to be asking more and more questions about that this year.”

Boehlje said farmers should keep a few other things in mind when meeting with lenders:

Covenants – Lenders could place more restrictions or covenants on farm borrowers in 2010. A covenant is a set of conditions under which the borrower must comply and spells out the consequences for violating those conditions.

“A common covenant is a limit on capital expenditures without prior approval,” Boehlje said. “The purpose is to make sure that cash that could be used for debt servicing or buying operating inputs is not diverted to capital expenditures that do not directly contribute to the cash flow of the operation.”

Liquidating assets – While usually a smart strategy for paying down debt, selling less productive assets can result in an unintended taxable gain. “Farmers should visit with their tax accountant before liquidating any assets and using the proceeds for debt reduction,” Boehlje said.

Farm Service Agency (FSA) loan guarantees – “In some cases you and your lender may find that a FSA loan guarantee is needed to support the financing request,” Boehlje said. “If that is perceived to be a possibility, it is critical to move quickly to start the process and get the application submitted. Many commercial lenders are positioned to facilitate guaranteed loan applications and you don’t necessarily have to go to FSA to apply.”

Additional loan renewal tips are available in Boehlje’s white paper, “The Loan Renewal Season: Your Lender’s Concerns.” It is available online at http://www.agecon.purdue.edu/news/financial/LOAN_RENEWAL_SEASON.pdf

WEST LAFAYETTE, Ind. — The 2008 Indiana Farm Fatality Report, compiled by Purdue University’s Agricultural Safety and Health Program, documents 28 agricultural-related fatalities in 2008, up from 24 in 2007.

The most common mistakes resulting in farm-related fatalities include using older tractors without rollover protective structures on hillsides and being in too much of a hurry and not using safety devices or switches on equipment.

“The general trend for the previous 30 years had been that farm fatalities were on the decline,” said Gail Deboy, Purdue agricultural safety engineer and report coordinator. “This has not been the case for the last two years, and that’s extremely disheartening.”

The report, released Friday (Sept. 18) at the Indiana Farm Bureau headquarters in Indianapolis, coincides with the start of National Farm Safety and Health Week, Sept. 20-26. Deboy and Bill Field of Purdue’s Department of Agricultural and Biological Engineering collected farm accident data and compiled the report, which is available online at http://cobweb.ecn.purdue.edu/~agsafety/IRSHC/fatalitySummary.html

The average age for farm work-related fatality victims in 2008 was 49.4, while the average age for the past 10 years was 52.6. The report documents two fatalities of males under the age of 18; their ages were 3 and 4. The two incidents involving children accounted for 7.1 percent of the total number of fatalities reported in 2008. Only one or two fatalities of children or adolescents under the age of 18 had been reported annually over the last 10 years, with the exception of 2000 when seven such fatalities were reported.

Victims 60 and older accounted for 39 percent of all documented cases, and that is consistent with a continuing trend of older individuals being involved in a disproportionate number of fatal incidents.

In the past, Howard and Fayette counties documented no fatalities in the previous 30 years, Deboy said. Fayette is now the only county not to have a recorded fatality.

The three Indiana counties with the most recorded fatalities during the last 30 years include Elkhart, LaGrange and Greene counties, which all have a large Amish population, Deboy said. This year LaGrange and Greene counties each reported one fatality.

“One thing not in the report is that in 2008 five of the 28 fatalities were caused by hydraulic failure or operator error in operating hydraulics,” Deboy said.

The most common mistakes resulting in farm-related fatalities include using older tractors without rollover protective structures on hillsides and being in too much of a hurry and not using safety devices or switches on equipment.

Eight deaths in 2008 were attributed to tractor rollovers, and five deaths were caused by machinery crushings or pinnings, according to the report.

“Most farmers don’t spend much time thinking about safety, and we hope this report helps create more of an awareness in the farming community, especially right before harvest,” Deboy said.

In the United States, there are 3.5 fatalities per 100,000 workers in all industries, according to statistics from the National Safety Council. There are 31.6 fatalities per 100,000 workers in agricultural production.

“With all the unpredictability of livestock and the sheer size of the equipment, farming is the most dangerous industry a person can be involved in, but farmers can take simple steps that go a long way to help protect themselves,” Deboy said.

Deboy recommends farmers take the following safety measures this fall:

• Avoid working when tired. Farmers should take frequent breaks and get enough sleep.
• Slow down and pay attention to details.
• Keep all equipment shields in place. If a shield is removed to work on something, be sure to put it back on.
• Use all safety locks and safety equipment. Don’t override safety locks thinking they will slow down productivity.
• Use tractors with rollover protective structures.
• Make sure the slow-moving vehicle emblem is visible and in good condition on all tractors and equipment.
• Use hazard lights when operating tractors and equipment on roadways.

“The average reaction time for a person is three seconds,” Deboy said. “Tractor operators have less than three seconds to react from the time they realize they’re in a dangerous situation to when the tractor rolls over.”

