Michigan Farm News

Dollars and Sense: GreenStone FCS


GreenStone FCS | April 24, 2018 

Cindy Birchmeier & Jennifer Whitford

Farm lenders can identify customers who may benefit from an FSA program, make recommendations and initiate the introduction. | Meg Sprague Photography

Farming can be a capital-intense business and with land prices increasing and commodity prices decreasing it may appear impossible for individuals to enter into farming. However, we also know if we are to continue to have access to a safe and affordable food supply, we must have resources available to encourage the next generation of farmers.

 As lenders to rural America and production agriculture, we understand the challenges individuals face when starting their own farm or taking on ownership of a multi-generational farm and as such, we work to provide the educational and financial resources needed to help establish a solid foundation for new farmers.

Working with the Farm Service Agency (FSA), a branch of the USDA, we connect beginning farm operators, by smoothing their way into their agricultural pursuits or paving the way for the next generation of farmers. These programs are tailored specifically for beginning farmers, defined as anyone farming for fewer than 10 years.

While many aspiring agriculturalists may have heard of the FSA, understanding the available programs, identifying the most beneficial to their unique situations, and figuring out how to access them can be overwhelming. As part of our mission to work with young, beginning and small farmers, we work closely with the FSA to make these programs more accessible to those who need them the most.

Beginning farmers can initiate the conversation about FSA programs by visiting one of our local branches or an FSA office. Farm lenders can identify customers who may benefit from an FSA program, make recommendations and initiate the introduction, even for customers seeking direct financing from FSA.

Conversely, if a customer reaches out to FSA initially for one of the programs on which we partner, FSA will reach out to an ag lender. We will then discuss the farmer’s needs and how to best structure the financing. Moving forward the lender and FSA work side by side in the customer’s best interest.

Beginning farmers most often utilize the Down Payment Loan Program and the Participation Loan Program. By participating with FSA in these programs, we are able to relax our underwriting standards, including requirements for working capital, owner equity and down payment expectations. Both programs may offer significantly reduced financial outlay by the farmer.

In the Down Payment Loan Program, available to beginning farmers, we finance 50 percent of the loan, FSA finances 45 percent, and the farmer provides 5 percent of the purchase price of the asset as a down payment. This program can be used to purchase land with or without facilities. To qualify, the farmer needs to currently own less than the county average farm size. This information is available through the local FSA office.

In the Participation Loan Program, the lender and FSA each finance 50 percent of the loan, leaving no required down payment by the customer. This program is available to producers who are within their first 10 years of farming and who have not previously utilized direct FSA financing and do not meet GreenStone’s normal underwriting standards.

Along with the FSA programs for beginning farmers, we offer programs for young farmers and small farms as well. While many times these segments are also eligible for the FSA programs, we may offer additional options.

In addition to financial assistance, we provide a number of educational resources and opportunities for young, beginning and small farmers including college scholarships, a mentoring program and grants for continuing education.

Our resources, and those from the FSA, have been utilized in all sectors of agriculture, from livestock and cash grains to vegetables and dairy.

For more information on programs for young, beginning and small farmers, reach out to your local FSA office or GreenStone branch.

Birchmeier is Regional Vice President of Sales and Customer Relations and Whitford is VP of Lending at GreenStone Farm Credit Services.



GreenStone FCS | April 24, 2018 

Chad Zagar

Chad Zagar-MFN-2018Are you wondering what the break-even cost is on your cattle operation? Are you unsure what market price you need on your crops to cover inputs? Questioning if you should buy that piece of equipment this year or next year to minimize income taxes?  

Consistently making the right business decisions is very difficult without having accurate financial records and reports. Given the current agricultural economic environment, financial records are more critical than ever to ensure you are maximizing your earnings potential.

Financial records – including the balance sheet, the profit-and- loss statement and the statement of cash flows, along with projections for the coming season – helps producers understand clearly their operation’s financial position, including costs and profitability. 

Farmers who are pinching every penny and making necessary sacrifices to maximize their returns are more likely to succeed. Having strong financial records enables producers to know their operation’s current financial position and where costs can be trimmed or additional revenues are needed to improve financial performance. 

