By Paul Kuntz
There will be many producers will need to have an uncomfortable but necessary chat with their banker after the 2021 year.
After 20-plus years of sitting in that chair, I have some tips that can hopefully make the discussion productive and less awkward.
Have the discussion early. Once you know that there will be problems, start the conversation. Let them know that there may be a cash shortage or perhaps a cash flow issue. Do not wait until the issues arise. Do not wait until you have to write a cheque for inputs that you cannot cover. Do not wait until the loan payments are past due. It is best if you are calling the banker rather than the banker calling you.
Be as precise as you can. Do not tell the banker, “it is going to be bad.” The banking profession works with numbers that are very specific, so, try to be as specific as you can. Build spreadsheets to show what both the income and cash flow looks like. Have a specific number that represents the issue. It is much better to tell your banker that your cash shortage for the year is $300,000 rather than say, “it is bad.”
Estimate when the issue will hit. Perhaps you have enough cash until the end of February. Tell the banker this. The bank deals with many disasters and they will need to prioritize the files. Certain clients will need immediate help and others can perhaps wait. Giving your banker a timeframe will show respect for what they are doing.
Come with a plan. Although you do not know all the rules and policies that your bank has, you have a good idea how things work. If you need a large cash injection, it will need to come from a loan. That loan should be spread out over as long a period as possible to reduce cash outflow pressure going forward. That loan will need to be secured. Put together a bit of a recovery plan that you think might work for your farm.
Have a positive outlook. There is no industry that believes in next year as much as agriculture (except maybe Toronto Maple Leafs fans). We are a positive bunch that knows we are only months away from another production cycle.
Grain and livestock producers will have unique challenges. For grain farmers it will be a matter of overall income. Their expenses will be similar to their budget, but the income will be reduced. It will also come from different sources like insurance. Crop insurances (government and private) are quite quick and can have money for you shortly after harvest is done. AgriStability is slower to finalize but there are features of that program that provide you with an advance on the anticipated payout. You will need to determine which of these programs are paying and when you can receive that money.
One expense that some grain farms will have this year would have never been budgeted for and that is contract buyouts. Based on the commodity markets and drought, there will be producers that need to pay a large sum to cancel a deferred delivery contract. This will add insult to injury. Not only did you suffer a production loss, you also cannot participate in the rising commodity prices, and on top of that you get a bill to buy out your contract. This is devastating but it is a reality that you will have to work through.
Livestock producers may not see much of a change in their revenue stream, the issue will be securing pasture and winter feed. If these items are available, they will be at a premium. The analysis will entail how much will it cost to run the livestock for the year versus the revenue. If there is a shortfall, how is this made up? Do you want to borrow and add a loan payment to the mix? Can you cover it short-term? Will the government money be enough to get you through? These are the calculations that you should do prior to visiting the banker. This will help navigate through the crisis.
The most important trait that you want to convey to your banker is confidence. Let your banker know that you understand the severity of the issue and that you can recover. Let your banker know that assisting your operation through this rough time will pay off in the end.
If your farm has suffered a catastrophic loss that you feel is non-recoverable, or if you feel like giving up, seek some guidance. Reach out to someone who you trust that can offer either some advice or a sympathetic ear. Maybe that person is your banker. It might be your accountant, or maybe a neighbour. Call your local farm stress line to get help. Even if the situation is as bad as you think it is and this will end the operation, I guarantee you that talking about it will help. There may not be a solution that keeps you farming but you still need to move on. There will be other joys in your life. As dark as it might seem now, I promise you there are better days ahead, regardless of the damage that has occurred.
Back in the late ‘80s and early ‘90s I watched farms disappear every year. I sat with farmers who cried in my office as they realized their farm was about to end. It was devastating to watch and go through this with producers that had become friends. I see these friends today and they have great lives. They have moved on to other ventures, some still in the world of agriculture.
I do not want to minimize what any producer is going through after a year like this. But there is life after a devastating year in farming. It may not be what you imagined, but there is life.
Take care of yourself and talk to someone you trust.
