HIAWATHA, IOWA (RFD-TV) — Rising input costs, volatile fuel prices, and lower crop prices are pressuring farm finances, leaving some producers looking for ways to manage debt and keep their operations running.
As farm bankruptcy filings rise nationwide, financial and legal advisers say farmers may need to consider their options before their situation worsens.
Joe Peiffer with Ag & Business Legal Strategies joined Market Day Report to discuss the financial challenges facing Iowa producers, warning signs of financial trouble and options for restructuring farm debt.
Tight Margins Make It Harder to Cash Flow
In his interview with RFD-TV, Peiffer said diesel costs are a major concern, particularly as farmers work to get this year’s crop out of the field. Although corn harvest has benefited from relatively dry conditions, he said the prices farmers are receiving are not always enough to cover production costs and repay operating loans.
“As the crop’s coming out of the field, the prices aren’t what they need to be to allow the farmer to cash flow and pay back input financing in many instances,” Peiffer said.
He added that volatile costs, particularly diesel, make it difficult for producers to know when they might see some relief.
Financial Challenges Bring Back Memories of the 1980s
Peiffer said the current financial environment reminds him of the farm crisis of the 1980s in several respects. However, one key difference is that farmland values have remained high, limiting some options for financially stressed producers.
“Farmers are reminding me of the 1980s in many respects, and that’s because they can’t. There’s not much they can do to turn a profit,” he said.
With land values still elevated, some farmers may have fewer opportunities to restructure debt without selling assets. Peiffer said that can mean making difficult decisions about selling farmland or machinery to bring debt down to a manageable level.
Recognizing Warning Signs Early
Peiffer encouraged farmers to pay close attention to their financial records, particularly their tax returns and ability to repay operating debt.
Continued losses reported on Schedule F can be a warning sign because lenders also review those figures when evaluating a producer’s financial condition.
Farmers should also consider whether they can pay off operating notes and other operating expenses as they come due. When they cannot, Peiffer said it is important to seek help and begin evaluating options.
He recommended working with a qualified farm manager or financial and legal professionals who understand agricultural debt restructuring and bankruptcy.
Options Beyond Bankruptcy
Selling assets can reduce debt. Peiffer said proceeds can pay off creditors holding loans against those assets, with any remaining equity potentially helping strengthen short-term finances.
However, asset sales can create tax consequences that farmers need to understand before moving forward.
“Every time you’re selling assets, you have to be knowledgeable and know that there will be tax problems with it, and you have to be ready to deal with those sometimes,” Peiffer said.
For some operations, Chapter 12 bankruptcy may offer another option, including a way to address certain tax obligations tied to selling assets. The appropriate approach depends on the farm’s financial circumstances and debt structure.
Start With a Clear Financial Plan
Peiffer said farmers concerned about their financial health should begin by understanding their actual costs and developing a plan before approaching lenders.
“You need to know your costs. If you don’t know your costs, you’re not in a position to make the next plan,” he said.
That plan could involve selling assets, refinancing debt or moving some short-term debt into longer-term financing secured by land or machinery.
Peiffer said producers should take a proposed course of action to their lenders and creditors rather than waiting for financial problems to become more difficult to manage.
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