Another key benefit to having high-quality financial records: they can demonstrate to lenders and suppliers your viability as a customer and a business, showing how you are remaining profitable or the steps you are taking to maximize your returns. Especially for commodity producers who are price-takers, being able to clearly explain your costs per unit of production and how you are making informed choices to minimize them can help attract the capital you need to fund your operation. 

Developing the discipline to maintain strong records and keep them current can be a challenge for producers, whose real passion and skill usually lies in managing their operations. 

It is safe to say that most farmers would much prefer to be out on their land or with their herd than in an office. This is one reason some turn to an outside expert to maintain their records, while they spend their limited time and their own expertise where it yields the most benefits: on the farm. 

An accountant or bookkeeper can serve in this role to provide general bookkeeping and checkbook accounting services, produce accrual-based financial statements, and prepare detailed cost accounting operational financial schedules to assist in business management decisions. 

In addition to allowing a farmer to focus on farming, experienced financial professionals ensure the accuracy of financial reports so producers can be confident in their numbers and use them to make better decisions. 

An outside expert brings objectivity to financial records, and holds the farmer accountable to the reality of their situation without emotional attachments. 

Some farmers are hesitant to engage an outside expert because they fear that they will have less understanding of their financial picture if they do not build their financial reports themselves. However, working with an expert who knows the agriculture industry can deliver a clearer financial picture, with meaningful and accurate information on which to base business decisions. 

For example, when records show that the cost to raise a cow from birth outweighs the income it will eventually yield, the right business decision may be to sell the calf. 

Crop producers can look at the cost to plant and fertilize on a per-acre or per-bushel basis and compare that to their projected yields and price, and make an educated decision about what and how much to plant. 

Fruit growers can analyze the costs to maintain a new tree over the time until it is productive and decide if planting is a wise financial investment.

Whether you create your financial records and reports yourself or utilize an outside expert, maintaining records on an ongoing basis, rather than only at year-end, provides real-time information to support educated decisions throughout the year, including tax planning decisions in advance of year-end tax filings. 

This approach also allows you to compare your actual results against your projections, and to compare your results year-over-year at key points in your season to further strengthen your decision making. 

Depending on the industry, reports should ideally be updated at least quarterly and preferably monthly. 

Regardless of whether or not your balance sheet and profitability is as strong as you would like, high-quality reports help provide clarity to the business and family living decisions you need to make, demonstrate your commitment to increasing your profitability, and show your history of successful farm management to lenders and other capital providers, allowing them to be confident of the accuracy and completeness of your records.

If you are interested in learning more about using financial records or you are looking for help in generating reports, contact a local GreenStone branch. GreenStone offers a full array of accounting services for farmers and other business owners. 

Zagar is VP and Managing Director of Financial Services at Greenstone Farm Credit Services.


Farm News Recent Blog Posts

GreenStone FCS | March 24, 2018 

Steve Kluemper and Ian McGonigal  

Financial benchmarks provide farmers key insights into how their operation is performing financially and help identify areas for improvement.

Benchmarks apply to every business operation. In order to run a successful operation, farmers need to understand their own financial position, and how their metrics relate to other, similar businesses.

While there are many financial ratios that deliver important information, there are three primary metrics every farmer should analyze: the Owner’s Equity Ratio, the Current Ratio, and the Debt Service Coverage Ratio, which measure solvency, liquidity, and debt repayment capacity, respectively.

The Owner’s Equity Ratio shows your net worth as a percentage of total assets, measuring your ability to withstand periods of financial stress. Net worth is calculated by subtracting the value of everything that is owed (total liabilities) from the value of everything that is owned (total assets).

The higher the ratio, the greater the solvency and the more total capital supplied by the owner and less by the creditors. The target is 50 percent-65 percent or higher.

The Current Ratio is a liquidity measure similar to Working Capital that shows the value of assets to be liquidated in the following 12 months (current assets) in relation to liabilities due in the following 12 months (current liabilities).

Working Capital is calculated as current assets less current liabilities and expressed as a dollar amount, where Current Ratio is a ratio of current assets divided by current liabilities.

They both indicate your ability to pay current liabilities from the normal liquidation of current assets rather than liquidating long-term assets or incurring more long-term debt.

The higher the Working Capital and Current Ratio, the greater the liquidity. The target for the Current Ratio is 1.25-1.75 or higher.

