Finance-Accounting

Inside The Tax Return of Your Farm's Future

Thu, 09 Apr 2026 14:31:53 GMT

The traditional process of preparing agricultural tax returns has long been defined by manual data entry and the complex reconciliation of income. However, the integration of artificial intelligence into financial systems is ushering in a more sophisticated era of tax management. For the modern farm, the future of filing lies in a seamless pipeline where software handles the heavy lifting of data organization, leaving the high-level strategy to human experts.

Comprehensive Data Integration

The foundation of a modern tax return is the accounting system. Platforms like QuickBooks, Xero or specialized farm management software are becoming increasingly autonomous. In the near future, these AI agents will do more than simply record expenses; they will analyze them in real-time.

With direct links to bank feeds and digital invoices, AI can categorize expenditures with precision. It can distinguish between capital investments, such as machinery or land improvements, and standard operating costs like seed and fuel. This continuous synchronization means by the end of the fiscal year, the financial records are already in a format that mirrors the requirements of a tax return.

Automated Document Reconciliation

A significant portion of tax preparation involves matching — ensuring the farm’s internal records align with the documents issued by third parties. A preparer of a farm tax return may spend more time making sure all of the income is in the right box then planning to optimize the income tax level.

AI is uniquely suited to handle this high-volume verification. The system can automatically ingest Form 1099-PATR (cooperative distributions), 1099-G (government subsidies) and other Form 1099s and W-2s and verify them against recorded deposits.

If a document is missing or a figure does not match the ledger, AI identifies the specific discrepancy immediately, allowing for a targeted correction rather than a manual search through months of records.

The Role of Human Oversight

While AI provides the technical framework for the return, the final stage remains firmly in human hands. Once the software has mapped the data to the appropriate tax schedules, it produces a comprehensive draft for professional review.

This allows the farmer or a tax consultant to transition from a data entry role to a strategic advisory role. Instead of spending hours verifying line items, the human reviewer can focus on critical tax planning decisions including accelerated depreciation choices or income averaging that require professional judgment and an understanding of the farm’s long-term goals.

The result is a more accurate, defensible and efficient tax filing process. By automating the clerical aspects of the return, AI allows agricultural producers to maintain focus on their operations while ensuring full compliance with the evolving tax laws.

How to Get a Loan Approval: A Banker's Point of View

Tue, 18 Nov 2025 20:28:26 GMT

For most farmers, the next big project on the operation starts with a conversation with your banke, and being fully prepared before you walk into that meeting can significantly increase your chances of getting a loan approval.

Curtis Gerrits, senior lending specialist at Compeer Financial, has spent years helping producers get the financing they need. During a recent Professional Dairy Producers webinar, he shares what truly makes a loan application stand out and how farmers can set themselves up for a smoother approval process.

Get Your Financial House in Order
When preparing for a loan, Gerrits emphasizes lenders look first at clear and complete financial documentation. The process begins with the fundamentals.

“Some of the documents that are top of mind are your profit and loss statement,” he says. “Don’t just stick with the current year. Try to have access to the last three years.”

A profit and loss statement not only establishes whether a business is profitable but also helps lenders understand how the farm manages revenue and expenses over time. Gerrits encourages farmers to follow this with a current balance sheet that breaks down assets and liabilities in detail.

This balance sheet should include livestock numbers, acres owned and leased and a complete equipment list with updated values. Together, these documents paint a picture of financial health and management discipline.

For long-term planning, Gerrits stresses the importance of forward-looking projections.

“Probably one of the last things is to have a detailed projection,” he adds. “What is the business plan, and how is this going to impact your business?”

These projections help both the producer and the lender understand how an expansion, land purchase or capital improvement will affect cash flow and operational stability in the years ahead.

Details Matter
Gerrits says one of the most common pitfalls he sees is overlooking the finer points of financial reporting. Accurate and transparent records build trust and demonstrate professionalism, giving lenders greater confidence in the producer’s decision-making capacity.

“The attention to detail is probably a key thing that maybe gets overlooked from time to time,” he explains.

A lender needs to see exactly what makes up the operation’s income. This could include crop sales, livestock sales, custom work, direct-to-consumer revenue or any other streams that support the business. Clear categorization helps verify performance and gives lenders a better understanding of how the farm is managed.

Build a Strong Relationship
Beyond the numbers, Gerrits stresses the importance of working with a lender who understands the realities of farming. A loan officer familiar with agriculture can better interpret financial statements, spot trends and anticipate challenges.

“Working with a loan officer that understands your day-to-day is really important,” he says. “Having that good relationship where you can bounce ideas off of one another is a really great thing.

Gerrits also encourages producers to bring their lender onto the farm. Sometimes a walk-through can communicate more than a financial packet ever could.

“Put your boots on and take a walk through the barns and show them what you are doing and why the loan application that you are requesting is important,” he says.

Seeing the animals, the facilities and the workflow helps lenders fully understand the operation’s strengths and opportunities, and it gives them greater clarity when evaluating a loan request.

Be Honest About Tough Years
Producers should not shy away from acknowledging difficult financial periods or reporting losses on taxes. Gerrits reassures farmers that losses do not automatically disqualify them from financing.

“Do not get too hung up on the losses out there,” he explains.

A balance sheet can often show how those losses are supported or offset by strong assets, such as land, livestock or equipment equity. What matters most is transparency and context. And demonstrating that you have a plan to manage challenges and leverage your assets can build confidence with your lender.

Plan for the Future
Constant communication with your loan officer can make a big difference in the approval process. Gerrits says checking in periodically, even with a quick touch base, helps avoid surprises.

“Maybe you’ve already talked about: ‘Hey, in a couple of months we might have something come in, and I’m going to have a request for an operating line of credit,’” he says. “That way it’s already in the back of the loan officer’s mind, and they can start preparing or gathering the right information.”

A little preparation can also greatly speed up the loan process. Gerrits recommends giving your loan officer about one month of lead time before funds are needed, along with complete financial documents.

“At the end of the year, we’ll see some borrowers who need to borrow money to do some prepaids to help their tax situation,” he says. “It’s hard to turn things around because a lot of folks are coming in at the last hour. If you give them a month’s lead time with all of the information pertinent, all the financials and balance sheets, that will just help expedite it.”

Looking further ahead, Gerrits encourages producers to think generationally and begin planning for succession well before retirement becomes imminent.

“It is never too early to start a succession plan,” he says.

Early planning gives the next generation clarity about future roles and expectations, helping them prepare financially and personally for the responsibilities that lie ahead.

Own Your Numbers
Ultimately, Gerrits believes successful borrowers take responsibility for knowing and understanding every aspect of their financial position.

“Know your numbers first,” he says. “Don’t just rely on your loan officer to tell you how you are doing.”

Throughout the loan process, preparation and transparency go a long way. Clear financials, attention to detail and regular communication help your lender understand your goals, while on-farm conversations and honest discussions build trust. Being organized, consistent and informed does more than streamline an application, it helps you make better decisions, catch issues early and keep the operation moving in the right direction.

The Best Time to Start Your Retirement Plan

Mon, 09 Jun 2025 19:59:08 GMT

Farmers historically have struggled to invest money in anything other than their farm operation. However, by investing in retirement plans including an IRA, a farmer can more easily save up for retirement and make the transfer to the next generation much easier.

The power of compounding is the financial seventh wonder of the world. Based on your annual investment return, you can determine how quickly your investment will double by dividing it into 72. For example, if you average 3% on your money, it will take 24 years to double. However, if you can earn 8%, then it only takes nine years.

The younger you start to invest, even small sums, the more money you will have at retirement. Let’s compare the results of placing $10,000 into a retirement account at either age 20 or 40.

The farmer who does this at age 40 and then pulls the money out at age 70 will have $100,627. However, the farmer who starts at age 20 will have $469,016, and if they can earn 10%, will have $1,173,909.

The cost of maintaining a solo 401k plan is very inexpensive and married couples can set aside at least $14,000 into an IRA each year. The fees on those accounts are minimal and you can make sure to invest in low-cost ETFs or mutual funds. High-cost funds could quickly reduce your returns substantially.

Most of the earnings will result in the last 10 years, so the sooner you get started, the more funds you will accumulate.

Risk Protection Benefits
There’s another big reason to make this investment. Funds in a retirement plan are fully exempt from bankruptcy, and we all know farming can be a very risky business. The full exemption does not apply to IRAs, but the amount that is exempt is fairly large.

This amount gets updated every three years. On April 1, 2025, the exemption amount was raised from $1,512,350 to $1,711.975 through March 31, 2028.

Most farmers have IRAs less than this amount, so it’s likely they will have a full exclusion if bankruptcy was to occur. Amounts rolled over from a 401k plan or other retirement account, including earnings associated on that account, are fully exempt.

In some states, IRAs are fully exempt or at least partially exempt.

The bottom line is to invest in an IRA or retirement plan. I hope you never need the protection, but it is a good insurance policy.

Tax Turbulence: How Sunsetting Provisions Could Change Your Bottom Line

Thu, 19 Dec 2024 15:04:43 GMT

With 30 tax provisions set to expire at the end of 2025, the tax liabilities for family farms could increase at a time America’s farm families can ill afford any additional hits to the budget. Uncertainty surrounds the 2017 Tax Cuts and Jobs Act (TCJA) and American Rescue Plan Act (ARPA)–especially as a new administration is in route to the White House.

“The cost of the TCJA is significantly higher than was originally estimated in 2017. The newest estimate we’ve seen is that a full extension of the TCJA is going to cost $7.75 trillion through 2035,” says Pinion’s Beth Swanson. “With the budget reconciliation process and the expected cost, we’re worried that Congress is going to have to pick and choose which provisions of the TCJA are going to get extended next.”

According to research from USDA ERS, the impact of these expiring federal income tax provisions would increase tax liabilities for farm households by almost 9 billion. That’s a $2,200, or 12%, average increase per farm.

Increase in tax liabilities resulting from expiring Tax Cuts and Jobs Act (TCJA) provisions that would increase tax rates, decrease deductions, and restore personal exemptions.

(USDA, Economic Research Service and USDA, National Agricultural Statistics Service, 2018–2021 Agricultural Resource Management Survey)

Broken down by farm size, that looks like:

Low sales farms: Tax increase of about $700
Moderate sales farms: Tax increase of about $2,300
Very large farms: Tax increase of nearly $28,000

“Interestingly, in percentage terms, moderate sales farms are expected to have the greatest increase in tax liabilities at about 16%,” says Tia McDonald, USDA ERS. “They’re in an in-between area where they’re not quite getting some of the exemptions that higher income folks can take advantage of like bonus depreciation and even 179.

