Michigan Farm News

Dollars and Sense: GreenStone FCS

Columnists

GreenStone FCS | August 15, 2018 

Tara Parr | GreenStone Farm Credit Services

Dollar-and-Sense--Dairy-August 15
All signs point to increased processing capacity coming soon to Michigan, where conditions are optimal to produce milk. | Meg Sprague Photography  

Recent market upticks, along with new proposed dairy processing in Michigan, are signaling a new light of hope for dairy farmers as they battle through one of the longest downturns in dairy marketing in recent history. While for some, the recent positive news may be too little, too late, for others the recent activities are beginning to spark some renewed optimism in dairy production.

Recent processing activity includes:

Foremost Farms broke ground in March for a 55,000-square-foot processing facility in Greenville, Michigan, that is expected to process 6 million pounds of raw milk per day. The facility is scheduled to be operational in early 2019.

The recent ground-breaking of a joint venture between Glanbia, an Irish-headquartered nutrition company; Dairy Farmers of America and Select Milk Producers is projected to process 8 million pounds of milk per day. The new facility, located in St. Johns, is expected to be online in 2020 and will include an additional $85 million whey processing plant operated by Iowa-based Proliant.

The cautious optimism surfacing is met with the realism of the effect of four-plus years of break-even or below cost prices for dairy farmers’ balance sheets. The individual structure, management and profitability of each dairy farm creates unique situations for each farm business. Working with our members during this period has allowed us to help owners evaluate their current and future profitability. As with any commodity business, producers must find a way to be a low-cost producer or differentiate their product to receive a premium for it.

Additionally, the use and development of accurate and detailed financial statements gives the best picture for current and projected profitability. Thorough record keeping including identifying current and projected income and expenses gives a more accurate financial picture than checkbook accounts or tax returns.

Careful analysis of financial records will enable farmers to identify necessary operational changes and potential opportunities. Understanding your historical performance will help to project your future results.

If you are considering implementing short-term changes, it is best to analyze how they will impact both your cash flow and profitability rather than making a quick decision that might not yield the desired results. When the market turns, these decisions can, and indeed should, be revisited with an eye toward achieving optimal returns in every market situation.

Dairy farmers should keep in close communication with their lenders and other trusted advisors. Often times solutions are more viable early than when the farm is in a critical stage.

We encourage our members to reach out to us to explore financing options. Having a long-term business plan in place will better equip you to discuss opportunities that may be available.

Beyond your lender, owners should call upon other trusted advisors—including key employees, vendors and financial advisors to discuss new ideas and possibilities to best manage through this cycle.

The good news is that all signs point to increased processing capacity coming soon to Michigan, where conditions are optimal to produce milk: ideal weather, abundant water and sufficient forage. Demand for dairy products continues to grow both domestically and globally.

Relative to other regions of the country, Michigan farmers are able to produce milk at a relatively low cost. When the market rebounds, we will be well-positioned to capitalize on new opportunities.

Parr is a Commercial Financial Services Officer with GreenStone Farm Credit Services.

 

 

Columnists

GreenStone FCS | April 24, 2018 

Cindy Birchmeier & Jennifer Whitford

 Herrygers_MFN_2018
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.

 

Columnists

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.

 

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Lights of hope for dairy producers

Dollars and Sense

GreenStone FCS | August 15, 2018 

Recent market upticks, along with new proposed dairy processing in Michigan, are signaling a new light of hope for dairy farmers as they battle through one of the longest downturns in dairy marketing in recent history.

Field Focus: August 15, 2018

It’s still too dry for most of your Field Focus reporters as we reach mid-August. But they remain optimistic and are looking forward to fall harvest right around the corner.

Field Focus: July 15, 2018

Dry and hot was a persistent theme identified by Michigan Farm News’s Field Focus reporters for the July 15 edition. By now the drought has ended in most of the state, but we’ll wait for the Aug. 15 report to see if conditions have changed enough to keep alive the optimism our seven reporters have displayed this year.

Field Focus - June 2018

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.

Field Focus - May 30, 2018

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.