Farmers everywhere are looking to sharpen their pencil. Freddie Barnard, Professor Emeritus in the Department of Agricultural Economics at Purdue, has some tips on how to measure and analyze financial performance of your farm during these challenging economic times. In his presentation at the First Farmers Bank and Trust Agricultural Summit last week, Barnard said the agricultural lending environment has changed. “We had a tremendous upswing in commodity prices from 2006-2013. We got into a situation that we had quite a bit of good net farm income. To offset the tax implications of that, we bought a lot of equipment. Now that commodity prices have turned down, you make the payment on principal on term debt out of net and we don’t have the net now to do it.”
Barnard says the best place to start measuring and analyzing your farm’s performance is to know where you’re at as it relates to earnings. “Calculate net farm income on accrual adjusted basis. That means that you’re going to take the beginning inventories receivables and payables and the ending ones, take that difference and then adjust your cash. So, I would start with knowing where I’m at. Then after doing that, do the analysis on what areas to change to improve.”
Barnard also told the crowd to find and use the resources available to farmers, most of which are free. Many of those resources are available from land grant universities, like Purdue. “There are spreadsheets out there for cash flow, for balance sheets, for calculating deferred taxes. If somebody wants to sell something, what would be the deferred tax liability. There are spreadsheets to compare different rental arrangements as well as buying capital assets.”
Barnard referenced this spreadsheet from the Purdue Agricultural Economics department during his presentation. It allows you to convert your Schedule F information into accrual adjustments. The First Farmers Bank and Trust Agricultural Summit was held January 23 at the Ross-Ade Stadium Pavilion & Event Center.