Your Farm’s Immediate Future - Think About It!

The ongoing dry weather conditions are affecting both livestock and crop producers across the province. It is important to start thinking about how your operation might look going into seeding next spring.

If you aren't paying attention to your marketing plan, or don't have one, you may find yourself with a reduced margin. If severe weather has affected your farm this year, your yields may be negatively impacted and you may end up wtih a reduced margin, and reduced cash flow. If you end up in any of those situations, there are some things you can do to help yourself.

Farm Finance Quick Test

Start with your Current Ratio: your crop and input inventory (accurately valued) and cash and accounts receivable divided by your accounts payables, your operating loans, advances and your principal payments on debt coming due within the next year.
If this ratio is 1.5 to one or greater, you probably can focus on other things for the short-term. If the ratio is under 1.5 to one, you should probably be concerned about how things will look for the winter. If the ratio is below one-to-one, you should be taking steps to make sure your farm survives to the next growing season.
You may also want to look at your debt service requirement. This is the total of your principal and interest payments that are due in the coming year, expressed in cost of production per unit. As example: if you have a 2,000 acre farm with $600,000 of debt, with a debt service cost of $80,000 principal/year plus interest at five per cent, your debt service requirement per acre is $80,000 (principal) + $30,000 (interest) = $110,000, divided by 2000 (acres), equals $55 per acre.
This number can be used to quickly gauge if your yield/price combination will be enough to pay the input costs and make your payments.


Talk to Your Lenders

Proactive, regular contact with your lenders is another important part of farming. Lenders consider themselves as partners in your operation and will usually work at maintaining a relationship with you. You should view things the same way. As a farm manager, keeping your lenders up to date with what is happening on your farm is very important, especially when things may be tightening up in cash flow or profitability. With proper lead time, most lenders will try to work with you to maintain a manageable cash flow and keep your farm moving forward.

Other Sources of Financial Help and Information

Farm Debt Mediation Services is a Canada-wide service for farmers. Its activity is governed by the Farm Debt Mediation Act, which protects farmers against foreclosure. This service has financial advisors who can work directly with farmers to resolve issues with their creditors. Visit Agriculture and Agri-Food Canada | Agriculture and Agri-Food Canada (AAFC) for more information.