Farm CPA and Top Producer columnist Paul Neiffer adds, “Another part of it is the percentage increase of going from a 12% tax bracket to a 15% tax bracket. A lot of those moderate-income farmers also have 2, 3 or 4 kids that, under the current rules, qualify for the $2,000 tax credit, which is going to drop down to a $1,000 tax credit.”

As far as which provisions are the most important for farmers and ranchers, McDonald says the biggest impact will come from be provisions providing reduced individual income tax rates, an increased standard deduction, a cap on state and local tax deductions, and the elimination of the personal exemption, which would create an increase in total tax liability of $4.5 billion for all farm households.

“The reason for that is that it touches almost every farm household. So, the reach is quite broad,” she explains.

The Qualified Business Income Deduction
The second most important provision set to expire that McDonald lists is the qualified business income deduction, which provides farm households with positive business income a deduction equal to 20% of their qualified business income.

“Approximately 40% of low sales farms to almost 80% of very large farms receive that qualified business income deduction,” McDonald says.

Estimated Impact of Expiring QBI Deduction

(USDA, Economic Research Service and USDA, National Agricultural Statistics Service, 2018–2021 Agricultural Resource Management Survey)

Referring to the results of a recent survey, Kent Bacus of National Cattlemen’s Beef Association (NCBA) says even though this deduction hasn’t been around long, it’s been valuable to producers.

“As far as the 199A qualified business income deduction, with that being relatively new, we still had over half of the [1,200] respondents who have used it, and they’ve considered a very important tool,” Bacus says. “I think that’s something that we want to see continue in the next package.”

Child Tax Credit and Bonus Depreciation
McDonald says additional provisions, such as the child tax credit, the estate tax exemption, alternative minimum tax provisions and bonus depreciation, will likely have less of an impact on tax liabilities overall.

“Those are really targeted toward higher income farm households, so they don’t have quite the reach,” she explains.

Swanson, however, says the loss of bonus depreciation would still be notable for many.

“For bonus depreciation, sunsetting is a concern – especially because Section 179 isn’t really a one-for-one trade. With commodities that are heavier on equipment, producers tend to use bonus depreciation year after year,” Swanson says. “It’s more than just a timing difference. The loss of bonus depreciation will be a significant annual effect to many of the farmers that we work with [at Pinion].”

This is echoed by the results of NCBA’s survey as well.

“When you look at Section 179 and bonus depreciation, one of the key things we ask is, ‘If these tools weren’t available, how would that impact you?’,” Bacus says. “What we found is without access to these tools, about 25% to 30% of the respondents would have had to pay an additional $20,000 in taxes.”

The Timeline
Once the new administration is in place, Bacus believes we can expect Congress to act quickly.

“We have new leadership in the Senate and new leadership in the administration. They’re going to try to prioritize a couple of key things that will be important to the new administration, and a couple of those are going to be border security and taxes.” Bacus explains. “We’re looking for a lot of movement in those first 100 days.”

But Swanson says it’s possible that movement may not be focused on extending these provisions in the beginning.

“We are worried about President-elect Trump’s varied tax commitments and the distraction those might provide to getting the TCJA extended,” Swanson says. “I think the best thing we can do is wait and see. We will hope that the legislative process goes fairly quickly and Congress is able to avoid all of those distractions that may prevent us from getting TCJA expansion done.

Once these provisions are in focus, Bacus believes there are a few avenues it could take.

“With those tight margins in the House and the Senate, you are going to have to have some kind of bipartisan package that comes together. The big question is, are they going to update the tax code? Are they just going to extend it? Or will we potentially see a default if all these efforts fail,” Bacus says. “I think it’s unlikely that the efforts have failed, but the aggressive timeline that’s been proposed is always subject to the minutia and the swamp nature of Washington. That tends to slow things down.”

Neiffer expects an extension with a few key changes.

“I don’t think we’re going to see a permanent TCJA,” Neiffer says. “We’re going to see another three to five or five to seven years. Some of the provisions may become permanent and some will disappear. And you’re going to see some new ones come into effect.”

Your Next Read: Will the Tax Cuts and Jobs Act Get a Second Life?

7 Ways To Be A Lifeline For Farmers

Mon, 07 Oct 2024 14:12:10 GMT

When times are tough is when farmers need their trusted advisers the most, says Greg Martinelli. For the past eight years, he’s coached ag sales professionals specifically in the retail/inputs category.

“When I worked in corporate ag, there was a moment when this idea hit me like a ton of bricks,” Martinelli says. “I was visiting a Midwest row crop farmer in 2011, when corn was $6 and breakeven costs were close to $3.50. He told me, ‘I don’t need you now, I needed you when corn was $3.50.’”

Martinelli says there are opportunities to bring value in this current economic environment. To help refocus your efforts in sales and marketing, he offers seven steps to find success with customers despite the tough economic times of the cycle.

1. Don’t jump into the quick sand with them.
“Farmers love to complain and commiserate about how hard it is. And as sales people we love to commiserate with them on how you understand the farmer’s business,” Martinelli says. “But if you do that, you aren’t doing anything different than what they hear at the coffee shop.”

He equates reiterating the negativity as not throwing them a lifeline but rather jumping into the quicksand with them.

“Farmers are looking for someone with a solution. You show up on the farm with all of your company tools and resources and instead of using them to help, you jump into the quicksand with them. This is where a trusted advisor can set themselves apart,” he says.

2. Keep them moving.
With the magnitude and quantity of factors farmers consider, they can fall victim to analysis paralysis.

“Farmers are seeking ideas but more so clear answers,” Martinelli says “This is where you can—not in a gossipy way—share your insights from other farms. Every day all day you’re on farms. You can share in a professional way what you are seeing and what you are learning.”

This combination of experience and credibility can serve the purpose to keep farmers considering new ideas as well as help prevent someone from going too far or all-in on a risky choice.

3. Provide perspective.
“If you’re lucky enough to be in the middle or late in your career, you’ve gone through downturns before,” Martinelli says. “That means you know things change, and there will be an upturn.”

He cautions sales people from encouraging negativity and rather engaging in a positive way.

“You have to acknowledge what is going on, because the financial pain is real,” he says. “Often as salespeople we can seem like we’re acting like a psychiatrist, and the opportunity is to not let the negativity persist any more in the conversation than it needs to.”

4. Shed light.
“There are places farmers aren’t looking where there are opportunities for you to help them uncover,” Martinelli says.

As an illustrative example, he talks about crop marketing.

“This is a weak area across crop production because there are no right or wrong answers, and the skills required usually mean the oldest person on the farm does the work,” he says. “The thing to do is admit you don’t have the answers, but ask what they are doing with their marketing plan.”

He says many of those conversations unveiled farmers with even 30 years of experience didn’t understand crop insurance, which provided another valuable exploration of additional services.

5. Show them a path.
“Instead of selling an idea, explain why a change of approach is an asset to their business,” he says.

One common trap is to talk broadly about precision agriculture and not detail exactly what product and service fit an individual field.

6. Put your customer on your org chart.
While this may sound a bit off the wall, Martinelli advocates identifying where the customer fits into your business by the simple task of putting them on your company’s organizational chart.

“We all need an org chart to know who manages who, but if you really want to start the engines of the thought process, ask where on your org chart is your customer. Where would you put them.”

This helps illustrate how marketing, accounting and other teams are taking into account what customers are trying to accomplish.

“If things are changing, and times get tough for the customer, it’ll get tough on your agribusiness. How are we organizing around the customer?” he says.

7. Let them know they aren’t completely alone.
“At first, it may not be well received or completely understood that everyone is experiencing this downturn,” Martinelli says. “Farming and making decisions can be a lonely business for our customers. As their trusted adviser, this can be your chance to provide support. Let them know they are not alone in their struggles.”

He says when customers are venting, don’t interrupt them, but rather when they are done ask them with all of the negatively for how things are, what are they going to do different.

With the seven steps, Martinelli coaches advisers to take their three biggest customers, and list the steps they will do in 30, 60 and 90 days.

“Having a plan is certainly better than just showing up on the farm and kicking tires,” he says.

Your Next Read: New Study Looks At The Relationship Between Farmers And Their Advisors

2023 And 2024 Will Go Down As The Largest Drop In Net Farm Income Ever

Thu, 12 Sep 2024 15:38:03 GMT

There’s a silent stress growing across rural America. Farmers are focused on growing this year’s crop, hoping to outyield the low commodity prices. They’re keeping their head down and trudging through the day-to-day grind, but their angst can’t be ignored. Many farmers say they have a gut feeling 2024 will go down as the worst financial year they’ve ever had.

The reality is glaring. USDA’s net farm income forecast for 2024 is a $43 billion drop from 2023 to $116.1 billion. That is a 25.5% decline in just one year. What makes it even more jarring is that follows the 2023 net farm income figure, which saw a 16% drop from 2022. If USDA’s forecast holds true, that will mark the most significant two-year farm income decline in U.S. history.

“The $90-billion drop over a two-year period is certainly the largest dollar value drop, adjusted for inflation, that we’ve seen in our history,” says Ben Brown, an agricultural economist with the University of Missouri. “It exceeds the previous record set in the mid-1970s. When it comes to percentage changes, we’ve seen larger percentage changes. But you’d have to go all the way back to the Great Depression era and the early 1930s to find bigger percentage declines.”

However, 2023 may end up being even worse than what USDA currently has projected.

As USDA showed in the June Grain Stocks report, farmers are still holding onto a lot of their 2023 crop. In fact, USDA thinks on-farm storage is the highest since the 1980s. The reason: as commodity prices fall, farmers are reluctant to sell below the cost of production. That means USDA’s 2023 net farm income forecast may be even worse than what it is today.

“The big change I think we could see in an update would be the 2023 farm income numbers revised lower even from where they were,” says Brown.

Farmers aren’t just caught trying to market the current crop growing in fields today. Many still have last year’s crop sitting in bins. And corn and soybean prices are seeing another bloodbath to close out July.

Farmers Hope to Outyield Low Prices

Wading through a sea of soybeans, Arkansas farmer Becton Bell stares at one of his best crops ever, and he’s trying to focus on that positive right now.

“We’ve had a pleasant year,” says Bell, who farms in Mississippi County, Ark. “Rains have been, for the most part, pretty timely.”

The reality for Bell and other farmers marketing 2024 crops currently is they face, potentially, deep economic losses.

