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VIDEO: Bell State Bank VP says 2016 could be 'make-or-break year' for farmers

MOORHEAD—For some producers, 2016 will be a "make-or-break year," said Lynn Paulson, Bell State Bank & Trust senior vice president and director of agribusiness development.

There is still a lot of strength in agriculture, he said, but producers who just did OK between 2006 and 2012 are probably having problems now, he said.

"There's been about a 50 percent reduction in commodity prices," he said. "There isn't any business that can handle that extended squeeze for those period of times and remain profitable."

The Fargo Moorhead West Fargo Chamber of Commerce hosted a panel discussion on the challenges of the local agriculture market Tuesday, April 5, in Moorhead.

Paulson, who has been in ag lending for 35 years and does some farming, said there were warning signs during the super cycle of 2006-2012 that farmers and bankers missed.

"We've been reeling from that ever since," he said.

Andrew Swenson, North Dakota State University Extension Service farm and farm resource management specialist, said 2012 was the best year in agriculture he expects to see.

Land values went up 40 percent in one year and the net farm income for a group of Red River Valley farms averaged about $450,000 that year.

The next year it dropped to $68,000 and in 2014 it dropped to $13,000.

"That's a tremendous reduction in the fortunes of our Red River Valley farms," he said.

During the years of great prosperity, Swenson said farmers spent and borrowed money.

"There's not one year on average where we pay back the amount that's borrowed," he said. "That's increasing the liability of the balance sheet every year, even though we've had good years."

Mike Krueger, founder and president of The Money Farm, a grain marketing advisory service located near Fargo, said the issue has never been one of demand.

"There's been lots of chatter the last several years of high prices kill rural demand. That's not the case at all," he said. "Rural demand continues to expand every year. The problem is that we've had three record world crops in a row, and high prices did bring more land into production and it did bring more expansion of technology to other parts of the world in terms of better seed, better use of fertilizer and so on."

Krueger said the odds of having a fourth record year of world production are slim and everybody's watching the weather.

"The weather's going to be volatile enough I think throughout the growing season that it's going to give producers a chance to maybe price some new crop production at better levels than we're seeing today," Krueger said.

Working capital is the shock absorber to handle down times, Paulson said.

"We've got people who have $10 million net worths, $20 million net worths who can't make a $25,000 payment," he said. "Most businesses don't go out of business because they go broke, they go out of business because they run out of cash."

Most producers don't know their cost of production or their break-even numbers, Paulson said. "You need to manage that family living," he said. "Every dollar that you spend takes away from your bottom line."

And marketing is important, he said.

"Our producers up here typically aren't great marketers," Paulson said. "Their marketing plan often is hope, hoping prices go up, and hope really isn't a great marketing plan."

Yields will be critical in 2016, Swenson said.

In looking at studies of yields, costs and market prices, he said what differentiates profitable producers from non-profitable producers over time is yield.

Tracy Frank

Tracy Frank is a SheSays, Variety, and Farmer's Forum reporter for The Forum of Fargo-Moorhead. Have a comment to share about a story? Letters to the editor should include author’s name, address and phone number. Generally, letters should be no longer than 250 words. All letters are subject to editing. Send to letters@forumcomm.com

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