The week of June 10, Farm Journal is celebrating the next generation of American agriculture. Our goal is to encourage you to plan for the future and cultivate multigenerational success through the transfer of skills and knowledge. Think tomorrow, act today to align your asset, resource and financial legacy.
Alan Hoskins is the president and national sales director for American Farm Mortgage and Financial Services. As a lender, next-generation farmers grace his office in search of financial assistance. In his words, here’s Hoskins advice for a long, financially sound career.
When it comes to finances, what should be top of mind for next-generation farmers?
Learn the difference between Schedule F profit or loss versus accrued adjusted net income or loss. According to Purdue University, evidence shows accrual accounting provides a more accurate estimate of annual farm profitability compared with cash accounting or Schedule F net farm profit. For example, I saw an 81.90% difference between Schedule F versus accrual adjusted figures for a customer relative to the 2023 crop year.
Develop a process to understand breakeven price per bushel for each crop grown. Much is said, as it should be, about developing a dynamic marketing plan. In my opinion, the bedrock of any marketing plan is knowing what prices are needed to result in a profit.
Create one-, five- and 10-year written goals for your operation. I realize this can sound daunting, especially for a young producer. Remember, the purpose of this action is not to achieve perfection in writing the plan, but rather develop a roadmap to help ensure you are staying on the correct track to achieve your goals.
Find a banker who supports you. When speaking with a banker for the first time, remember you are interviewing the banker in the same respect they are determining their ability to work with you. In my opinion, the most important part of the relationship is the “fit” between the people, not the review of a financial statement or tax return. The latter is certainly important, but I do not believe it should be the determining factor of where business is transacted.
What role can mentors play in the success of next-generation farmers?
Develop mentor relationships, both professional and personal. We all have times as we go through life where we need the counsel of a wise and trusted individual. It’s never too late to start that process, but beginning early in a career allows for those relationships to grow and strengthen, thereby making them even more valuable.
Be willing to mentor others regardless of career stage. Remember, we can, and should, always learn from others. Those later in their careers also need the perspective of someone starting out. This can help them remember there are always new ways to approach existing issues.
What should a next-generation farmer consider this year given current prices and interest rates? Are there lessons from the past?
Closely monitor your financials throughout the year. The crop year projections are not something to be completed at the beginning of the year and then forgotten. Monitor and update them at least quarterly but preferably monthly to help ensure opportunities or challenges that might come into play throughout the year are recognized and dealt with accordingly.
Seek out producers who went through what would seem to be unimaginable challenges in the 1980s (20% interest rates, agricultural bank failures, etc.) and persevered. Ask them about their mindset and how they approached daily life as a farmer during that time. There is great wisdom to be harvested. I can say with certainty there will not be a repeat of the exact circumstances in the 1980s. However, understanding the mindset that helped others work through their challenges will indeed be beneficial in dealing with agriculture’s future challenges.
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