“It’s been the markets, to be honest,” says Bell, when asked what his biggest challenge is this year. “There just hasn’t been a good marketing opportunity. It’s kind of like catching a falling knife, trying to market soybeans and corn. Nobody wants to catch that falling knife.”

In his area of Arkansas, farmers rely on irrigation. And even though he’s irrigated some this season, timely rains have helped reduce the need to irrigate as much as usual.

“We’ve probably irrigated half of what we normally do so, you know, it could very easily mean several hundred-thousand-dollar savings to our bottom line,” he says.

Those doses of rain and short spurts of heat in northeast Arkansas mean growing conditions there have been like a greenhouse this year.

“It’s just almost scary to say this, but rains have been almost perfect as far as our timing goes,” says Bell. “Our corn crop looks like it could be one of our best corn crops we ever had, as does our soybean crop. So, I’m optimistic about the crops.”

While input costs remain relatively high, he’s hopeful the extra bushels will help soften the blow of lower commodity prices, but nerves are still high. And that’s the case for not just Bell, but many other farmers this year.

Stress in Farm Finances Already Showing Up

Farm financial stress is already showing up in the form of liquidity. One ag banker painted that dismal picture for Congress when he testified about the state of the farm economy on Capitol Hill earlier this week.

“With rising input costs and lower commodity prices, farmers and ranchers have worked through the liquidity and working capital they built up over the past few years at a more rapid rate than anticipated. Now they’re beginning to leverage equity through refinancing debt,” says Tony Hotchkiss, chairman of the Ag and Rural Bankers Committee for the American Bankers Association. “This has made ag bankers feel like they are looking over the cliff when it comes to the farm economy.”

Ag industries are struggling as well. Just last week, Deere announced more employee layoffs, citing the severe headwinds in the ag economy. Farm Journal Washington Correspondent Jim Wiesmeyer says other agribusinesses are feeling the pain of similar costs of production and labor issues faced by farmers and ranchers, as well.

There are some silver linings, Wiesemeyer reports. He says while ADM’s earnings for the second quarter were somber, Juan Luciano, chairman of the board and CEO, expressed confidence in the company’s full-year expectations, citing anticipated improvements in crush and ethanol operations. So, despite all the obvious gloom in ag, Wiesemeyer says it’s not all doom.

Four Experts You Need On Your Succession Planning Team

Thu, 01 Aug 2024 15:36:15 GMT

When it comes time to get serious about succession planning, many operations turn to their lawyer to kick off the process. And while that’s a good place to start, Matt Gunderson, vice president of Farmers National Company, wants to make sure your journey doesn’t end there.

“A lot of times when folks think about estate planning, they think, ‘Well, I just need to go see an attorney, right?’ And to some degree, that answer is correct. But what we try to talk about is how to set up a good team,” he says.

Gunderson recently joined an episode of the Top Producer Podcast to share the four professionals he recommends for any succession plan, likening the process to building as sturdy of a stool as you can.

“What’s the best, most sturdy type of stool out there? Well, it’s a four-legged stool,” he says. “Think about that farm or ranch land asset as the seat. Then we start looking at the four legs.”

The Four Legs
1. Attorney
Gunderson stresses the importance of choosing the right lawyer for this process.

“There are different types of attorneys out there. So one, finding an attorney who does estate planning is important. But two, it really comes down to finding an attorney who understands estate planning and agricultural assets,” he says.

Be sure to also consider the state your land is in, and not just where you reside.

“We’ve seen where attorneys in one state drafted something according to that state’s laws, but where the land is at as a completely different example in terms of what that looks like from an estate standpoint,” Gunderson says.

2. CPA
He shares the second leg of the stool should be a CPA. This expert will help you understand the plan’s current tax implications and will also stay up to date on how that could change.

3. Financial Planner
The third leg is a financial planner. Financial planners can help you in some ways a CPA can’t. According to Gunderson, this role looks at future considerations for the plan, such as what it looks like for the upcoming generations.

Just as with attorneys, however, there are different types of financial planners, and it’s important to find one familiar with agriculture and the various accounts you will have.

4. Professional Manager
The fourth leg of Gunderson’s estate planning stool is a professional manager for the property.

“A professional manager can help take care of that land asset for the next generation if they’re not actively engaged in farming or they’re not actively near the property,” he says.

Gunderson adds that after this team is formed and your plan developed, you shouldn’t set it and forget it.

“Don’t throw it on the shelf or put it in a drawer. You better get that team back together every three years to look at that plan because things change, laws change and family dynamics change,” he says. “Was there a birth? Was there a death? Was there a marriage or divorce? Get that team back together to make sure that it’s up to date or it can still come back and bite you in a negative way.”

Catch up on episodes of the Top Producer Podcast

Is Agriculture on the Brink of a Farm Economy Cliff? The Emotional Testimonies from Capitol Hill this Week

Fri, 26 Jul 2024 18:25:04 GMT

Is agriculture on the brink of an impending farm economy cliff? A panel of experts testified before the House Ag Committee this week about the severe challenges facing agriculture, all the way from the farmer to the supply chain.

The hearing on Capitol Hill comes as net farm income is forecast to decrease by $43 billion from 2023 to 2024, marking the most significant two-year decline in history. Meanwhile, production expenses are forecast to increase by $17 billion.

During the hearing the Chair of the House Ag Committee expressed his concerns about another farm financial crisis brewing.

“We are living through the largest two-year decline in farm income in history,” said Rep. G.T. Thompson (R-PA), House Agriculture Committee Chair during the hearing on Tuesday. “At the end of 2024, total farm sector debt will be the highest the U.S. has seen since at least 1970. 3:45 Most farmers and ranchers, including those here with us today, are likely to be worse off financially by years’ end.”

Dana Allen-Tully provided insightful comments and testimony during the hearing that captured the anxiety and price downturn in U.S. agriculture She and her family run a diversified farm in Eyota, Minnesota, producing dairy, corn, soybeans, and alfalfa. She also serves as President of the Minnesota Corn Growers Association, representing 7,000 farm families across the state.

“Unless conditions change we’re facing a ‘perfect storm’ although I don’t think it will be fully understood until next year when farmers are unable to secure loans because they can’t cash flow,” said Allen-Tulley. “Plummeting crop prices, high production costs, doubling interest rates, natural disasters and tightening credit are just some of key culprits, as well as depleting working capital.”

She discussed the importance of passing a stronger farm bill this year, and shared the economic challenges producers are facing. We’re heading into a “perfect storm” of plummeting crop prices, high production costs, rising interest rates, natural disasters, and tightening credit, leading to depleted working capital, she stressed.

She noted recent analyses by the Federal Reserve Bank and the Farm Bureau highlight the brewing trouble, with John Deere’s layoffs as an early warning sign. An extension of the current farm bill won’t prevent economic issues, she informed, and a new farm bill, while essential, may not be timely enough. She said Sen. Martin Heinrich (D-N.M.) recently emphasized the need for a disaster supplemental to address these challenges.

Alley-Tully cited USDA estimates projecting a drastic fall in farm income this year, marking the largest year-to-year drop ever recorded. From 2022 to 2024, net farm income will have fallen by 40%, explaining the declining farmer sentiment and increased mental health issues in rural America.

For farmers to break even this year, she detailed, national average corn yields must be 219 bushels per acre, and soybeans 56 bushels per acre — both significantly higher than the past 10-year average. Losses per acre are projected to be over $150, with even higher losses in Minnesota.

Her bottom line: Farm and ranch families need help. The Commodity Title and Crop Insurance provisions in the House farm bill, she concluded, provide a meaningful safety net, with a $4.10 PLC/ARC reference price and improved revenue thresholds. These measures are crucial, especially under current conditions, she said. While she supports these provisions in the next farm bill, she added it’s important to resume ERP payments for 2022 and consider a disaster supplemental for near-term assistance.

Other witnesses pointed out a host of economic issues are converging to lower net farm income by 25 percent from 2023 to 2024, which is depleting working capital and worsening credit conditions.

“With rising input costs and lower commodity prices farmers and ranchers have worked through the liquidity and working capital they built up over the past few years at a more rapid rate than anticipated and are now beginning to leverage equity through refinancing debt,” said
Tony Hotchkiss, Chairman, Ag and Rural Bankers Committee, American Bankers Association. “This has made ag bankers feel like they are looking over the cliff when it comes to the farm economy.”

Other witnesses urged policymakers to enhance risk management tools through a new farm bill to avert a crisis. And the Chairman agreed that is his goal.

“There are a few pundits that have taken the last few months to spread misinformation about this committee’s bipartisan product in an attempt to sow division. 5:00 Let me be clear; this is a farm bill that provides significant improvements for all producers,” Thompson said.

Thompson also said resources dedicated to the total farm safety net have declined 30 percent in the last 22 years with the commodity title seeing an 81-percent reduction. He says they want to change that with the new farm bill and he’s still open to trying get a bill passed in 2024 to avert a farm financial crisis.

Beyond the farm bill, Allen-Tully noted issues like trade deficits and flawed regulations impact farm families. She urged new trade agreements and better rules for biofuels to support domestic producers. “We face high stakes in farming, risking everything annually for thin margins. This discourages young people from farming, posing a problem for food security. Policies must reflect modern farming realities to address global hunger.”

Is the Fed Running Out of Reasons to Not Cut Interest Rates? Important Insights From Powell's Testimony Today

Tue, 09 Jul 2024 17:20:14 GMT

Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee provided several key insights into the current economic landscape and potential future monetary policy actions. Here are the main highlights:

Cooling job market and economic slowdown. Powell noted a noticeable cooling in the job market, with the unemployment rate rising to 4.1% for the third consecutive month. Despite this, hiring remains solid, indicating a slowdown rather than a halt in economic activity. He also mentioned a general deceleration in economic growth following a period of robust expansion last year.
Inflation and interest rates. Powell emphasized that while significant progress has been made in controlling inflation, it remains above the Federal Reserve’s 2% target. This persistent inflation, coupled with the slowing job market, has led to discussions about the potential for interest rate cuts soon. Powell’s testimony suggested a shift from the Fed’s previous focus on combating inflation to a more balanced approach that also considers economic growth and employment.
Potential rate cuts. Market participants and economists are anticipating a possible interest rate cut at the Federal Reserve’s Sept. 17-18 meeting. Powell’s remarks have bolstered these expectations, with many interpreting his statements as a signal that the Fed is open to adjusting rates to support the economy. Democratic senators, including Elizabeth Warren (Mass.), have been vocal in urging for rate cuts, aligning with market sentiments.
Political implications. The testimony comes at a politically sensitive time, with the presidential campaign season underway. Voters’ dissatisfaction with high prices has put additional pressure on the Federal Reserve’s decisions. Powell’s cautious approach aims to balance economic needs without appearing to influence political outcomes. His emphasis on avoiding delayed policy adjustments that could harm economic activity and employment was well-received by the markets.
Market impact: Markets want to believe the Fed will cut rates in September, so they are taking the basic remarks and now taking them as suddenly backing a rate cut in September. But the Dow is flat and CME Fed funds futures for September have a 70% probability of a rate cut. Yesterday that was 71%.

