Heed the canary in your farm’s financial coal mine



(Authors Note:   This article will be a multi part series that discusses some of the challenges we are seeing due to the current farm economy and offers some thoughts and suggestions on action that can be taken.)
Most of us know where the saying “canary in the coal mine” comes from.  Basically, canaries were used in mines from the late 1800s to detect gases, such as carbon monoxide. The gas is deadly to humans – and canaries alike – in large quantities, but canaries are much more sensitive to small amounts of the gas, and so will react more quickly than humans.
I always envisioned that a miner would stick a canary in a bird cage down in the mine, and if they saw the canary drop over dead, then it was time to get out.  Boy was I wrong.  A device was actually invented (see above picture) that had a circular door that would be kept open and had a grill to prevent the canary escaping. Once the canary showed signs of carbon monoxide poisoning the door would be closed and a valve opened, allowing oxygen from the tank on top to be released and revive the canary. The miners would then be expected to evacuate the danger area.  And, for many miners, they had a close attachment to their canary.
What the heck does all this have to do with farming?  Well, I use the analogy of a farm’s financial condition to that of a coalmine.  The deeper into the mine you go, the more dangerous it becomes.  The deeper a farm goes into debt, is affected by negative financial factors, etc, the more danger there is of a farm failure. 
If a famer is deep in the financial coalmine and has indication the canary is not doing well, does the farmer keep on walking down the mine and let the canary die and perhaps himself/herself?  Or, does the farmer heed the canary’s warning, make the necessary change, such as turning the oxygen on for the canary and take the necessary steps to protect his own safety?  A logical person would expect the latter, and not the former, be the action taken.  However, farmers do not generally take such action.  Over and over again I see farmers wait until the canary is dead, they have gone further down the mine, and it is much harder to get out of the mine, or get out at all. 
Maybe it is because, as farmers, we are too proud to ask for help.  Or, is it because next year is always going to be better? Or, is it because farmers believe there is no one out there that can help them?  Whatever the case may be, recently I have witness several situations that warrant a close observation be made to the canary.  They are as follows:
            Make sure your lender knows your business:  During the farming hayday of the early part of this decade, a lot of lenders, who were not known for ag lending, ventured into ag lending.  Now, some of these very same lenders fail to understand the dynamics of the current farming landscape, making it all the harder to get the lender to work with the farm.  For example. I’m currently helping out a dairy farm operation with some restructuring.    In a conversation with the loan officer, I mentioned how tough the dairy industry was right now.  She asked me why that was the case.  Whoa.  I’m speaking to a supposed ag lender, and they don’t know why the dairy industry is having a tough time?  Right then and there, I knew the main issue was my client had a bank that did not understand farming.  Fortunately, after a lot of hard work, I was able to negotiate a deal with the lender to keep the farm out of foreclosure.  Pay close attention to the understanding level your lender has of farming and/or your operation.   Else, your lender may turn sour just based off a lack of farm understanding when times get tough.  If your lender does not know your business, the canary will be getting sick and it is time to get out of the mine.
            Other professionals that know your business:    The old adage “if you ain’t living it, you won’t understand it” rings true.  When it comes to attorneys, accountants, financial advisors, retirement advisors, etc, if the professional does not a) also farm, b) have substantial farm experience (and when I mean “farm experience” I don’t mean they helped their uncle bale hay 20 years ago), or c) somehow have accumulated a strong knowledge of modern agriculture, how can they truly assist with your financial situation?  These types of professionals play important roles and need to know your business.  I don’t profess to be an expert, but I will profess to know farming very well.  So, many times I see clients getting inaccurate advice from various professionals simply because of the lack of farm understanding.  You don’t take your combine to the local auto mechanic in town for repairs, and for good reason, being that the mechanic is not versed on fixing a combine.  The same holds true in the professional realm. 
            Get legal help early on:  I truly wish more farmers would do this.  If you feel like things are starting to go south with your lender, and especially if you know things are going south, you would be wise to get well versed with the loan documents that you signed.  Sadly, there likely exists no greater one sided documents than lending documents.  Upon a missed payment, most mortgages allow for the lender to demand all amounts due, utilize a higher default interest rate, assess late fees, take money out of your accounts and apply to the mortgage, slap you with penalties, make you pay for their attorney fees and much more.  It is “piling on” at its finest.  If you wait until there is a foreclosure, the canary is dead, you’re deep into the mine, and now face a greater amount to pay back than what you had owed before the default.  Rather, at the first sign of trouble, have an attorney help you understand the documents, what your options are, and see if it is helpful to have the attorney negotiate for you. I have had a lot of success helping clients with lenders, and I think it is because I know what areas a lender will flex and where they will not.  People have a misconception that having an attorney spooks the lender.  I’ve found the opposite to be true.  In fact, just the other day I spoke to a lender’s attorney who told me he was happy I was assisting the farmer because he knew it was highly likely to get something negotiated.
             It’s easy to ignore the early warning signs of trouble. A lot like when you hear a squeaky bearing on a piece of farm machinery, but keep on going in hopes it goes away. Then, the bearing goes out, and causes damage that takes you much more time to fix than had you simply stopped and replaced the bearing. 
Having the right lender, professionals with farm knowledge to help you, understanding the specifics of your lending documents, and knowing your options is crucial when financial times get tough.  Most importantly, get help early.  Don’t let the canary die and keep walking down the mine hoping the gas will go away, because it won’t.  In the next article, we will address what to do if you find yourself deep in the financial coal mine with a dead canary. 
John J. Schwarz, II, is a lifelong farmer and has been an agricultural law attorney for 15 years. He can be reached at 260-351-4440, john@schwarzlawoffice.com, or visit him at www.farmlegacy.com.
  These articles are for general informational purposes only and do not constitute an attorney-client relationship nor offer specific legal advice.  If you need legal advice, you should contact an attorney.   

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