The Debt Coverage Ratio determines your debt repayment capacity. It is calculated as a ratio of your annual earnings after all expenses, including owner withdrawals and family living expenses, except for interest and depreciation expenses, divided by your annual principal and interest payments.

The greater your earnings are to cover debt payments, the easier you can handle planned and unplanned capital spending as well as changes in revenues and expenses.

A debt-coverage ratio less than 1.00 means there were insufficient earnings to repay all debt payments and working capital was used to make the payments. The Debt Coverage Ratio target is 1.15-1.50 or higher.

These benchmark target ratios are based on general financial management best-practices, as well as on GreenStone’s extensive analysis of the financial performance of our customer-owners.

Whenever you compare your operation to a benchmark number, you should always ask how the benchmark was derived, how many operations and how many data points were included in the analysis, and how similar they are to your operation.

In addition to letting a farmer understand how his operation is performing financially, financial metrics and ratios are also used to make lending decisions, though they are not the only factor.

For example, GreenStone Farm Credit Services loan professionals review our customers’ business plans carefully, assess their management strengths and weaknesses, and have in-depth conversations to explore their business opportunities and challenges, rather than relying solely on a few financial measurements.

The financial position of any operation evolves over time and the financial ratios will also ebb and flow. An operation that is expanding to take advantage of an opportunity may leverage a significant portion of its resources, which will weaken some financial ratios.

An experienced lender understands this as a temporary situation where, as the expansion plays out, the financial ratios should improve. They also understand that if one financial ratio is outside the target range, other ratios and credit factors may be strong enough to approve a sound, constructive loan.

Farmers should develop the discipline to calculate their financial ratios and compare them to industry benchmarks in line with their production schedule: annually for crops and at least quarterly for livestock.

While industry groups and accountancy firms often offer their own benchmarks, GreenStone has developed an extensive database of financial ratios representing a diverse customer base, and can tell individual producers how they are doing compared to the rest of the portfolio.

To provide meaningful information, GreenStone common-sizes the data to compare the balance sheet, earnings, and cost of production information per unit of resource such as acres, cows, etc. and per unit of production such as bushels, pounds, etc.

The common-sized metrics will have variability based on the solvency, liquidity, earnings and debt repayment rates of each operation in addition to differences in business practices such as the amount of assets rented and owned, the amount of inputs produced and purchased, etc. Financial services officers can assist producers in comparing financial metrics to similar operations.

Benchmarks are a valuable tool farmers can use to help improve their operation and make informed, strategic decisions.

As with any tool, the value is in how the information is put to use, recognizing that benchmarks are only a target to aim for. If a ratio is outside the optimal benchmark range, there is no need to panic, especially for young and beginning farmers.

Rebalancing your debt obligations with your lender is often a solution to improve ratios outside of the optimal range.

Understanding the financial implications of operational decisions takes time. Applying a consistent approach to analyzing your financial ratios and making decisions accordingly can work over time to improve your financial position.

Kluemper is Vice President of Credit and McGonigal is Senior Vice President of Regional Sales at GreenStone Farm Credit Services.







Blogs & Columns



Breaking entry barriers for new farmers

Dollars and Sense

GreenStone FCS | May 23, 2018 

Farming can be a capital-intense business and with land prices increasing and commodity prices decreasing it may appear impossible for individuals to enter into farming. However, we also know if we are to continue to have access to a safe and affordable food supply, we must have resources available to encourage the next generation of farmers.



Field Focus - May 15

Welcome to the 2018 Field Focus feature. This year, six of our seven reporters are members of ProFile, a leadership development program of Michigan Farm Bureau. In each print edition of Michigan Farm News through the growing season, these young farmers will tell you about conditions on their farms and their regions. 

Use financial reports to assist in guiding business decisions

Dollars and Sense

GreenStone FCS | April 24, 2018 

Are you wondering what the break-even cost is on your cattle operation? Are you unsure what market price you need on your crops to cover inputs? Questioning if you should buy that piece of equipment this year or next year to minimize income taxes?



The value of financial benchmarks

Dollars and Sense

GreenStone FCS | March 24, 2018 

Financial benchmarks provide farmers key insights into how their operation is performing financially and help identify areas for improvement.



Measuring operational efficiencies

Dollars and Sense

GreenStone FCS | November 9, 2017 

In today’s challenging economic times, it is more important than ever to monitor the operational efficiency of your operation.