For questions and more information about the report, contact Deboy at 765-496-2377, deboy@purdue.edu, or Field at 765-494-1191, field@purdue.edu

WEST LAFAYETTE, Ind. — Indiana farmland values dropped slightly but held their own in a tumbling economy, according to the 2009 Indiana Farmland Values and Cash Rents Survey completed by Purdue University.

Statewide, top-quality land averaging 182 bushels per acre for corn was valued at $28.40 per bushel; average-quality land averaging 150 bushels per acre for corn was valued at $27.92 per bushel; and poor-quality land averaging 118 bushels per acre for corn was valued at $27.44 per bushel.

The survey, conducted each June by the agricultural economics department, reports that the value of top-quality farmland in Indiana declined 0.2 percent from 2008 numbers, while average- and poor-quality farmland declined by 1.2 percent and 1.7 percent, respectively.

Indiana farm managers, appraisers, land brokers, agricultural loan officers, Purdue Extension educators, farmers and representatives from the Farm Service Agency county offices, Farm Credit System and insurance companies were asked to complete the survey, which had 328 respondents. Results from the survey and a full report are available online at http://www.agecon.purdue.edu/extension/pubs/paer/2009/august/dobbins.asp

Craig Dobbins, Purdue Extension farmland economics specialist, said he was surprised that farmland values were not down more than they were.

“I expected the drop in grain prices and higher input costs would lead to a fairly significant drop in farmland values,” said Dobbins, who conducted the survey. “But farmland real estate is often seen as a strategy to hedge against inflation, so we may have some of that coming into play here.”

Statewide, top-quality land averaging 182 bushels per acre for corn was valued at $28.40 per bushel; average-quality land averaging 150 bushels per acre for corn was valued at $27.92 per bushel; and poor-quality land averaging 118 bushels per acre for corn was valued at $27.44 per bushel.

The average value of bare Indiana cropland ranged from $3,351 per acre for poor-quality land to $4,994 per acre for top-quality land.

“The top-quality land tended to hold its value better than poor-quality land,” Dobbins said. “This means people in the market are more picky or selective about the land they purchase.”

For cash rents, Dobbins said “variation” is the buzzword.

“On a statewide basis, we found cash rents moving in just about every direction,” he said. “For top-quality land, cash rents were up about 2 percent. For average-quality land, cash rents were just about constant with 2008 numbers, and for poor-quality land, cash rents were down 1 to 2 percent.”

The average estimated cash rent was $198 for top-quality land, $158 for average-quality land and $121 for poor-quality land. The report showed that statewide, rent per bushel of estimated corn yield was $1.03 to $1.09.

There were significant variations in cash rents by region of the state, Dobbins said.

Some areas did see an increase, such as the west central and southwest regions of Indiana, where cash rents increased from 2.1 to 6.7 percent. The central and southeast regions reported constant or declining cash rents, while the north and northeast reported increases for top-quality land and declines for average- and low-quality land.

The west central region had the strongest cash rents across all land qualities, ranging from $145 per acre to $220 per acre. Cash rents were weakest in the southeast, ranging from $86 per acre to $146 per acre.

In looking to the future and trying to decipher what these numbers will mean for the 2010 crop year, Dobbins believes margins will continue to get tighter.

“We’ve seen some input costs drop. Fertilizer prices seem to be declining and fuel declined but is coming back up,” he said. “At this time, it looks like the net return for crop production is going to be smaller in 2010 than in 2009, and certainly 2007 and 2008. Some cash rents will need to be adjusted downward.”

Dobbins recommends that if there were large upward adjustments in cash rents in previous years, tenants may need to convince landowners to make a downward adjustment.

“It does not appear that the large margins needed to support high cash rents will be there for 2010,” he said.

Now is the time, Dobbins said, for tenants to get out their calculators and budget through what the potential returns are for each rental farm.

“Given the variability to both parts of the profit equation, it’s dangerous to lock in input prices but not revenue, or to lock in revenue but not input costs,” he said. “Growers will have to work to protect both parts of the equation.”

The Purdue report also tracks the value of transitional and recreational land.

“There was a significant decline for both transitional land and recreational land,” Dobbins said.

The value of transitional land – or land moving out of agriculture – was down 7 percent, and the value of recreational land had decreased by 13 percent, according to the survey.

“I think this is a general reflection of the economy,” Dobbins said.

For questions and additional information about the survey, contact Dobbins at 765-494-9041, cdobbins@purdue.edu

WEST LAFAYETTE, Ind. — There are aspects of farming that producers can’t control, such as grain markets, input costs and the weather, but employee management is one aspect that can be controlled and significantly affects an operation’s bottom line.

Sarah Smith, an organizational leadership and supervision specialist at Purdue University’s North Central campus, said according to Purdue’s Crop Costs and Return Guide, the 2008 budget for row crops shows that production agriculture costs relating to labor is $30 to $60 per acre.

