2Bits: If only money really grew on trees…
Anyone who lives within their means suffers from a lack of imagination.”
– Oscar Wilde
Farmers are eternal optimists! They’re always imagining better times.
Expanding markets–decreasing competition
Buy low–sell high
However, living within their “means” is hard right now for many farmers.
It is well documented that the financial condition of the American farm sector continues to decline.
A sign that points to this is the drastic reduction in farmers’ working capital. In 2012, farm working capital was nearly 45 percent of gross revenues. Now, it is only 13 percent.
Why is working capital important?
It’s the future. It’s the money farmers use to buy seed to plant next year’s crops, livestock to expand existing herds and flocks, better fencing, and more efficient machines and tools.
Working capital is money to repair and improve aging facilities, hire additional labor to help with increased output, and spend on marketing efforts to increase sales.
Working capital enables continued farm operation and investment in the future.
Succession planning enables a thoughtful transition of the farm operation to the next generation or an agreed upon dispersal or sale.
The average age of the American farmer is 58. Within the next 15 years, 50 percent of American farm equity (ownership) will change hands.
Many children of these aging out farmers are not returning to production agriculture. So, it is critical to plan for the farm’s future.
Often, today’s farmland is not valued for its production capacity, instead, being given a value based on development, recreational, and landscape potential or appeal. Children now living off the farm may have expectations of inheritance when their farming parents retire.
Farmers, like other businesses, should have a trusted team of professionals to help them plan for working capital needs and farm succession. This team could include an accountant, attorney, and bank lender!
I reached out to a bank lender I trust, Dawn Shellabarger, Vice President of Commercial Lending for Central Bank of Boone County, Columbia, Missouri, and asked her to share her insight on farm lending and succession.
As we talked about farm lending and succession planning, several important points were highlighted by Dawn:
- Bank lenders should ask lots of questions to help determine the loan amount and a payment structure that meets both the farmer’s needs and the bank’s requirements.
- An astute bank lender will ask about a farmer’s lifestyle, business decision making processes, production improvement processes, risk management, market potential for their farm products, and available collateral.
It is important to develop a trusted banking relationship early in the farming business.
- The bank lender a farmer chooses to work with should be a good listener! They should be open-minded and offer personalized and creative lending options.
- Farmers should also ask their bank lender questions. It is important to determine if the bank is locally owned, relationship focused, able and willing to provide quick and streamlined services, and if the loan decision making process stays local! Community banks, like Central Bank of Boone County, have a real vested interest in their local rural communities.
- As counties become more urban and land values increase due to being valued based on development instead of farming, farmers may find it harder to obtain loans from sources and Farm Service Agency (FSA). Community banks are a very reasonable alternative.
Most farms in the U.S. are family-owned.
- Succession planning for farmers is a very beneficial step in the life of the farmer and their farming business. Succession planning before a farmer retires can help maintain good strong family ties.
- Bank lenders can often make suggestions on succession planning that can be shared with the rest of the farmer’s professional team—their accountant and attorney—to help set an appropriate path for succession.
Central Bank of Boone County has the largest agriculture lending relationship of the 13-bank holding company, Central Bancompany.
Dawn Shellabarger can be reached at 573-817-8981 or firstname.lastname@example.org.
Dawn has nearly 15 years of banking experience and works with many different clients which include production and business agriculture clients. She grew up on a grain and cattle farm north of Mexico. Dawn and her husband, Jacob, and their two children continue to help on the family farms and are actively involved Audrain County 4-H
Written by your friend, Kim Harrison,CEO 2BuyAg