More in Finance

  • Jun 10, 2014

    Working capital: The shock absorber

    While 33% working capital to revenue is appropriate for cash grain and market livestock businesses because of significant inventory, is this level of working capital too aggressive for dairies, since milk inventory is picked up every day or every other day?...More
  • Mar 18, 2014

    Farm management, finances make difference in profit

    After analyzing a data summary of farmers in low, middle and high income brackets, David Kohl shares some core perspectives on asset turnover, coverage ratio and debt servicing ability and profit margins in agriculture....More
  • Mar 11, 2014

    3 Benchmarks farmers and lenders need to know

    There are three benchmarks every producer and lender needs to know when handling the moderating grain industry and the positive economics of the livestock sector: the current ratio, net working capital and working capital to gross revenue ratio....More
  • Dec 17, 2013

    Perspectives on Farm Finance: Part 1 1

    The great commodity super cycle has kicked in with high prices. However, the top 20% of producers have developed a total system of management which includes operations, risk management, finance and marketing....More
  • Dec 3, 2013

    Farm Balance Sheets: 2010s vs. 1980s

    The U.S. farm balance sheet from a debt and equity position is much stronger now than it was in the 1980s. The debt to asset ratio in the 1980s ranged from 20% to 24%, compared to 10% today. That being said, debt was dispersed over a larger number of producers in the prior periods....More
  • Nov 26, 2013

    Tips for high-quality balance sheets 31

    High-quality balance sheets initially can be difficult and time-consuming to prepare, particularly given all the livestock and crops involved in diversified and multi-entity operations, but if updated in a timely manner, they're a good financial management tool for farm operations....More
  • Nov 19, 2013

    Business tips for low-equity, young farmers: Part 2

    If you're a young, low-equity farmer, David Kohl recommends examining incentive programs specifically for beginning farmers, building capital when experiences are profitable and seek a relationship-based lender....More
  • Nov 12, 2013

    Business tips for low-equity, young farmers: Part 1

    What advice would you have for a low-equity young producer either launching or growing their business? This was a question from a group of 34 lenders representing nine states in our Farm Credit University blended course which includes online and face-to-face training. Dr. Alex White from Virginia Tech and I tag-teamed this challenge with rapid fire responses....More
  • Sep 17, 2013

    An Aussie’s view of financial, business benchmarking: Part 4: Liquidity

    Net working capital, measured by current assets minus current liabilities, is a measure of the current economic times in agriculture. To make it a relevant measure of liquidity, net working capital must then be divided by the business revenue. It is important to calculate this metric each year at the same time of year to maintain consistency....More
  • Sep 10, 2013

    An Aussie’s view of financial, business benchmarking: Part 3: Debt levels

    If you have been following this series of articles on financial and business benchmarking, you know benchmarking is one of the top-10 best management practices worldwide in farming and ranching. Richard Heath, an Australian farmer and farm management instructor at the University of Sydney in Australia, recommended this practice to a group of FFA New Century Farmers as he was helping me present at a leadership conference in Des Moines, Iowa, this summer. Now, let’s focus on debt levels to build upon the last two articles that justified the practice and discussed profit benchmarks....More
  • Jul 30, 2013

    Where is the Work in Working Capital? 10

    A producer from Ohio really challenged a young lender the other day. He stated, “You lenders and academics preach that I need working capital reserves. However, I cannot see how working capital really works for me.”...More
  • Jul 16, 2013

    Bankers’ Views: Part 2

    In the last column, discussion centered on bankers’ views on interest rates based upon seniors enrolled in the 64th annual session of the Graduate School of Banking at LSU. The consensus was that low interest rates and an accommodative Federal Reserve in the U.S. would remain until late 2014 and into 2015. Let’s examine additional questions that were asked of the seniors through anonymous “clicker” technology....More
  • Jul 9, 2013

    Bankers’ Views: Part 1

    Everyone is watching the U.S. Federal Reserve and the central banks of the world. The bankers were asked to provide their feedback on when there would be an increase in the fed funds rate. No bankers expected an increase in 2013; however, some indicated that tapering off of bond purchases and mortgage-backed security purchases could occur....More
  • Jun 25, 2013

    Family Living Costs Gone Wild? Part 2

    In the last article, discussion centered on farm family living cost trends based upon the family living data provided by Nebraska Farm Business, Inc. The average withdrawals now exceed $100,000, with over a $60,000 variation from the top third to the bottom third of producers in the database. The largest specific line item deviations from the high to low third are in cash donations, household supplies, recreation, repairs, life insurance and, yes, the “catch-all” miscellaneous category, which was two to five times greater for the group at the high end of the spectrum....More
  • Jun 18, 2013

    Family Living Costs Gone Wild? 7

    One of the major discussion points at ag lending and banking schools is the trend in family living costs and withdrawals from farm and ranch businesses. Some lenders say that their customers are living on $40,000/year, while others state that the living withdrawals have increased dramatically, particularly in the last five years with strong grain and commodity prices....More
  • Jun 4, 2013

    Criteria for Enduring the Commodity Super Cycle and Land Value Correction 3

    If a farm is profitable and the profits are allocated properly, all financial criteria on the farm and ranch business will improve. In recent years with the extensive appreciation of land values, some have ignored profitability, or it has become a secondary priority. This is particularly true with the “millionaires on paper” as a result of inflation that have never earned a dollar of profit....More
  • May 28, 2013

    How Long Will Federal Reserve Continue "Easy Money" Policy? 10

    The stock market recently bounced to a record high of 15,000. Central banks around the world are opening up the floodgates of stimulus. In my road warrior travels, I have noticed numerous people are concerned about how long the Federal Reserve will continue their “easy money” policy....More
  • May 21, 2013

    Perspectives on U.S. Farm Debt 386

    There is considerable discussion among agricultural economists and lenders concerning the status and trends of U.S. farm debt. Let’s dig deeper into the subject and provide perspective....More
  • May 7, 2013

    Financial Shock and Stress Testing 8

    The other day a young producer was concerned because he had difficulty obtaining his operating loan for yearly operations. He stated that the lender performed financial shock tests that raised concerns about his financial status. Let’s examine some of the financial shock tests that are top of mind with your lender, and particularly the regulators that provide oversight on agricultural loans....More
  • Oct 2, 2012

    Where is the Risk?

    Many of you have faced this summer’s drought and its implications. Of course, crop insurance was a key player in this year's economics, and some producers whose land received moisture at the proper times and proper levels benefited from solid yields at very strong prices. Land values and cash rents continue to rise as profit expectations are capitalized into land prices....More

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