Hoosier Ag Today and Farm Credit Mid-America present another edition of Financially Speaking, an informational series to help you better manage your farms finances. Evan Hahn, with Farm Credit Mid-America, says figuring your farm’s working capital will give you a clear picture of what your profit picture looks like this growing season, “Working capital is the financial indicator to measure an operations assets and liabilities over a production cycle.” He added this measure does not indicate an operation’s long term sustainability but can be very valuable in making that assessment.
The extreme market volatility we have seen determining the value grain you have on hand or plan to sell this fall may make estimating your working capital difficult. “It can be challenging for customers and at times for us as we look at a balance sheet,” Hahn states. “We encourage farmers to use realistic prices. There is always a high and a low in the market and not everybody hits that high or low. Just be realistic when you are determining the value of your assets or inventories you have on hand.”
Hahn says your working capital analysis will help you what you need to do to set up your operation to survive long term, “Ideally we would like to see farms with enough working capital to withstand multiple years of loss, but as a bare minimum we want an operation to be able to cover at least one year of loss.” For many producers, this year may be that year. Thus, figuring your working capital will help you position your operation for sustainability in 2017 and 2018. If you run your working capital report and don’t like the numbers you see, Hahn says, “Come in and see us, and we will work with you and offer some recommendations.”
For more financial resources and recommendations, visit https://e-farmcredit.com/home?utm_expid=86039745-7.1MQDQqTiQrSURlsUHHHlvQ.0