Moneywise: A Succession Plan for Your Lender

July 27, 2011 06:46 AM
 

Producers who are bringing a son or daughter into the operation need to build a succession plan with their lender, says Matt McNamara, product marketing manager for John Deere Financial, who spoke at the 2011 Top Producer Summer Seminar.

"If a parent is exiting the operation and there is an opportunity to put loans in the heir’s name and place the parent as co-signer, do this right away," McNamara encourages. "This helps transition some of the debt obligation but builds a history with the lender."

For young producers, McNamara suggests the following tips for building credit:

  • Secure life insurance coverage for your operation’s loans.
  • Chart one-, three- and five-year plans for your business and keep your lender informed.
  • Have professional financials, including an income statement with a detailed, realistic balance sheet.

—Jeanne Bernick


The Impact of Cutting Direct Payments

At first glance, cutting direct payments to farmers appears to save $4.9 billion per year in the federal budget. However, cutting that USDA program could boost farmer participation in ACRE (Average Crop Revenue Election), a program that offsets losses in farm income.

"Much of the budget savings from cutting direct payments could be offset by sharp increases in ACRE program expenditures," says Patrick Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri.

If there is no increase in ACRE participation from the current 14% of base acres, farm program net outlays would be cut $47.1 billion from fiscal year 2012 to 2021. In contrast, if all producers rush into ACRE when direct payments are cut, federal outlays would fall only $18.9 billion.

Depending on ACRE enrollment, net farm income could drop $1.9 billion to $3.2 billion per year. Farmland values would decline an average of 1.8% to 2.7% compared to the baseline.

"ACRE payments are most likely to offset lost direct payments for soybean growers and least likely for cotton growers," Westhoff says.

—Ed Clark


Welcome Our New Business and Issues Editor

EdClarkEd Clark joined Farm Journal Media this spring as Business and Issues Editor for Top Producer and Farm Journal. Ed has a long-term commitment to agricultural journalism, having spent his varied career as an editor, writer and freelancer. Preparing him for these roles were his journalism studies at Iowa State University as well as postgraduate studies in economics at the University
of Minnesota.

Ed grew up on a farm near Winterset, Iowa, but now lives in Minneapolis, Minn. Feel free to reach out to him with story ideas, comments or questions at eclark@farmjournal.com.

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