As harvest comes to a close, farmers and lenders alike turn their attention to 2017. Before making advanced plans for spring planting, the impact of 2016 financials on balance sheets must be evaluated. As farmers reflect on their crop year – whether they had above, below, or average yields – and determine their 2017 operating and capital needs, arranging an early meeting with a respected agricultural lender can pay huge dividends.
Be Ready to Share Plans for Managing Risk
Preparing for a meeting with your lender in this changing ag economy calls for increased transparency and open communication. This allows your lender and financial advisor to offer expertise and guidance. In addition to obtaining the normal financial information (a current balance sheet and income information), a loan officer may also ask for additional information to understand the steps you are taking to manage risk and lower operating costs.
Examples of additional information requests may include your farm and family’s plans to:
- adjust cash farm operating expenses by renegotiating cash rental agreements or reducing costs such as seed, chemicals, or fertilizer
- reduce debt and/or annual debt service
- maintain or rebuild working capital
- adjust family living or add non-farm income
- market crops strategically
Most lenders will ask for a copy of your 2017 cash flow budget, especially if there are planned expansions or additional investments in land or equipment. If you are not accustomed to completing an annual cash flow budget, you may want to consult an accountant or farm record service for assistance in preparing one.
You can also access helpful planning tools at the University of Illinois’ farmdoc.illinois.edu.
Manage Risk with Loan Servicing Options
Understanding your operation’s total cost of production is key to surviving until land and crop prices begin to level. Farmers should avoid the temptation to simply wait for the economy to return to normal. It’s important to actively manage your risk today to prosper tomorrow. Find an agricultural loan officer who understands the industry and can explain various loan servicing options such as principal deferments, re-amortizations, and loan restructuring which may enhance your strategy to rebuild working capital and/or reduce annual term debt payments.
In today’s challenging farm economy, farmers need a lender that will help you minimize the impact of low margins and maximize your ability to take advantage of opportunities both today and when higher margins return.