Iowa lawyer warns rising fuel and input costs are squeezing farm cash flow

Joe Peiffer of Ag & Business Legal Strategies said on the Market Day Report that farmers are facing tight margins that make it difficult to cover operating expenses. He noted that while dry conditions helped with the corn harvest in Iowa, the prices producers are receiving are often insufficient to pay back input financing.

Peiffer identified diesel costs as a primary pressure point. He said the volatility of fuel prices makes it hard for producers to predict when they might see financial relief. This uncertainty complicates cash flow management during the critical harvest period.

The attorney drew a parallel between the current economic environment and the farm crisis of the 1980s. He observed that producers are unable to turn a profit in many cases, a situation that echoes the struggles of that earlier decade. However, the current market presents a distinct challenge because farmland values have remained high.

Elevated land values limit the options available to financially stressed producers. Peiffer explained that this can force difficult decisions, such as selling farmland or machinery, to bring debt levels down to a manageable range. Without these asset sales, some farmers may have fewer opportunities to restructure their obligations.

Peiffer advised farmers to monitor their financial records closely, with a specific focus on tax returns and the ability to repay operating debt. He pointed to continued losses reported on Schedule F as a key warning sign. Lenders review these figures when evaluating a producer’s financial condition, so early identification of losses is critical.

Producers should assess whether they can pay off operating notes and other expenses as they come due. If they cannot, Peiffer said it is important to seek help immediately. He recommended working with a qualified farm manager or legal professionals who understand agricultural debt restructuring and bankruptcy processes.

Selling assets is one option to reduce debt. Peiffer noted that proceeds can be used to pay off creditors holding loans against those assets. Any remaining equity can help strengthen short-term finances. However, he warned that asset sales carry tax consequences that farmers must understand before proceeding.

Peiffer stated that Chapter 12 bankruptcy may offer another path for some operations. This legal process can address certain tax obligations tied to asset sales. The appropriate approach depends on the specific financial circumstances and debt structure of each farm.

He urged producers to start with a clear financial plan before approaching lenders. Peiffer emphasized the need to know actual costs, stating that without this knowledge, farmers are not in a position to make the next plan. That plan might involve selling assets, refinancing debt, or moving short-term debt into longer-term financing secured by land or machinery.