“If your farm has eight key employees, full-time and primarily year-round, and you lose two of them this year to competitors or other work opportunities, that’s nearly a loss of $4,000 just in employee replacement costs,” Smith said. “This is an area that farmers can control and minimize employee turnover by offering good benefits, both tangible and intangible.”

It’s not unusual for a farming operation to experience a 25 percent turnover rate, but by providing benefits, they can substantially reduce their turnover rate, Smith said. And if you don’t have those employees in place during those crucial farming times like planting and harvest, the costs can become astronomical if you can’t get your crop harvested, she said.

Smith will discuss how employees can offer these benefits at reasonable costs during Purdue’s 41st annual Top Farmer Crop Workshop, which will be held July 20-23 in Pfendler Hall on Purdue’s West Lafayette campus.

Some of these benefits include offering a health care plan, accommodating requested time off, retirement options, disability benefits, as well as providing a good work environment where all employees are treated with respect.

“Farmers often think they can’t afford to offer these benefits to their employees,” Smith said. “But now employers have some feasible options to choose from that they can offer to help retain key employees.

“Many employers want to offer health benefits to a couple of key employees, but are unsure if it’s worth it because the monthly premiums are so high. One option available to them is to purchase a Health Savings Account (HSA). Then, instead of giving that employee a $1,000 bonus at the year’s end, that money can be put into an account for the employee to use for medical purposes. This allows the employee to have access to a good health care plan and makes it affordable for the employer to offer.”

Smith also said that there is often a misconception that disability insurance isn’t relevant because of Social Security.

“This is not the case,” she said. “There is lag time between the time of disability and when Social Security actually kicks in.

“Disability insurance is extremely reasonable and acts as a bridge to fill that gap. Because farming is such a hazardous occupation this is often very important for employees working in the field.”

Smith said another myth that farmers have is they can’t afford to offer a retirement plan. She said this shouldn’t matter.

Employers can offer simple plans such as an IRA account and provide automatic payroll deduction, which adds to the paperwork, but is often very important to attracting and retaining good employees, she explained.

“Even if you can’t match the amount the employee puts in or provide a percent, if you will just set up payroll so they can make an automatic deduction, it’s a huge benefit,” she said.

During Smith’s presentation she will also talk about legislative and legal changes and potential changes that affect employers. These include changes to the Family and Medical Leave Act, minimum wage and seasonal labor laws. Smith will provide resources to make sure employers are legally compliant and will answer any questions in regards to these issues.

More information about the workshop is available at http://www.agecon.purdue.edu/topfarmer/conference.asp. Pre-registration is encouraged due to space limitations, but not necessary. Individuals can register by visiting http://www.conf.purdue.edu/TOPCROP or calling (765) 494-7220. Registration costs $300 for the first individual representing a farm and $100 for each individual after that. The cost includes two meals, refreshments, the opportunity to test farm plans using the B-21 linear programming analysis and a workshop proceedings binder. A registration discount of $100 is being offered for first-year attendees (only applicable to full registrations).

For questions and more information regarding the workshop, contact Bruce Erickson at (765) 494-9557 or berickso@purdue.edu. For questions regarding registration, please contact Tom Robertson at (765) 494-7220 or tlrobertso@purdue.edu.

WEST LAFAYETTE, Ind. — Even though planting soybeans earlier has been an increasing trend for growers, a Purdue University expert said this year’s delayed planting may be more beneficial than detrimental.

The abundance of rain that has washed over the Midwest has caused planting delays in many states. Indiana and Ohio have 19 percent and 21 percent, respectively, of the intended soybean crop planted, according to the latest report from U.S. Department of Agriculture’s National Agriculture Statistics Service. Combined, this means that nearly 7 million acres are not yet planted.

“But this late planting may be a blessing in disguise,” said Ellsworth Christmas, Purdue Extension soybean specialist. “Soybean seed quality is horrendous.

“Don’t get me wrong, there is some good quality seed, but an awful lot of it is just marginal. And that poor quality seed is at much greater risk to rot and disease, especially if it has to sit in the ground for several days.”

Purdue research shows that growers should plant soybeans between April 25 and May 10 to obtain the highest yield potential.

“We found that planting after May 10 leads to a 0.5 percent yield reduction per day,” said Andrew Robinson, an agronomy student who examined the relationship between planting dates and yield. “And, planting after early June results in a yield reduction of 1 percent to 1.5 percent per day.”

Robinson and Christmas agree that if this is the case, with new crop soybeans at $12 a bushel and an average yield of 50 bushels per acre, a 0.5 percent yield reduction per day is a loss of .25 bushels per acre per day or $3 per acre per day. For a 1,000-acre soybean farm, that’s a loss of $3,000 every day soybeans aren’t in the ground.

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