Many hog farmers are no longer scared of their bankers, now that agricultural commodity prices have recovered and profits are flowing.
But this is the time to prepare for the next downturn, says a farm finance expert, because if farmers had a crappy lender in the last downturn, they will probably be a crappy lender in the next downturn.
“We’ve … seen some banks and bankers that haven’t been as supportive to swine producers as we would like,” Peter Manness of Meyers Norris Penny told the recent Manitoba Swine Seminar.
Read Also
Short rapeseed crop may put China in a bind
Industry thinks China’s rapeseed crop is way smaller than the official government estimate. The country’s canola imports will also be down, so there will be a lot of unmet demand.
“We need to start thinking about the next downturn and think about who we want to be with. What’s the bank, the bank manager, that we want to be with.”
Manness and two other farm finance experts were part of a panel looking at the financial after-effects of the devastating downturn, and all three focused on how farmers can better prepare for future downturns.
Hog production is a cyclical business, and while downturns like the recent one and the 1998-99 slump are rare, there is no question months of losses will naturally recur at the end of future cycles.
Manness said some lenders understand and want to be involved with financing hog production. They are good business partners for pig farmers.
“Start aligning yourself in the long term,” said Manness. “There are bankers out there that understand the industry better than others.”
He said now is a good time to get to know a few lenders to see who is best to deal with and who would be best for darker days.
“Start dating new bankers a little bit,” said Manness. “Get to know them a little bit, court them around so they can get to know you a little bit better. As the industry turns (down), we can go back to them.”
Bill Alford of the Hams marketing agency said lenders will probably be cautious about the hog industry for a while.
“We have to have demonstrated profits for a while and that confidence will flow back to lenders.”
Andrew DeRuyck, a mediator and farm management expert with Right Choice Management Consulting, said farmers should make relationships with committed hog industry financers rather than ones who jump in when prices and profits are high.
“What the industry needs is a long-term player in the industry that really wants to be there,” said DeRuyck.
Hutterite hog industry leader James Hofer asked DeRuyck if he had formulated a specific design for a hog farming operation that would be structurally soundest in a future financial downturn.
DeRuyck did not offer an optimal structure for a farm, but provided farmers with a structure that at least allows a farmer to survive an unexpectedly brutal downturn or crisis: own a half section on which the house sits, and don’t use it as collateral.
“If you have a half section and you don’t have anybody who has security on it, you’re going to have a place to live,” DeRuyck said.
“It isn’t going to be taken away from you…. As a young producer, one of my main goals is to get a half section paid off and in my name and have a nice home on it.
“If the market in whatever industry I’m in totally tanks and everything turns against me, I know that’s where I’m going to end up anyway.”
