5 Proactive Ways to Handle Your Farm’s Tight or Negative Cash Flow10/26/2016
Many producers have struggled to completely pay the last two years’ financial obligation and had to extend them forward in their financial plan. They are not only working to satisfy this year’s cash flow but have to also account for previous year’s shortfall or at least some amortized version of those shortfalls.
Will yields and prices be enough to put producers back into the positive side of their cash flow? Discussions and review of producer’s operations prior to harvest indicated that it was going to be close.
Farm bill payments for the 2015 crop in the form of ARC-CO and PLC are being received by some producers in Tennessee. However, since ARC-CO payments are specific to a particular county, not all producers will receive them. For producers who signed up for the PLC portion of the farm bill, they will receive payments for wheat $0.61 per payment bushel, corn $0.09 per payment bushel , grain sorghum $0.64 per payment bushel and long grain rice 2.9 cents per pound. There are no PLC payments for 2015 soybeans. These ARC-CO and PLC payments will be much needed and may help keep some producers in a positive cash flow.
Dry weather in Tennessee has aided the maturation of the 2016 crop and looks to have harvest wrap up this year earlier than average. While some individual areas may not have yielded well, in general yields have been above average and should come in close to record.
As harvest wraps up there definitely are some farm management issues that should be addressed. When cash flows are tight to negative, it is time to be proactive in financial planning and when talking to lenders, landowners, suppliers, and others involved in the farm operation.
Producers should consider the following:
- As soon as practical perform an assessment of where you are financially. It does not have to be a detailed assessment but should be somewhat thorough. Will you be able to pay all your obligations including rent, farm bills, operating loans, and debt payments that will be due within the next few months or at least before the 2017 operating loan is set up. If there is an issue, explore it with your lender now.
- Will there be any major changes in the operation in 2017? If this is the 2nd or 3rd year that a producer has come up short financially in their cash flow, a major change is needed. A windfall year is not currently projected for 2017 so it may be some unpleasant changes have to be made. Liquidation of any assets and how that may affect the operation should be explored. Involve your lender and accountant or tax preparer as to the impact of selling assets on the operation.
- Sketch out a farm financial plan, revisions can occur later. If the acreage plan is known or most of it has been determined, use it to your advantage. If financially feasible, start exploring input deals or arrangements. Generally the best seed deals for prices and or financial terms happen when they are secured early. Producers in 2017 will again have to contain production costs or increase yields or both to be sustainable. Visit with your suppliers on what inputs will cost in 2017 and how they can be managed. Evaluate seed varieties from University Research & Extension trials as well seed company data.
- Evaluate your production system. Is it working? Discuss with your consultant, County Extension Agent or other advisors your production systems and whether any changes are suggested. Did problems either weed, insect, disease, or fertility develop in 2016 that will make you change systems in 2017. Know your fertility needs and start pricing their costs.
- Visit with your accountant/tax preparer for any tax planning for the 2016 crop year. Keep in mind any carryover sales from 2015 that occurred in 2016 and if any inputs were prepaid in 2015 for 2016. Any equipment purchases must be made for economic reasons not just to reduce income taxes. Should any crop be carried over to 2017 to sell and should any inputs be prepaid now for 2017?
Many decisions for producers to make as the 2016 crop wraps up. Tennessee has been fortunate and overall has had good growing conditions during the year and ideal harvest weather. Other areas have not been as fortunate and will have a different set of issues to deal with. The Land Grant University System including Extension and Research is willing and able to assist producers. We are just a call or email away and it is our mission to work with and assist producers in good and not so good times.
Source: Chuck Danehower, Southeast Farm Press