“We continue to make decisions meeting by meeting. We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation. At the same time, in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment,” Powell said during his testimony.

Powell was asked when the Fed would cut rates. “I’m not going to be sending any signals about the timing of any further actions,” Powell said.

Overall Outlook
Powell highlighted the importance of monitoring economic indicators closely to avoid past mistakes of delayed responses to inflation. Thursday’s release of the Consumer Price Index for June is expected to show a slight decrease, further indicating a gradual moderation in inflation.

“The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. Incoming data for the first quarter of this year did not support such greater confidence. The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2%,” Powell said during his testimony.

Bottom Line
Powell’s testimony underscored a cautious optimism regarding inflation control, a recognition of a cooling job market, and a potential shift towards interest rate cuts to support the economy amidst evolving conditions.

Ag Economists Weigh In On the Biggest Opportunities for the Ag Economy in the Months Ahead

Tue, 02 Jul 2024 13:10:31 GMT

Ag economists are growing more negative regarding the financial health of the crops sector of agriculture, but their views on livestock is becoming more positive. The latest Ag Economists’ Monthly Monitor , a survey of nearly 70 ag economists from across the U.S., shows the lack of exports, as well as the current crop prices, are eroding outlooks on the crops side. While strong beef demand and cheaper feed prices are creating more optimism in cattle.

The June Ag Economists’ Monthly Monitor, which is a joint survey between the University of Missouri and Farm Journal, continues to track the volatility in ag economists’ views of not only what’s impacting agriculture today, but what to watch on the horizon. The June survey marked the one-year anniversary for the monthly survey, and it showed the risks to agriculture remain a major concern.

Even though economists’ views on the ag economy eroded slightly in June, their projection for net farm income in 2024 actually increased to $113.9 billion, which is up from the $110 billion in projected by economists in May.

Ag economists’ project a slight increase in net farm income, compared to the previous month. The June projection rose to $113.9 billion, up from the $110 billion in May.

(Lindsey Pound)

Weighing in on the Most Negative and Positive Aspects of the Ag Economy

When asked what economists view as the most negative aspect of their outlook of the ag economy, economists said:

Crop output prices retreating more rapidly than input costs
Commodity prices below economic break-even production costs
Export outlook from the U.S., specifically the lack of Chinese demand
U.S. trade policy regardless of party affiliation with more international trade competition
Constant challenges to demand and policy that adds barriers to existing and potential new demand streams

“Some farmers made production and investment decisions assuming that earlier wider margins would persist,” noted one economist.

While the negativity seems to outweigh the positives of the ag economy right now, the June Ag Economists’’ Monthly Monitor also asked economist to weigh in on the most positive aspect regarding the outlook of U.S. agriculture. Economists said:

Over the next couple of years, cow-calf operators should have good profitability, especially in areas of the country with good forage conditions
Adverse world weather boosting U.S. exports
The possibility of good yields that will help farmers hit their financial goals
Discipline by producers to keep acreage expansion in check and U.S. prices being more competitive in the global market.
Farmers eager to make adaptations necessary to stay in business

“There are some really bright producers that are positioned for some quick growth in the next 5 to pp10 years,” said one economist in the anonymous survey. “They will be positioned to buy farmland as older producers transition.”

Ag economy outlook in the June Ag Economists’ Monthly Monitor.

(Lindsey Pound)

The outlook for the U.S. production picture is anybody’s guess right now, but Scott Brown, interim director, Rural and Farm Finance Policy Analysis Center (RaFF), University of Missouri who helps author the Monthly Monitor, says weather continues to be one of the biggest variables in what happens with commodity prices in the months ahead.

“Number one, at the top of the list of almost all of these commodities, of course, is weather,” says Brown. “I think some are seeing some demand weakness as a big factor with soybean prices in particular, and seeing some other vegetable oil substitutes entering the picture. What’s maybe even a bigger factor on the soybean side is Brazilian supplies. A strong dollar continues to be important, in terms of our ability to move product out of the United States.”

Brown says one prime example of this is with cotton where the lack of Chinese trade has had an impact on prices.

“As we look at this month’s Monitor, and when you look at the survey results that comes through with almost all of these commodities with the exception of cattle, survey respondents are saying we’re slightly more pessimistic this month than we were last month,” Brown adds.

The June Ag Economists’ Monthly Monitor showed economists think the following factors will have the biggest impact on the outlook for corn prices:

U.S. and world weather
Better precipitation across the Corn Belt compared to the previous growing season
Growing end stocks continuing to a burden on prices

As for soybeans, economists say U.S. and world weather will also play a significant role in the direction of soybean prices, but other factors that are impacting outlooks on soybean prices include:

Demand is soft and imports of cheaper vegetable oil substitutes is creating more competition
Biofuel and sustainable aviation fuel (SAF) developments will have a bigger impact on prices in the months and years ahead
Expectation for larger soybean supplies in Brazil
Strong U.S. Dollar

The bright spot in the ag economy continues to be cattle prices. According to ag economists, the outlook for prices in the months ahead really hinges on three main factors:

If record beef demand can continue
Growing crop supplies creating lower feed costs
Strong U.S. Dollar

“It‘s hard to keep suggesting higher prices when we’re already at record levels, but when you look at where we’re at in terms of cattle inventory, we’re only going to get tighter,” says Brown. “USDA’s 2025 estimate for beef production is a decline of more than 1 billion pounds. That tells me we’re not done getting tighter.”

Brown says the one wild card for beef prices is demand. So far, demand has seem unfazed, despite record prices. Export demand remains strong, but so does demand for beef within the U.S. Those are underlying factors that are also supporting cattle prices. keep saying I’m not sure we’re done with record prices. So I think all hinges on demand staying strong for us beef, especially here in the United States.

The “Why” Behind a Growing Ag Trade Deficit in the U.S.

While meat exports have been strong, other commodities continue to struggle and at the same time, the U.S. is importing more ag products and goods. USDA’s Ag Economic Research Service (ERS) now projects the agricultural trade deficit to climb once again to $32 billion in fiscal year 2024, an increase of $1.5 billion from the February projection.

What factors are most important to the increase in the trade deficit? The June Ag Economists’ Monthly Monitor asked economists that exact question. Nearly every ag economist noted the strong U.S. dollar as one reason the trade deficit continues to grow, but other factors, according to the economists, include:

Increased used cooking oil imports for renewable diesel
Increased imports of horticulture products
Softer U.S. ag exports

ERS also projects Mexico to beat out China as the top buyer, with China projected to fall to third biggest importer of U.S. ag goods at $27.7 billion. ERS expects Canada to claim the number two spot and Mexico to reach number one at $28.7 billion, an increase of $300 million.

The rise of Mexico’s imports have come in spite of the ongoing GMO corn battle between the U.S. and China. In 2023, Mexico officially banned GM corn for human consumption. That same year, Mexico also made its largest corn purchase from the U.S. of 15.3 million metric tons.

Some economists say Mexico is treating U.S. corn as a threat, and while exports are up, it’s having a big hit on GM corn demand.

“It has impacted white corn demand specifically, and the reason that when we look at overall corn demand and we still see Mexico as being a big buyer, is because white corn is such a small percentage of our total corn,” says Krista Swanson, lead economist for National Corn Growers Association (NCGA) who also participates in the Monthly Monitor survey. “So, if you look specifically at white corn exports, you do see that impact. When we talk about the total corn complex, though, Mexico’s had a drought that has reduced their production. They already consume quite a bit more than they produce, so they tend to be an importer. But this year they’ve had to import more than normal. And so that’s where we’re seeing those big buys coming in from, from Mexico and where that’s really boosted U.S. corn exports this year.”

Future of Interest Rates

Higher interest rates are impacting farmers and major equipment manufacturers. On the heels of the Federal Reserve deciding to leave interest rates unchanged during their June meeting, the June Ag Economists Monthly Monitor asked the economists how many rate cuts, if any, we will see this year. 73% said one. 18% think two rate cuts this year. And 9% say there will be no rate cuts in 2024.

73% of ag economists think the Federal Reserve will make one interest rate cut this year, according to the Ag Economists’ Monthly Monitor.

(Lindsey Pound)

With the expectation for higher-for-longer interest rates, farmers are scaling back on big-ticket item purchases, which includes buying equipment.

The May Ag Economists’ Monthly Monitor asked economists to rank where they think farmers will look to cut costs. While all economists said scaling back on equipment purchases is either most likely or somewhat likely, 65% of economists think farmers will look for lower operating interest rates and 17% think it’s most likely.

Purchase changes

(Lindsey Pound )

The Subtle Change To Notice From The Latest Fed Reserve Meeting

Wed, 19 Jun 2024 23:02:21 GMT

The latest Federal Reserve board meeting left interest rates unchanged, but there’s a subtle shift in its monetary policy Vince Malanga, Pro Farmer economic consultant and president of LaSalle Economics, says should be noted.

“It’s back to the dual mandate,” he says. “It was all about inflation. Now with inflation coming down, they’ll start to watch the economy carefully.”

With the next Federal Reserve board meeting not until the end of July, Malenga says there’s a lot of data to come out between now and then that will inform and drive any potential rate cut.

“There’s a 25% chance that they could cut the rate in July, but I think regardless, we’re going to see at least two, maybe three rate cuts before the end of the year,” Malanga says.

The indicators he says are most influential are labor market data and personal consumption expenditures price index.

Jobless claims are tracked and reported weekly. The Bureau of Economic Analysis will release two updates to its price index before the end of July.

“If there’s an easing in labor market conditions, that would encourage them, especially in front of the election to cut rates, even if the inflation target is not met,” he says. “If the unemployment situation is softening, especially three or four months before an election, I think you’re going to start to hear some people yelling at the Fed, that they’ve overdone it.”

