Change in Farm Records: Lead, Follow or Get Out of the Way!
Last week I was in Omaha, NE, kicking off a 22-week training series for the Farm Service Agency as it computerizes its Farm Plan.
My parents were introduced to the written version of the Farm Plan in the late 1930s and early 1940s. They were one of the 4,000 original producers nationwide that were part of the new innovative Farm Plan that required extensive detailed records concerning the farm and personal family living withdrawals. As my parents often complained about those detailed records when I was a child, I now know why they graduated from FSA and were in business 30 years later. There is no substitute for good records.
The following are some of the changes I see occurring in record and financial systems as the era of farming and ranching changes. In the era from 1970-1985, loans were based on collateral and a signature, with minimal analysis. A producer was often sized up concerning management on production variables.
The era from 1985 to 2000, the farm crisis period, saw a movement in financial records to earnings, cash flow, and Farm Financial Standards. Later in the era, credit scoring, computer data analysis and differential analysis moved to the forefront. That is, small loans under $100,000 required only some quick minimal information to get you the loan. Larger, more risky loans required in-depth analysis.
What will record keeping and financial analysis systems look like in the 2000 to 2015 Era? First, expect production performance, yield and trace-back data to be linked to best management and marketing practices to evaluate financial performance.
The new Farm Plan will allow you to conduct sensitivity analysis on cash flow, earnings, liquidity, profits, and collateral. Enterprise analysis will not be an option, but a requirement, particularly as producers shift enterprises to seek higher margins in a globally competitive environment.
Databases and benchmarking will allow you to compare your soybeans or other operations and enterprises to those in South America, Canada or around the globe. Metrics and performance will be the yardsticks of success.
Maybe I am dreaming, but as the Farm Service Agency works with other agri-lenders in guaranteed lending and risk management programs, the bar will be raised.
It is dry in Western Kansas and Nebraska. The Platte River is at its lowest level. According to Elwyn Taylor, the famous meteorologist from Iowa State, this could be the sixth year of a 23-year drought period. Only time will tell!
Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist at Virginia Tech. He recently completed a sabbatical working with the Royal Bank of Canada. He is now back at Virginia Tech with his academic appointment, which is teaching, extension, and applied research.
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