cancel
Showing results for 
Search instead for 
Did you mean: 
Highlighted
Honored Advisor

Reality Speaks, reality bites

On the "other site" there`s a poster "Reality Speaks" who`s a ag banker and gives insight to the financial health of his customers.  Very interesting, talking about the decline and denial of the loss of working capital on the farm.  A friend of mine vehemently declares that 2014 was the best year of his life farming, after that he`s been in that "denial" about "it`ll be about like last year"...a no, sorry it won`t.   In `14 he sold calves for +$1800/ea, he`s always a bear in the grain markets so sells early and got >$4 for corn.   Lately there hasn`t been those opportunities and tulip mania has tamed down in the feeder market.  The last couple years have caught up with him and me and many of us.

My "come to Jesus" happened in 2013, the foot of snow May 2nd and prevent plant, I knew if you get a crop insurance claim that the next year`ll be a lean one...and it was and tighter every year.  A few years ago Nox wrote about using accrual instead of cash accounting and that does make a good point, accrual shows better where you`re headed.  cash helps you on taxes. 

I`m not ambitious enough to do extra accounting, however my conservative ways does have me in a hillbilly form of accrual accounting.  I pay and prepay my land tax, then I buy next years seed, fertilizer, chemicals, ect ..I get all the stuff I need to farm the next year out of the way, then if there`s money left I go to farm sales   Smiley Happy

See, the "Canary in my coal mine" croaked a couple years before most everyone elses.  The `Hakuna Matata` cash accounting had a guy borrowing a bigger operating note every year silently getting in deeper.  

I`ve changed things from off farm income, get rid of cattle and actually sell hay and this is my second year of not getting a operating note.   The operating note is a killer, I had a smart guy tell be "never borrow money to put in a crop! Only borrow for land and machinery" and the more I think about it, that was good advice that I should`ve taken 6,8 years sooner.  

here`s accrual accounting:

https://www.investopedia.com/ask/answers/09/accrual-accounting.asp  

The advantage of the accrual method is that it includes accounts receivables and payables and, as a result, is a more accurate picture of the profitability of a company, particularly in the long term. The reason for this is that the accrual method records all revenues when they are earned and all expenses when they are incurred.  

 

Here is Reality Speaks:

https://talk.newagtalk.com/forums/thread-view.asp?tid=901769&mid=7999329#M7999329  

 

..Ag Lenders faced with customers whose last five years of earnings are insufficient to support current debt payment let alone the loss that needs to be amortized, Negative Working capital, Customers still want to extend and pretend vs. making some strategic asset selling decisions Most Ag lenders themselves are in denial as well. IE yes he lost a lot of money in 2019 but he will be profitable going forward because he is going to magically reduce his operating expense ratio from the average of the last 5 years prior to 2019 of 89% to 74% and his family living needs will only be $30,000/yr(Farmer Mac guideline) when we have been given documentation that it was over $100,00 last year .The Healthcare premiums are eating up $20,000/yr.+ for a lot of operators that don’t get coverage from the spouse’s off farm job.

Yes there are operations that are financially solid with good equity and solid working capital (working capital exceeds yearly gross sales), Yes they continue to be profitable but its a lot less than last year. These operations are rather rare too. Most acres operated by the operations described above....

3 Replies
Highlighted
Senior Advisor

Re: Reality Speaks, reality bites

In  other  words ,  using  a  chart,  showing  it  takes  twice  as  many  $850.oo  calves  to  by  that  Denali  ''  farm  pickup '' in 2019   vs.   2014  , would  that  be  accurate  - ? 

Then, although  the  meat  counter  at  HiVEE  prices  are  stable,  same level as  2014 ,   seems  to  offer  little  comfort  - ?   

0 Kudos
Highlighted
Honored Advisor

Re: Reality Speaks, reality bites

K-289, those cow/calf guys in `14 thought they were financial genius` I would rather sell a $1800 calf than have to buy one and try to make money.  Have a pen or 8 of them things and a plane hits a building or a cow frothing at the mouth and walking funny on the evening news and your finished cattle wouldn`t bring half what you paid for the feeder.

It didn`t last...Duh.

0 Kudos
Highlighted
Senior Advisor

Re: Reality Speaks, reality bites

Maybe  the  packing  plants  should  have  fire  - sprinkler  systems,  so  they  don't  have  a  slaughter,  of  the  wholesale  markets  after  an  incident  - ? 

 Then  again,  how  much  did  the  event  cost  them   OR  profit  them  -  ? 

0 Kudos