Malanga says we are in an affordability crisis, especially for first-time home buyers. And while the housing market was previously a leading indicator, that is no longer the case.

“The affordability issue (home loans, vehicles, etc) is a major constraint on the economy. There’s not much that they can do about that in the short run, but it’s clearly showing up in the data. You’re starting to see a trend toward weakness in consumption.”

Hear the full interview with Malanga from AgriTalk

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U.S. Economy Buoyed by Strong Tailwinds

Thu, 13 Jun 2024 00:12:08 GMT

Steady inflation. Low unemployment. Strong consumer spending. Increasing wages. Several key factors are propelling the U.S. economy, even as global trade uncertainties and financial stress in some sectors create tailwinds.

“The U.S. economy is in excellent shape, operating with tight labor markets and low and stable inflation,” says Esther George, president and CEO, Federal Reserve Bank of Kansas City. “The economy appears to be firing on all cylinders.”

For the first half of the year, real GDP increased at a solid pace. George, who spoke at the recent Agricultural Symposium , hosted by the Federal Reserve Bank of Kansas City, says it accelerated from a moderate 2% annual rate in the first quarter to an expected growth rate of around 4% in the second quarter.

“Looking ahead, we expect continued economic growth at or above estimates of the economy’s longer-run potential growth rate of around 1.75%,” she says.

Consumer and business spending, as well as an increase in the pace of wage gains is fueling economic growth. George says the employment cost index, which is a broad measure of labor compensation that accounts for employment shifts among occupations and industries, accelerated over the past couple years to a 2.7% annual growth rate in the first quarter. That was after hovering for several years around 2%.

“These wage gains along with ongoing increases in employment will continue to support increases in personal income and spending over the remainder of the year and on into next year,” she says.

Supportive U.S. fiscal policy and global monetary policy seem to be encouraging business investment, George says, but they also carry a risk of pushing the economy beyond its productive capacity.

Yet, the biggest downside risk to the U.S. economy is the uncertainty around trade policy.

“To date, the impact of new tariffs on the broad economy has been minimal, and I have not incorporated any significant effect into my baseline outlook for the broader U.S. economy,” George says. “However, anecdotal reports from our business contacts suggest that some companies are taking a ‘wait and see’ approach to new capital spending due to uncertainty about future trade policies.”

Certain sectors—like agriculture—are facing challenging tailwinds.

“I don’t want to underestimate the stress that exists today or could come,” George says. “Clearly, international trade is central to the performance of the agricultural sector, and uncertainty about trade policy clouds the outlook.”

Looking forward, George expects the U.S. economy to continue to expand at a moderate pace.

How Today's Economy is Shaping the Business-Savvy Farmer

Mon, 19 Feb 2024 21:44:47 GMT

Looking toward the year ahead, Alan Hoskins, president of American Farm Mortgage, says there’s a long road to get inflation under control.

“Just because we hear there will potentially be rate reductions, I don’t think that’s something we need to be carving on a stone tablet,” he said during a recent appearance of AgriTalk. “I think sometimes we believe numbers are numeric only. The numbers create emotions, and that’s ultimately what drives the economy is the emotion of the American consumer.”

And while higher interest rates have mitigated some sales around the ag industry, Hoskins says it’s also created a more business-savvy farmer.

“Folks are being more mindful of the long-term effect of their decisions. The rise in interest rates have allowed producers to do a much better decision-making process before they pull the trigger,” he says. “It’s causing them to make sure that’s really a good long-term acquisition for their operation.”

One of the factors he thinks is being used to determine if something is a good purchase for an operation is its ability to solve the ongoing labor issue.

"[Labor] is something I think has become much more in the mindset of producers over the past five to seven years,” Hoskins says.

As for the state of the ag economy, Hoskins believes ag lending institutions are in a good position moving forward. He credits part of that to who is operating them.

“The people that are financing agriculture today have a very savvy knowledge of the industry. That allows them to make better decisions for the banks,” Hoskins says.

To hear more from Hoskins, listen to this episode of AgriTalk.

Important Differences Between Today and the 1980s Ag Economy

Wed, 01 Nov 2023 18:07:57 GMT

Indiana ag lender Joe Kessie graduated from Purdue University in 1983 with a degree in ag finance – during the height of the 1980s farm crisis.

“I think only about 25% of the graduates in the ag school had jobs at the time of graduation,” he says.

Though it was a tough time to be starting out in the industry, Kessie (who is now retired) is grateful to have experienced so much early on in his career.

“I always tell people I was fortunate to start when I did because I got to see everything that could go wrong in banking and ag finance during that farm crisis,” he says. “It was a little easier to be objective because I hadn’t made those original loans and was working with the clients to get through that.”

He was also able to help customers make the best of their situations.

“In the late ‘80s, early ‘90s, there were tremendous opportunities to take advantage of. Ground was down to $1,000 an acre or less in our area,” Kessie says. “I had some operations that were making adequate money even though their net worth still might have been going down with deflation. I helped them take advantage of some of those opportunities and I formed long term relationships.”

Insights on What’s to Come
Though inflation is currently high, Kessie doesn’t expect a repeat of what he experienced in his early career for three main reasons.

“Back in the ‘70s or early ‘80s, all the farm rates were all variable. When rates skyrocketed, basically all the debt on the balance sheet went up,” he says. “Today, about any kind of term debt is fixed at pretty attractive rates. The higher rates today are affecting operating and if you make a new purchase, but the other debt on the balance sheet is not affected.”

He also shares the overall farm balance sheet and management level is in better shape than it has previously been.

“The farm balance sheet was pretty leveraged in the ‘70s versus now it’s not,” Kessie says. “Overall, the management level is definitely better today than it would have been in the 70s. A lot of the inefficient operations, unfortunately, didn’t make it.”

Investment funds are another reason the state of the current ag economy differs from the 1980s.

“There’s a lot of farm cash buyers but then there’s also a strong interest in investors and investor funds,” Kessie says. “None of that was there in the ‘80s to support the market. The sales we’ve seen in real estate this year continues to go up, and demand is very strong.”

To hear more about Kessie’s reflections and expectations, check out this episode of the Top Producer podcast.

The Corporate Transparency Act: What You Need to Know

Wed, 25 Oct 2023 16:11:58 GMT

Beginning Jan. 1, 2024, you will be required to report online to the Financial Crimes Enforcement Network (FINCen) any entity that is required to be filed with your state. That includes corporations, Limited Liability Companies (LLC), Limited Partnerships (LP), etc.

If the entity was in existence before Jan. 1, 2024, the due date for this filing is Dec. 31, 2024. If you create a new entity in 2024, however, the filing must be done within 30 days.

You cannot do this manually and must use the FINCen website (fincen.gov/boi). The filing will go live Jan. 1, 2024.

A large farm operation with more than 20 employees and at least $5 million in gross receipts will be exempt from filing this information but will be required to make a filing for all its other entities under that level.

The company will be required to provide its legal name, current street address, the state in charge of its filing requirements and taxpayer identification number.

All beneficial owners of the company will need to be listed. A beneficial owner is either of the following:
• Someone who exercises substantial control over the business entity (manager, officer, etc.).
• Anyone with at least 25% ownership in the entity.

For most farm operations, anyone owning at least 25% in the entity will automatically meet the first test, so you will likely list each of those owners. As far as we can tell, there are no related party rules on ownership.

The following information must be listed for each beneficial owner:
• Individual’s name, date of birth and street address.
• A unique identification number from an acceptable identification document (driver’s license, passport, etc. — not a social security number).
• The name of the state or jurisdiction that issued the identification document.

A copy of the identification document must also be uploaded. If you are opposed to uploading a copy of this document, remember, if you have flown on a plane in recent years and gone through security, the government already has a copy of your driver’s license. It is scanned when you check in at security.

Some farmers might be inclined to not provide this information. Be warned, the penalty for not providing it can be up to $500 per day and time in jail. This is something not to be taken lightly, and the time for filing is only a few months away.

Outsourcing: Align Skills With Tasks

Fri, 28 Jul 2023 15:05:10 GMT

This business practice reduces employee expenses and optimizes asset needs

On your operation, you must continually find the perfect balance of team members and assets. You want to be ready to seize opportunities but not stretch your finances too thin.

This concept of rightsizing the farm is a top priority at MBS Family Farms in Plainfield, Iowa.

“One of the keys as operations grow is to use the talent they have. We want to identify what our operation is good at and where we have overcapacity,” says Kyle Mehmen, a partner in the farm, which includes row crop production and a custom trucking business.

As a result, Mehmen says their farm is constantly evaluating tasks and responsibilities to outsource — everything from executive level down to administrative tasks.

OFFLOAD AND OUTPERFORM

Far from a new concept, outsourcing is simply using a non-employee to complete a task. It allows for greater focus and could offer better economics, says Peter Martin, finance and growth consultant with K·Coe Isom.

“Outsourcing, coincidentally, is one of the top ways to help your business focus on what you do best,” he says.

Not only does outsourcing align tasks with skill sets, but it also provides expense control and improved cash flow. How? Essentially you transition fixed costs to variable costs.

Common outsourcing scenarios to consider include:

Executive-level expertise (high-level strategy)
Highly specialized services (HR management)
Repetitive tasks (field data crunching)
Higher risk tasks (long haul trucking)
Sporadic or new needs (analysis of carbon contracts)

IN-HOUSE VERSUS OUTSOURCE

At LongView Farms in Nevada, Iowa, the Henry family is undergoing a transition with the senior generation, Steve and Laurie Henry, turning over the reins to their sons, Scott and Eric. Currently Laurie serves as CFO for the operation, which includes row crops, custom feeding of cattle and contract finishing of hogs.

“As we transition, we are trying to decide if that role should be filled by a family member or if we want to outsource or cost share it,” says Scott Henry. “The daily administrative components could be done at a lower compensation level, but it would also be nice to have the person be involved in strategy discussions for our farm.”

Currently, Henry says, they use an outsourced CFO service for their feedlot. So, they are comparing the two options. While finances are at play, the Henrys are also focused on the future of their team.

“We don’t want to just focus on fixed costs versus variable costs,” Henry says. “What are we trying to manage? Are we trying to manage culture or net income?”

Investment that Pays: Teach Farm Kids How to Manage Money

Fri, 28 Jul 2023 14:45:39 GMT

You’ve taught your kids how to drive tractors, herd cattle and identify weeds. But have you passed on your money and management skills? Do they know how to purchase inputs, calculate payments or market grain?

