Beat the blues of seasonal cash crunch
January can be a financially tough on the farm as the post-holiday crunch is a time of high expenses and tight income.
Holiday bills are arriving on top of operational expenses like heating and grain drying, livestock feed, seed and fertilizer.
For some, these statements come as grain remains unsold in the bin or still lying in fields.
Bridging the gap
Crop insurance can assist farmers with write-off crops, but plants that will still yield will have to be harvested before farmers can finalize their claims, notes Carol Kruck, BDO senior accountant.
If short on cash, farmer and chartered accountant Lance Stockbrugger strongly recommends the cash advance programs available to producers through commodity groups.
“Also get on top of the AgriStability filings and file an interim application to help get some funds as soon as possible,” Stockbrugger says.
The deadlines or criteria for AgriStability are different in all provinces, adds Kruck, and some deadlines for interim payments have passed. In those cases, farmers can only file the final application.
Stockbrugger says it’s also a good idea for producers to access the AgriInvest funds they might have saved up during better times.
Farmers concerned about their operational financial positions might be best served to meet with their lenders.
More choices exist than selling assets.
“Be frank about what your concerns are and work together with your lender to identify options that will work for your particular scenario,” says Sharon Ardron, a Manitoba Agriculture farm management specialist.
More choices exist than selling assets, such as land, equipment or inventory, she says.
“An option may be to term out trade credit, registering a mortgage to your land base instead of selling land and losing access to farm those acres,” Ardron says.
Also consider a temporary limit increase to the operating line of credit. And, if an operating line of credit was used to purchase equipment for harvest, it might be better to put that equipment cost on its own term repayment schedule, and restore the working capital to the business, Ardron suggests.
Other alternatives include interest-only debt repayments and stretching loan term to pay off outstanding principle. Ardron says farmers could restructure or refinance term debt to better manage cash flow.
She urges farmers to consult their advisors to consider all the potential consequences of pivotal business decisions before implementing any plans: “There may be better solutions than ones you have considered.”
The harsh financial realities of mid-winter can make bitter temperatures even colder, but lenders and advisors can help work through what for some is a challenging period. Tap in to crop insurance programs, experts say, and open the dialogue with lenders to discuss what options may work best in individual circumstances.
Article by: Richard Kamchen