It’s important to get on top of financial difficulties early

When you’re a farmer, it doesn’t take long to slip into financial difficulty.

Management decisions in the 1980s, 1990s and into the early 2000s — especially around debt — helped contribute to degrees of financial hardship.

The problems were often compounded by factors outside a farmer’s control, including low commodity prices, high interest rates and weather.

This year, a significant number of farmers will experience some degree of financial difficulty, largely because of adverse weather.

Mother Nature can be a frustrating business partner. Commodity prices could be stronger and interest rates are starting to edge up after 10 years of rates below four percent.

Applying sound management practices during these times helps ensure that financial challenges are as short-lived as possible. I understand that the 1980s are a long time ago, and many would argue that events such as ultra-high interest rates will never be repeated. But it is history and there are things we can learn from that.

The financial challenges were so severe during that period that many farmers found themselves in situations where they had little or no equity.

What’s different today is that most farmers experiencing financial stress will also have lots of equity — assets that are greater than their liabilities. It is highly likely, if not already a reality for some, that we will have farms with millions of dollars of equity and yet will be unable to get loans. That’s the bad news. The good news is, if you are in financial difficulty and have equity, you have options. Here are three lessons to keep in mind.

Lesson No. 1: Know your situation. Don’t wait for a regular review with your accountant, post year-end. If you’ve had a bad crop, take the time immediately to review your financial position and determine what options are available to work through problem areas. Financial problems do not fix themselves and hoping that things will work out is not a good strategy. Looking back at the problems in previous down cycles, it wasn’t one year or one bad event that resulted in the financial challenges. It was year-over-year deterioration until there were no options to continue.

Lesson No. 2: Deal with it. It doesn’t matter how severe the problem is. There is a degree of “first mover advantage” when it comes to managing financial challenges. Lenders and creditors are significantly easier to deal with if you are proactive and start early enough. Working through financial challenges takes time. It’s way better to start working on some resolution in November than March. I’ve witnessed farmers, in only moderate financial stress, who have been unable to make any arrangements with lenders because they waited too long to address the situation. If it gets too late in the winter and lenders feel pressured, they’ll often say, “get the crop in and we’ll take a look at it in the fall.” However, this leads to the problem of getting the crop in when working capital is tight or non-existent.

Lesson No. 3: Separate emotion from business decisions. This is often difficult but extremely important, especially as the financial picture worsens. Think of the equity in your farm as your money — the money you have invested in the business. By restructuring debt or by encumbering assets to secure a loan for working capital, or simply by increasing trade credit, you are further placing your equity at risk. And if things don’t go well and losses mount up, equity will erode. It can be tough on farmers when it feels like their backs are against the wall. Good advice is to work to avoid basing decisions on “gut feel” or emotion. This is like playing poker and going all in. It can be very risky.

If you find yourself in a situation where things are tough, consider talking to an unbiased third party, a management consultant or an accountant.

Lenders can also be a good option, but remember that as the financial situation deteriorates, it becomes increasingly difficult for them to remain unbiased.

Take control of the situation. Don’t wait while your equity erodes and you run out of options.

Terry Betker, P.Ag, is a farm management consultant based in Winnipeg. He can be reached at 204-782-8200 or

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