“Many rural children will be operating a family enterprise someday,” says Val Farmer , a clinical psychologist and author who specialized in family relationships during his 30-year career. “Farms and ranches are big businesses that operate in a high-risk economic environment. An essential management tool for farmers is financial management.”

This topic is touchy. Likely your parents or grandparents didn’t open the books to you as an adolescent (maybe not even as an adult). Don’t leave your children in the dark, Farmer says.

“Children and young adults won’t automatically know how to do this without handling money and decision-making long before they reach management levels,” he says. “If adult children understand money management, they make better partners. Management philosophy is shared instead of being a point of conflict.”

When should you start teaching farm financial lessons? The earlier the better, Farmer says. His advice:

Let them handle and spend their own money.
Let them deal with limited budgets where they have to make choices. They learn the first rule of finances — don’t outspend your income.
Let them earn money for extra work beside their regular family duties. Make sure the pay is in line with community standards for certain jobs, so they get a connection between the world of labor and the cost of things.

Also, encourage regular savings. Farmer suggests letting them have their own checking and savings accounts and encouraging them to save toward future goals.

“Be a role model by living within your means,” he says. “Plan for purchases, save and make the purchases with cash on hand. Talk about what is smart and what is dumb — the hard times and the good times. Part of money management is learning to be generous, give gifts and use money to do good.”

When appropriate, find ways to give your children a stake in the farm. Once they become teenagers, Farmer says, allow them to participate in family business discussions.

“Even if they don’t have much to say, they will absorb information and learn about real risks and how decisions are made,” he says. “They will learn to reason with you about business and money matters.”

Projects in FFA and 4-H are great tools for teaching money and enterprise management. The cost of input and labor are calculated and learned, Farmer points out. They will see the payoff and learn the downside too — good training for a future partner someday.

“Caring and managing for their own livestock and other farm enterprises teaches entrepreneurial attitudes and skills,” he says. “They see how farming works and how income is generated through buying and selling, breeding, good health practices, and about absorbing mini-enterprise risks. The proceeds will help them pay for their college education.”

Of course, you may enter into an uncomfortable discussion or two once money is an acceptable topic to discuss. Work through these, Farmer suggests, and stay focused on your goal.

“Many farming operations fall apart in succeeding generations because parents have been too controlling and haven’t shared decision-making of dollars and cents financial management,” he says.

A Simple Checklist to Evaluate ROI on Your Farm

Thu, 27 Jul 2023 16:04:27 GMT

The concept and calculation of return on investment (ROI) is pretty simple. It is most commonly measured as net income divided by the original capital cost of the investment. The higher the ratio, the greater the benefit earned.

Yet, ROI is often poorly defined and poorly understood, says Brent Gloy, economist at Agriculture Economic Insights .

“Return on investment is a popular phrase and it can be insightful,” he says. “But it also has its limitations.”

Gloy says understanding your ROI is helpful when you are:

Considering uncertainty.
Comparing or benchmarking alternatives.
Evaluating performance over time.

To truly analyze your ROI, create an internal operating procedure for how you will calculate and use it, suggests David Widmar, economist at Agriculture Economic Insights .

“You can’t invest in every operation that comes your way, so ROI can help you prioritize,” he says.

Widmar and Gloy suggest this ROI checklist:

Identify all costs and potential revenue. Start with a clean sheet of paper.
Evaluate alternatives. Challenge your thinking.
Review key assumptions and possible outcomes.
Consider constraints: capital, labor, etc.

Factors, Calculations and Reality

With higher commodity prices, you may be in the market to make an upgrade or new investment on your farm. While you need to read the promotional information and research done by the companies providing the service or product you’re considering, do so with a realistic frame of mind, encourages Shay Foulk, farm business consultant with Ag View Solutions and an Illinois farmer.

Your goal is to pinpoint the minimum benefit your farm needs to see to cover the costs and your time for the investment. You want to avoid phrases such as, “I know this is going to add 5 bu. to our bottom line,” or “I think this product is going to give us an agronomic advantage.”

Foulk suggests evaluating these factors:

Grain Price: Projected price for the commodity you will be using to evaluate your margin enhancement.
Investment Cost Per Acre: How much will it cost to make this enhancement or upgrade?
Yield Improvement Per Acre: This is your best educated guess for yield improvement.
Acres: Across how many acres will you use this margin enhancement on?
Years of Use: How many years do you plan to use this margin enhancement?

Watch a Farm Credit Services of America webinar of Gloy and Widmar discussing ROI .

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Rural Bankers Rank Top Three Challenges

Wed, 26 Jul 2023 19:57:37 GMT

The rural economy keeps chugging along, according to the Creighton University Rural Mainstreet Index . For the ninth straight month, the RMI has stayed above growth neutral.

For August 2021, the RMI fell slightly to a healthy 65.3 from July’s 65.6. The index ranges between 0 and 100, with a reading of 50 representing growth neutral.

Around one-third of bank CEOs reported that their local economy expanded between July and August.

“Solid grain prices, the Federal Reserve’s record-low interest rates, and growing exports have underpinned the Rural Mainstreet Economy,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “USDA data show that 2021 year-to-date agriculture exports are more than 25% above that for the same period in 2020. This has been a prime factor supporting the Rural Mainstreet economy.”

Bank CEOs were asked: What is the biggest economic challenge for agriculturally dependent community banks for next 12 months?

Here are the top three results:

41%: Low loan demand
28%: Low interest rates
16%: Drought

For an 11th straight month, the farmland price index advanced significantly above growth neutral. The August reading expanded to 76.6 from July’s 71. This is the first time since 2012-2013 that Creighton’s survey has recorded 11 straight months of farmland prices above growth neutral.

The August farm equipment-sales index declined to 64.7 from 67.2 in July. Readings over the last several months represent the strongest consistent growth since 2012.

Almost one third of bankers support immediately beginning the reduction (taper) of Federal Reserve buying of U.S. Treasury bonds and mortgage-backed securities. Another 25% say the Federal Reserve should begin the reduction or taper in the fourth quarter of 2021.

The confidence index, which reflects bank CEO expectations for the economy six months out, decreased for a third straight month to 59.7 from July’s 65.6.

“Rising COVID-19 infections, the turmoil in Afghanistan, and negative views of current infrastructure bills before Congress damaged the economic outlook of bank CEOs,” Goss says. “Only 9.4% of bankers support passage of the $3.5 trillion infrastructure bill currently winding through Congress.”

Three of four bankers encourage Congress to reject the $3.5 trillion infrastructure bill due to its unnecessary spending.

This RMI, which started in 2005, represents an early snapshot of the economy of rural agricultural and energy-dependent portions of the nation. It focuses on 200 rural communities with an average population of 1,300.

Make Your Financial Data Accessible and Meaningful

Mon, 24 Jul 2023 20:50:19 GMT

Collect and analyze the best financial data to aid decisions

The leadership team at Steinert Farms is comprised of “numbers people” who are always aiming to find the balance of analysis and action.

“We’re trying to make value decisions not just cost decisions,” says Autumn Steinert, partner with the diversified operation headquartered in Covington, Okla. “Just because something is costly doesn’t mean you shouldn’t do it if the return is better than doing something that’s cheaper.”

The operation includes Steinert, her husband, Matt; brother-in-law Adam; sister-in-law, Melanie and in-laws, Bill and Rhonda. The guiding framework for the business, which produces wheat, corn, soybeans and cattle, is numbers and analysis, including their accounting system.

“We have a lot of tools that collect data and help us manage the agronomics and inventories,” Steinert says. “And we use those in tandem with our accounting system to give us the information to make better decisions. We try to use every tool we can to get a real picture of how the operation is doing.”

QuickBooks is the accounting tool of choice for the family. “QuickBooks is economical, simple to use and has a lot of flexibility to tailor the program to our needs for the farm and other entities.” This is helpful since the operation also includes a certified seed dealership and center pivot irrigation business.

Listen to hear Autumn Steinert on the Farm CPA Podcast with Paul Neiffer :

Costs By Crop

Crop rotation is key on the farm, so the Steinerts want to know the exact costs and revenues associated with each crop. Then they can weigh the economic and agronomic factors.

To reach that level of analysis, Steinert uses accrual accounting with classes and a custom chart of accounts within QuickBooks. For example, all expenses and income for the 2021 corn crop are assigned to the 2021 corn class, even if inputs are bought in 2020 and grain is sold in 2022.

“Expenses can be assigned for future crops or past crops,” she says. “When we sell grain, we are clear which crop year we’re selling so we can go back and run what the revenue was, and we can tie that back to expenses.”

Once the last bushel is harvested, Steinert does a full analysis, comparing actual costs and revenue to their budgets. “We run financial analysis for the whole enterprise and for each individual crop.”

“That’s when I do the fixed and variable cost allocations,” she says. “I look at equipment costs by acre covered, overhead costs, etc., so we can decide which crops were actually the most profitable and what is driving expenses and profits. We watch the annual details but also the long-term balance sheet and P&L trends.”

This level of accounting acumen is a continual journey, Steinert says.

“Every year we are working on how to make the numbers more accessible and meaningful,” she says. “We could spend a lot of time tracking numbers that don’t add any value. We are constantly watching for where we need more detail vs. where an estimate is close enough to inform the decision. We’re always looking for what can help us make a better decision or evaluate the decisions that we already made.”

Up Your Back Office Game

The process of studying across-the-board data for your farm doesn’t have to be a monumental task, says Peter Martin, finance and growth consultant with K·Coe Isom. “Even a few simple efforts can help set you up to track essential numbers,” he says. Consider adopting some of these simple best practices:

Focus on your accounting system. This is the core of your back office, through which all your financials — and even field data — will connect. Set up a system that’s scalable to your operation, is cloud-based and can integrate with other software programs.
Map out your chart of accounts. Code, update and organize your revenue sources, whether they’re corn sales, government payments or rents. Decide how detailed you want line items to be.
Move to per-crop reporting. Train yourself to separate inputs. That discipline will help you understand your costs for each crop. Some expenses are direct, such as seed and fertilizer. Others, such as labor, equipment, repairs and supplies, require more “art” in determining how to factor them into your system.

Listen to more episodes of the Farm CPA Podcast with Paul Neiffer .

How to Calculate Your Personal Inflation Rate

Mon, 24 Jul 2023 20:30:45 GMT

See how rising costs impact you and your family

Yes, inflation is at a 40-year high, but you might not be feeling its sharp bite. It all depends on where you spend your money.

The Consumer Price Index is a basket of thousands of goods and services. In March, it marked a nearly 8.5% jump from a year ago. Categories such as gasoline, food and housing are the biggest contributors to the increase.

