Most producers will go through financial stress in the next three years, predict 84% of U.S. ag professionals recently surveyed. But surveyed experts thought the majority of producers were "moderately equipped" to manage financial turmoil, says Jason Johnson, Texas AgriLife Extension Service economist and associate director of the Southern Region Risk Management Education Center at Stephenville, TX.

This means that, with some assistance and maybe increased knowledge, producers have the capacity to adapt to the new market environment. Among these skills is the ability to produce the documentation needed to secure loans, Johnson says.

"It's pretty gloomy (the report), but it's better to acknowledge these risks now than it is to wonder three years later what happened to your operation," he says. "According to the respondents, only 7% of producers are currently 'well-equipped' in terms of financial management skills to manage their business through a period of financial stress.”

A total of 2,300 ag producers, ag economists, consultants, educators and lenders from all 50 states were surveyed by four Regional Risk Management Education Centers and the Center for Farm Financial Management at the University of Minnesota.

In Texas, 89% of ag professionals expect a sizable number of farmers to experience financial stress in the next three years, says Johnson.

Respondents were also asked how many of the ag producers they work with are currently experiencing financial stress. On a national level, 62% of those surveyed said that 10% of the producers they work with currently are having money problems. Thirty-eight percent said less than 5% of producers were currently financially stressed.

“The U.S. and Texas perspectives depict an expected trend moving toward a sizable increase in the percentage of producers experiencing financial stress," Johnson writes in his report, "The Financial Condition and Sources of Financial Risk for Agriculture in 2009." Respondents were also asked to identify the major factors contributing to farm financial stress. The top three were price/input cost margins, price volatility, and negative cash flows.

Price volatility shouldn't need much clarification for the lay person, Johnson says. Prices for feed grains and cattle have gone from average or low to historically high, then back to low in the past year. Input price swings have been even more volatile. Price/input margins refers to the challenging balancing act that ag producers must complete successfully in order to survive, he says.

Inputs and the commodities produced with them do not always move up and down in lock step, he adds. A producer may lock in what he or she thinks to be a good selling price, only to find that increasing input costs have completely undermined expected profits.

“Producers are learning that managing for profit means managing both input costs as well as the selling price for their commodities. What happens is that when margins shrink, we have increased risk but reduced potential rewards at the same time. The margin for error shrinks and the consequences of mistakes are magnified. That's not a good recipe for prosperity.”

And shrinking margins often mean negative cash flow – more money going out to inputs than are coming in from sales. What all this highlights, Johnson says, is that we are in a global economy. "We're competing on a global level – with China, for instance – for those inputs. At the same time, we're experiencing a global financial recession. When people have less money to spend, the demand for what we produce and the price they will pay, both here and abroad, goes down."

Inadequate business planning was identified as the fourth contributor to financial stress. Tightening credit availability was the fifth. Declining land value was a minor contributor, the last of 13 assessment factors identified.