What is in this article?:
- "Debt-to-asset ratio is one of the keys if not the key indicator we need to look at. We need to come up with a farm plan to generate profits, and profit is yield times price minus cost. Then, we need to look at financial indicators at the end of the year and, hopefully, they’re better than where you started.”
The interaction of farm planning and financing is a concept that’s too often overlooked by growers, but it’s one that can help you reach your goals over time, says Marshall Lamb, research director with the National Peanut Research Laboratory in Dawson, Ga.
“Too many farmers do not plan on where they’re going,” says Lamb.
“We do this in our lab with several hundred growers each year, developing their farm plans so they can go to the bank, and it’s just as important as putting a seed in the ground.”
Too many growers, he says, remember their yields from two, even three years ago, but they don’t remember their debt-to-asset ratio.
“Ultimately, if you want to reach your goals, you need to know your financial progress as well,” says Lamb.
Goals for farm plans must be measurable, he says, and they must be made with the right intent so that growers ultimately can achieve their goals.
These are good times in agriculturally financially,” says Lamb. “U.S. net cash farm income was $59,000 in 2009. In 2010, it grew to $79,000, and it’s forecast in 2011 at roughly $80,000. These are good times mainly because we have good prices.”
By seeing hundreds of farm plans each year, Lamb says he has learned the difference between growers who are doing things right and those who are making mistakes.
“Debt-to-asset ratio is one of the keys if not the key indicator we need to look at,” he says. “We need to come up with a farm plan to generate profits, and profit is yield times price minus cost. Then, we need to look at financial indicators at the end of the year and, hopefully, they’re better than where you started.”
But farm planning and farming is much more difficult than typical business planning and running a business, he says.
“The reason for this is the close connection between environmental and biological processes, some of which are outside the direct control of the farmer, but yet they can directly impact the economic performance of the farm.”
Also, he adds, farmers buy retail and sell wholesale. “You’re told what you’re going to pay for your inputs and you’re told what you’ll get for your outputs, and you’re getting squeezed on both ends. The result is that your profit margins become tight.”