Ben Franklin said, “...in this world nothing can be said to be certain, except death and taxes.” True, but we might offer one addition specific to farming: ups and downs.
In farming especially, so many things are out of your control: Markets, weather, supply chain challenges and more can set your crop season on a rough course. With so many variables at play, ensuring your continued profitability requires a different way of managing risk and securing financing - a different way of thinking altogether.
Essentially, you need to ask yourself if you’re setting yourself up for success or failure. But, more than that, what’s the end goal? Surviving or thriving? Status quo or growth?
It’s a Game of 20 - or 100 - Questions
Growing a farm business can be a complicated venture. The questions that need to be asked and answered include everything from big picture items to tedious tidbits.
Is this the best time? Should we try to buy or rent farm ground? Can we bring family members back into the business without changing our management style or operations? Do we need to expand into new segments of the industry? Are there ways we can increase efficiency? And, of course, many, many more.
And while finding the answers to these questions is important, likely the most important questions - and corresponding answers - relate to a farm’s financial health: What are our true costs and profit potential and are we working with the right team to help us manage both?
Find the Right Lender to Help Your Farming Operation Grow
Partnering with the right people, especially when it comes to your operating loan, can make a world of difference as you manage or expand your farm business.
Assuming you have a goal in mind, taking a hard look at your true cost of capital is a great place to start when considering farm expansion. After that, it’s time to take a look at your interest rate and cash flow needs.
But, perhaps the most difficult item to ascertain is whether or not your lender is really in it for the right reasons. Are they going to focus on your hard assets or are they ready to pitch in and let you ask, “What if?”
Want to Rent More Farm Ground? Master the Farming Cash Rent Economy
You’ve got a lender; now it’s time to decide if you’re going to buy or rent ground to expand your farming operation.
For some, the answer to that question is simple: Land is a finite resource so buying isn’t always an option. But that doesn’t mean that expansion is out of the question.
Today, often the easiest way to obtain more ground and bolster the bottom line is by cash renting farm ground. In fact, 75% of very large farms — farms with more than 2,000 acres — rent land, and that rented land accounts for 66% of the land they farm. Similarly, 87% of large farms — farms with between 1,000 and 1,999 acres — rent land, and that rented land accounts for 50% of the land they operate.1 But, of course, cash renting comes with its own set of complications - and rewards.
Timing is Everything in Farming, Including When it Comes to Borrow Cash
It may seem strange, especially when most farm operating loans are signed after the first of the year and even well into spring, but when you borrow farm operating capital matters - and it matters in a big way.
Borrowing farm operating capital early - in late summer or early fall of the preceding year - means more than just getting a jump on your financial planning for the upcoming crop year. In fact, it can mean significant savings on inputs and increased cash flow throughout the year.
Partnering With an Expansion-Minded Lender
Finding the right lender for your farming operation can open a number of doors when it comes to expanding. Sometimes, it just takes a lender who lets you ask, “What if.”
For Matt Falk of Homestead Family Farms in Kentucky, FarmOp Capital is that lender.
FarmOp Capital offers ag operating loans based more so on a farmer’s ability to grow a successful crop, rather than hard assets. That’s what led Matt to switch from a big bank to FarmOp Capital for Homestead Family Farm’s operating financing.
“We were a rapidly growing farming operation and didn't have a big real estate base to lend against,” Falk said. “We were outgrowing the box in which big banks look at loan relationships.”
For farms that rent more acres than they own, this scenario may sound familiar. But that doesn’t deter FarmOp Capital from building a relationship and working with those farms to fill their operating loan needs.
We’re ready to answer all your “What Ifs?” Click here to receive a personalized Quick Quote from FarmOp Capital.