Credit Begins to Crack
Elizabeth Williams DTN Special Correspondent
Mon May 4, 2015 10:04 AM CDT
(Page 1 of 2)

INDIANOLA, Iowa (DTN) -- The farm financial ice is beginning to crack, reports from financial consultants, machinery dealers and bankruptcy attorneys show.

Early fractures in farm finances are beginning to crop up at machinery dealerships and in land rental disputes. (Photo by mfortini, CC BY 2.0)

Andy Goodman, president of the Iowa-Nebraska Equipment Dealers Association, knows two situations beginning in March where the bank asked an equipment dealer to pay up on a lien for a piece of equipment a farmer had traded in. The dealer didn't know it had a lien against it.

"We haven't had these types of calls for years. But beginning in March, we've gotten several calls from worried dealers," Goodman said. What surprised the dealers is the equipment didn't have a specific lien against it. Rather, it was included in a farm "blanket" or "dragnet" clause on a security lien for an operating loan. In those cases, the bank technically owns the equipment the dealer bought from the farmer who later defaulted on his bank loan.

In fact, "my first farm bankruptcy call in a long time came around Christmas, and since March, my farm bankruptcy business has really picked up," said attorney Joe Peiffer, with Day Rettig Peiffer, P.C., in Cedar Rapids, Iowa. "One client who last year farmed over 15,000 acres found out on the Monday before his March 1 cash rent payments were due that his lender would not give him any financing.

"And I just got a call April 30 from a farmer who last year got financing at the last minute, but wasn't able to get any money this year. It's May. He thought he was going to be OK, but now he's calling me [a bankruptcy attorney] for help."


Peiffer also had another client who had a problem with his landlords and sold out this winter. "He had signed a lease for $150,000 last fall, but it was terminated when he didn't pay it. The landowner found another tenant who would only pay $120,000. The owner has asked my client for the $30,000 difference," said Peiffer. "In addition, the landowner has threatened to sue not just for the shortfall in 2015 rent, but also for all of the 2016 and 2017 rent as well. How's he going to pay that when he couldn't even afford this year's lease?"

Moe Russell with Russell Consulting in Panora, Iowa, had four situations where his customers found more land to rent in the third and fourth week in April. "One landowner approached my farmer client because his tenant did not pay the rent that was due April 1. The farmer asked for a lower rent, but the landowner was not willing to budge and said he would put it up for bids if the farmer didn't pay the amount the owner had negotiated with his former tenant last fall." Russell has seen a few landlords go down $10 to $25 per acre in cash rent this year, but not much more than that.

"The past five to 10 years, farmers, for the most part, have had high capital expenses and high living expenses; now they are facing high cost of production. With the current inverted profit margins, something has got to give," explained Russell.


All farmers, even those not financially fragile, should run cash flows this July, recommended Peiffer. There could still be a commodity price run-up after July, but don't count on it. You know what's in the ground, you can estimate your costs for getting it out. And you should have an idea of what price you can get.

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