5 Tips for Farm Financial Success
According to the USDA, net farm income is forecast to decrease again in 2019. This means more farmers are going to have to be creative in financing their operation. The Kansas City Federal Reserve Bank recently reported that bank loan renewals and extensions on agriculture operating loans are expected to dip down again, to the lowest point in four years.
Data courtesy of the USDA Economic Research Service
And yet, farm loan demand is expected to exceed renewals and extensions of existing loans. This signals farmers to rethink the way they finance their operations and to look at alternative methods of financing. A farmer should carefully look at all options and decide what is the best course of action for their operation. Some tips for financial success include:
1. Plan well in advance. Formulate your crop plan early, before harvest begins. The plan doesn’t have to be exact with specific varieties of seed, but should include a general idea of number of acres and types of crops. By planning ahead, you will be able to search for discounts and financing options related to your specific crop plan.
2. Prepare a realistic budget. A key element to financial success is having a well thought out budget. By budgeting, you get a good idea of whether you are going to produce a profit with your crop and financing plan. It is critical to be honest about your budget. And if the numbers do not pencil out, then you can adjust your budget by changing brands or considering other sources of funds with lower interest rates.
3. Research your financing options. The local community bank is not the only place where you can apply for credit. You can also finance through many of Pinnacle’s financing partners. Some of these partners even offer programs with 0% interest rates. Many times, you’re financially rewarded to book specific inputs before the season, with a due date at harvest. You can then use your bank to fund your operation in-season. Pinnacle’s proprietary brands, Innvictis Crop Care, LLC and Mission Seed Solutions, LLC, are offering 0% financing through John Deere Financial till December 2019 if purchases are made by November 30, 2018. This is some of the best pricing of the season.
4. Understand your financing options. Several myths exist in the marketplace about your financing options that are simply not true. One of them is that you shouldn’t utilize your John Deere Financial credit line in case you may need that credit line for parts or repairs. John Deere has remedied this issue by offering two separate lines, one for parts and services and one for special terms. These credit lines can also be reviewed by John Deere should you need additional credit. Contact John Deere Financial or your Pinnacle sales representative should you need additional information.
5. Make prepayments. Prepaying for your inputs before the season also has a lot of benefits for the farmer. Prepaying allows you to book inputs prior to the beginning of the season, usually at a lower price than in-season. There may also be a tax advantage, if you prepay before December 31. Always consult your personal tax professional regarding tax advice.
To learn more about Pinnacle’s credit offerings, contact me directly at Kevin.Stinner@pinnacleag.com.
Kevin has been in the field of credit and collections since 2007. He earned his MBA with an emphasis in Management in 2004 from AIU. He is currently a Director of the Chicago Midwest governing board and member of the Editorial committee for Business Credit magazine. His work has been published in Business Credit magazine and by the InterConnection. Kevin is currently a Credit Manager with Pinnacle Agriculture where he has worked since 2017.