To analyze inflation’s threat to your farm and family, calculate your personal inflation rate.

Determine your monthly expenses for the following categories: food and beverages, housing, clothing, transportation, medical care, recreation, education, communication and other goods and services. Include big-ticket items you pay once or twice a year, such as home insurance.
Subtract your monthly spending a year ago from your current monthly spending.
Divide that sum by your monthly spending from a year ago.

For instance, if your spending last month was $4,500, and a year ago it was $4,250, the difference is $250. Divide $250 by $4,250 and you land at a personal inflation rate of 5.9%.

MINIMIZE INFLATION IMPACTS

Inflation is a growing risk for your farm and family. “It is also largely out of your control,” says Brent Gloy, economist at Agriculture Economic Insights. “What you can do is recognize prices are heading up and plan for it.”

This inflation calculation can be an eye opener about your family living expenses. If tracking your expenses is intimidating, start small, encourages Alex White, farm and financial management instructor at Virginia Tech University. For one month, track all personal expenses on paper or with an electronic tool.

Once you have current data, he says, you can see if you need to reduce expenses or set some financial goals.

You Are What You Spend

Some products and services have seen dramatic jumps in price. Luckily, a 13% jump in cracker prices isn’t felt as sharply as the nearly 40% increase in gas prices. Here are inflation levels for a few categories.

(Farm Journal)

Read More

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Adios to the Ag Dollar: A Farmer’s Story on Inflation and Inputs

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Use Portability to Avoid a Potential Multi-Million Dollar Estate Mistake

Thu, 20 Jul 2023 18:37:49 GMT

A common financial mistake married farm couples make occurs when the first spouse dies, and the surviving spouse fails to “elect portability.”

It’s a process by which any unused federal gift or estate tax exemption can be transferred from the deceased spouse to the surviving spouse, according to Polly Dobbs, founding partner of Dobbs & Folz, LLC Peru, Ind.

What portability helps the surviving spouse achieve, ultimately, is to put the farm assets in the best position to be transferred upon his/her death, to the next generation without estate taxes being owed.

For 2023, each spouse has a $12.92 million exemption from federal gift and estate taxes, but that amount is set to “sunset” to around $6.6 million each in 2026. Electing portability can lock in that high exemption if a spouse dies before the sunset date.

Straightforward Process
To elect portability, the surviving spouse must file Form 706 Federal Estate Tax Return with the IRS.

“It’s not something that happens automatically, and it’s a crucial action to take – even if all the assets were jointly owned and no taxes are owed when the first spouse dies,” Dobbs says.

“Many certified public accountants (CPAs) and lawyers are unaware of portability, or don’t believe it’s worth checking into, but it is,” she adds. In fact, she tells advisers for their own protection to get it in writing if a surviving spouse declines to elect portability.

Portability is a recent process available to married farming couples, which is why many CPAs and lawyers are not aware of it.

One Form To Complete
IRS has simplified the process to elect portability in recent years.

“A certified public accountant or a lawyer can help the surviving spouse use shortcuts when filing a Form 706 just to elect portability, like skipping appraisals and valuations. The value of the assets may be estimated only to the nearest quarter million dollars of value at the first spouse’s death,” Dobbs says.

Form 706 generally must be submitted to the IRS within nine months of the first spouse’s death. That deadline can be extended automatically with Form 4768, however, for an additional six months.

Additional Time Available
If a surviving spouse missed the initial deadlines for filing, they can still elect portability up to five years from the date of their spouse’s death by invoking “Relief under Revenue Procedure 2022-32,” Dobbs notes.

Dobbs estimates the costs to have an adviser’s help to complete the form and submit the paperwork will total less than $3,000, depending on the assets that need to be reported.

“The costs incurred are minimal when compared to the millions of dollars of estate taxes that could be saved,” she says.

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What in the World is Going On With Glyphosate Prices?

Wed, 19 Jul 2023 22:55:24 GMT

An explosion at a Dow Chemical plant in Louisiana isn’t expected to disrupt ag chemical supplies in the U.S., according to Rabo AgriFinance. That’s as the industry seems to be swimming in supplies of key inputs such as glyphosate, forcing suppliers and ag retailers to cut prices in an effort to get rid of unused supply.

An explosion and fire broke out at a Dow Chemical plant in Plaquemine, Louisiana late Friday night. The site produces several different chemicals, including one used as a fumigant in agricultural products. There hasn’t been any information released about a possible cause, but reports indicate at least six explosions occurred Friday night at a Dow manufacturing site that covers 883 acres. The incident caused a large mushroom cloud of smoke.

The plant is one of Louisiana’s largest petrochemical complexes, and the disruption is sparking flashbacks to what happened in 2021 when Hurricane Ida’s direct hit on Bayer’s largest glyphosate plant pushed the manufacturing site offline for nearly two months. The one event sent severe supply shockwaves through the entire agriculture industry.

Sam Taylor, Farm Inputs Analyst for Rabo AgriFinance, says the incident at the Dow Chemical location on Friday shouldn’t impact availability of ag inputs for farmers.

“I’ve not been given that indication that it will. That’s the feedback that I’ve received,” says Taylor.

Why was the hurricane’s impact such a heavy weight on the entire industry? As strict Covid-19 protocols in China continued to restrict production of active ingredients essential to make products like glyphosate, the hurricane compounded already strained supplies.

According to Reuters, Bayer saw herbicide sales jump 44% in 2022 after Hurricane Ida damaged rival producers and constrained Chinese suppliers failed to plug the gap. Farmers felt the impact in terms of pricing and supplies. In the fall of 2021, glyphosate prices were up as much as 300%, but finding the supply was an even bigger problem reported by farmers. As competitors have been able to return to the market this year, prices have been dropping.

Ag Herbicides’ Supply Problem

Taylor says herbicide prices aren’t falling because of demand issues, it’s a supply problem. A major reason is China. AI production coming back online was a huge boost for overall production as the country accounts for 60 to 70% of global production. With such a production monster now back online, Taylor says it’s also led to a significant drop in global benchmark pricing.

“I think that the global pricing, at the moment, is sub $4 a gallon in China. So, you’ve had that drop from about $16 to $17 a gallon in 2022. It’s now about 25% of what it was,” says Taylor. “That’s the main catalyst of it, and that’s why we’ve seen the kind of the cost curve and shift down as Chinese production is back online. They account for about two-thirds of global production.”

Retailers and suppliers continue to cut the price of glyphosate to help offload expensive inventory in preparation for the fall months. While the prices of both generic and PowerMAX glyphosate products continue to vary widely, it’s a sizable decline from even the beginning of the year.

Glyphosate Prices Tank

In May, one major ag company started offering retailers a $5 per gallon rebate just to push more glyphosate inventory onto the farm level. This week, FBN started offering a pricing special on Willowood Glypho 5, a generic glyphosate product. FBN’s promotion is being advertised as “glyphosate stock up,” offering the product at $13.50 a gallon, if pre-purchased by July 31st. The special only applies to product that will be delivered September to October.

Taylor says while wholesale and retail prices vary, he expects wholesale glyphosate and chem prices to stay low throughout the remainder of the year, especially with the supply situation.

“I would also say that I don’t think the issue is going to resolve itself overnight. I think you’re going to see this rumbling through 2023,” says Taylor.

Taylor points out hints of growing input supplies started at the beginning of the year. Several publicly traded companies mentioned inventories in their earnings report saying it was an industry-wide issue. That created the situation today where input suppliers across the U.S. are sitting on inventory that was purchased at a much higher price than where wholesale and retail prices are today.

Bayer’s most recent earnings report in May signaled the company expects its 2023 financial results to come in at the lower end of the targeted range, not only because of inflation, but a slump in prices of glyphosate-based herbicides from last year’s highs. Bayer’s then CEO told investors the company was forced to reduce expectations of what it can command for glyphosate products.

The Industry is Upside Down

It’s an issue companies and retailers of all sizes are grappling with. AgriTalk’s Chip Flory spoke to the Eric Cowling who’s the CEO of Helena Agri-Enterprises, a large U.S. ag retailer that has more than 350 sales locations across the U.S. Cowling told Flory the supply issue is one that’s still impacting the entire industry.

“It’s one of those things you couldn’t predict. It’s really about supply and demand,” Cowling said on AgriTalk. “We’re probably putting together one of the highest input crops that we’ve ever seen, so that is an impact of the supply situation. We had to buy product to take care of customers for the last two years. Now, you heard the term ‘we’re upside down.’ I think the industry is upside down. If anybody could have predicted the decline over the last 12 months, I’d like to have that conversation to know exactly how they predicted that. I think there’s plenty of inventory. I don’t think there’s excessive inventory. And I believe we’re in a good spot to take care of customers for the next six to eight months, but I’m not sure I can say we’re in a spot to do it for 12 months.”

A Global Supply Chain

Just as Taylor points out, the fluctuations in crop protection and input prices for farmers are ones driven by what’s happening on a global scale.

“I tell our teams that it’s become a global supply chain. So we’re reliant on supplies of things we need to produce products globally, some from China, some from other sources like India,” he says. “As their world changes, so does ours. I don’t think there’s any one blueprint today that we could follow to say this is what we do.”

He says the big input suppliers in the U.S. are dealing with the same issues, which then compounds the supply chain issues for retailers such as Helena.

“When their issues are compounded, it compounds our issues, because we’re looking for the same inert ingredients or things that have to be imported,” he says.

Cowling also told Flory he doesn’t think the industry is in the recovery process yet, something Helena thinks will continue to change the way ag retail does business with farmers in the future.

“We’re in a state of turmoil, so we don’t know what the real world looks like today, and I think the way we’ve procured product in the past, I don’t believe we’ll see those days again,” says Cowling. “We have to use more intelligence tools, the AI tools available, to be better predictors of what we’re going to sell.”

Related News:

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EPA: Glyphosate Can Still be Used Through 2026

Bayer to pull Glyphosate from U.S. Lawn and Garden Markets

Lusk Named New Dean of Oklahoma State's Division of Agricultural Sciences and Natural Resources

Tue, 20 Jun 2023 20:41:51 GMT

Oklahoma State University announced Dr. Jayson Lusk as the new dean and vice president of its Division of Agricultural Sciences and Natural Resources. Lusk will succeed Dr. Tom Coon in early August.

The announcement was made by OSU President Kayse Shrum and Provost Jeanette Mendez at the OSU/A&M Board of Regents meeting on June 16.

