AMES, Iowa – Columns about financial management on the farm usually appear when commodity prices are low, interest rates are high, or some other condition puts a squeeze on cash flow.
Long run. Over the long run, however, how we manage when prices are high may have even more impact on the economic viability of the farm business. No one wants to miss the boat when prices are good, but sinking the ship is even worse.
Current grain prices are as attractive as we have seen for many years. And the best part is that they are caused by an increase in demand, not a short crop, as is often the case.
If the world’s appetite for energy remains at current levels, high prices may persist.
On the other hand, there are those who remember the late 1970s when export expansion fueled an explosion in farm commodity prices, and the U.S. was poised to feed the world for many years to come.
Factors. A combination of factors turned the boom into a bust, and financial stress permeated the farm sector during the 1980s.
Are current conditions similar to the 1970s? The strong increase in demand for grains and oilseeds is similar, though for different reasons. However, we have not had any short crops or grain embargoes, and the general inflation rate in the economy has remained low and steady.
Most farms have a substantial equity cushion. Grain farms, at least, are certainly looking at improved cash flows and farm income for 2007, barring severe crop losses.
How should a bumper crop of cash receipts be invested?
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