Lusk currently serves as Distinguished Professor and Head of the Department of Agricultural Economics at Purdue University. Prior to that, Lusk served as a tenured professor and holder of the Willard R. Sparks Endowed Chair at Oklahoma State University. He earned the title of Regents Professor in 2013.

“It has been an honor and privilege to serve as the head of the Agricultural Economics Department at Purdue University, and I will miss my friends and colleagues in West Lafayette. Now it’s time for a new challenge,” Lusk said on his blog . “There are many exciting things happening at Oklahoma State University, including the near completion of the New Frontiers campaign and building, a new University strategic plan that has clear emphasis on agriculture and the land grant mission, and the opportunity to work with the faculty and staff to identify some key strategic opportunities to raise the impact of the division.”

Lusk has spent a significant portion of his professional career at land-grant institutions, is recognized as a preeminent scientist and advocate for agricultural research and innovation and has received national recognition for his research, including the Lou Ann Aday award, Purdue University’s most prestigious research award in the humanities and social sciences.

During his time at Oklahoma State University, Lusk led a project that surveyed consumers about their attitudes on meat purchases at both the retail and restaurant levels. The Food Demand Survey featured the opinions of a thousand plus consumers monthly. He has been interviewed and published editorials in outlets such as the New York Times, Wall Street Journal, USA Today and the Washington Post, and has appeared on numerous network and national cable television shows. Lusk has published more than 270 articles in peer reviewed journals, including several of the most cited papers in the agricultural economics profession. He has authored five books, the latest being Unnaturally Delicious.

He has served on the executive committee of the USDA National Agricultural Research, Extension, Education, and Economics (NAREEE) Advisory Board and has testified before the U.S. Congress on multiple occasions. He is a fellow and past president of the Agricultural and Applied Economics Association.

Lusk earned a bachelor’s degree in food technology from Texas Tech University and a PhD in agricultural economics from Kansas State University. He held previous appointments at Mississippi State and Oklahoma State Universities and the French National Institute for Agricultural Research.

Read More:

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What To Know When You’re At The Table With An Alternative Ag Lender

Wed, 31 May 2023 15:19:20 GMT

I recently wrote about the bigger role that alternative lenders are playing in agriculture . They can often provide capital for expansion and growth opportunities that traditional banks can’t or won’t.

If you’re ready to meet with an alternative lender, here are some points to keep in mind:

Bring your team to the table. Financial and business arrangements can get complicated quickly, says my colleague Scott Miller, a principal and director of national tax solutions with Pinion. When you meet with an alternative lender, surround yourself with your business attorney, tax advisor, accountant and anyone else who can look out for your interests. They’ll help you understand the fine print, think through potential ramifications and offer advice to structure the best deal for you.

Negotiate. Every deal is different, so negotiate with the financer. This will be a mid- to long-term partnership, so you want the best rates, terms and conditions you can get. For example, if a 15-year deal creates cash-flow problems for your business, you might negotiate a 25-year deal instead.

Consider the entity structure. There are two general ways your deal will likely be structured. It may work more like traditional financing, with an interest expense. Or, it can be formed as a partnership, where you’ll share profits and losses from the business with the lender. Further, Miller notes, “you now have a partner who may want to be part of the decision-making process.” He also points out that you’ll have to negotiate how distributions will be made. Will the lender receive distributions first, up to the amount put in plus a return, before you do?

Take into account tax issues, liability protection and security. If your deal works more like traditional financing, you’ll have interest expenses, which could bring you into interest-expense limitations. “Make sure you run the numbers, be aware of any limitations and understand the farming election if necessary,” Miller says. You may also form separate entities for your land, operations and equipment so you have liability protection.

Touch base with your local Farm Service Agency office. It’s important to ensure there are no issues, such as entity structure and collateral, that could impact your eligibility for FSA payments.

Keep accounting methods in mind. If you enter a partnership arrangement, you want to make sure you avoid problems with your cash method of accounting. Since most farmers use the cash method, those rules can get tricky when you bring in other owners, Miller says.

As you can see, financing deals can be complicated, especially when you’re entering the relatively new territory of alternative lending. Make sure you have your eyes wide open and a team of experts at your side every step of the way.

Read More from Kala:

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Out-of-the Box Lending Options for Farmers

Thu, 09 Mar 2023 14:00:00 GMT

Farmers today have many opportunities to expand operations, buy land, invest in technology and diversify. But those opportunities cost money, and traditional financial institutions aren’t always in a position to finance that growth.

That’s where alternative ag lenders can help. No longer just for distressed borrowers, these non-bank lenders provide capital for growth. They’re publicly traded firms and private companies looking to invest their ample capital in worthwhile projects.

THE NEW LENDING PLAYERS

Alternative lenders are found in every industry, and they’re playing a bigger role in agriculture. You might recognize some of them: Farmers Business Network, Sandton Capital Partners, AgAmerica, Conterra Ag Capital and Alternative Equity Advisors.

Derrick Deardorff, senior manager of AgKnowledge at Pinion, has watched the emergence of alternative ag lenders and says: “Today, as the U.S. ag industry grows, shifts and changes, producers need all the resources of both traditional and alternative ag lending. Each has its place.”

In the past year or two, Deardorff says, alternative ag lenders have begun rolling out programs that help producers capitalize on real estate to finance an expansion. Some programs allow you to keep ownership of your farm while boosting your cash flow.

Farmers Business Network, for example, created its Farmland Capital program after farmers asked for products that could go beyond conventional debt and match their income and capital requirements. Its program covers that gap by connecting farmers with investors. FBN also launched a bridge loan program that allows farmers to compete for land with cash buyers.

Conterra developed its alternative lending program with the understanding not all borrowers look the same or meet traditional lending standards. As one example, Conterra worked with a feedlot and cow-calf operation in Oregon, providing cash from refinancing real estate to relieve the daily pressure of cash outflows.

DO YOUR HOMEWORK

If you’re thinking about increasing your herd size or investing in a $600,000 combine, consider an alternative ag lender. But first, educate yourself. Online searches aren’t going to give you enough information. Attend industry conferences. Network to learn more about alternative ag lenders. Talk to others and ask questions.

If you find an alternative lender that works for you, remember you’ll need a well-thought-out plan for how you’ll put that additional capital to work to make your business grow. That could include reorganizing your business, investing in technology or building your brand.

Bottom line: Having another financing option can make all the difference when the right opportunity comes your way.

USDA Confirms Farmers’ Fears: Net Farm and Net Cash Farm Income Expected to Fall This Year

Tue, 07 Feb 2023 21:04:08 GMT

Even with the rise in fertilizer and fuel prices, net farm income hit a record in 2022. Now, USDA ERS says 2023 could be a different story, forecasting net farm income to fall nearly 16% this year.

USDA’s first official net farm income forecast of the year shows higher costs will drive down 2023 net farm income, but the bigger factor is the forecast for a decline in commodity prices. If commodity prices can at least hold where prices sit today, the picture won’t turn bleak, at least for this year, but it’s still a changing scenario from 2023.

Initial Forecast Points to Expected Drop in Cash Receipts, Government Payments

Farm Journal Washington correspondent Jim Wiesemeyer says his biggest takeaway form the initial net farm income forecast is both net cash and net farm income forecasts are lower for this year, with an expected drop in cash receipts, government payments, but an increase in expenses.

“Working capital is also falling as farmers have eaten into their cash reserves, much like consumers have burned through their savings, but to a lesser degree in agriculture,” says Wiesemeyer. “But working capital at $118.45 billion is still nearly double the recent low of $65 billion in 2016. Financial health remains solid even as debt-to-asset and debt-to-equity ratios are both expected to rise in 2023 versus 2022.”

(Farm Journal)

ERS forecasts cash receipts from the sale of agricultural commodities to drop $23.6 billion, or 4.3%. That’s after a record high forecast for last year of $543.4 billion. USDA says those specializing in dairy and hogs are expected to see the largest decline relative to 2022.

The breakdown of cash receipts broken down by commodity includes:

• Total crop receipts are expected to decrease by $8.9 billion (3.1 percent) from the forecast 2022 level
• The drop is led by lower receipts for soybeans and corn
• Total animal/animal product receipts are expected to decrease by $14.7 billion (5.7 percent)
• The decline in livestock is driven by lower receipts for milk, eggs, broilers and hogs.

“The impact of lower receipts is actually greater than that of higher costs,” points out Pat Westhoff, director of the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri . “On the cost side, the overall increase in expenses is 4.1%, after a 18.5% increase in 2022. Purchased livestock costs (think feeder steer) are projected to increase quite a bit; most other increases are fairly modest, and some categories (e.g. fuel) actually show a decline relative to 2022.”

Expectation for Fewer Government Payments

Another factor at play is the forecast for lower government payments. USDA’s forecasting:

• Direct government payments to fall by $5.4 billion (34.4 percent) from 2022
• Direct government payments are expected to reach $10.2 billion in 2023
• The decrease is largely due to expectation of lower supplemental and ad hoc disaster assistance in 2023 compared to the previous years

“USDA shows more than a $5 billion drop in payments this year,” says Westhoff. “That’s reasonable given current policies and projected prices, but Congress or the Administration could always provide new programs not included here.”

A Lot Can Still Change for Net Farm Income

While the initial forecast shows a drop in net farm income, Westhoff points out much can change in a year’s time.

“Weather always matters, as does the health of the general economy,” says Westhoff. “And, as we’ve learned the last few years, there will be wildcards, think China trade war, COVID and the Russian invasion of Ukraine.”

Farmer Sentiments Inch Higher in January

Despite the waning outlook for net farm income, farmer sentiment seems to be improving. The latest CME Group/Purdue Ag Economy Barometer , which was also released on Tuesday, shows farm sentiments improved 4 points from December to January.

“An improvement in future expectations was the driver behind the modest rise in sentiment, as the Future Expectations Index rose 5 points in January,” authors of the barometer stated.

The also pointed out that while sentiments did edge higher, the majority of farmers report they expect tighter margins in 2023 than in 2022.

“Just over one out of five producers expect to have a larger operating loan in 2023 than in 2022, with higher operating expenses being the most commonly cited reason,” the January Ag Economy Barometer stated.

USDA expects total operator dwelling expenses to increase 4.1% to $459.5 billion in 2023. Of that, interest expenses and livestock/poultry purchases make up the largest dollar increases year-over-year.

Read the full USDA forecast and report here.

Related Story:

USDA Forecasts Farm Sector Profits to Remain Above Average in 2022