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Build a strong farm financial plan

Nutrien Financial expert shares top tips for young producers.

Sarah McNaughton

January 17, 2024

5 Min Read
bag of money in front of a field of crops
BUILD FINANCES IN 2024: Young and beginning farmers have to take a slightly different approach to financial wellness than those in more established operations. Hollie Rudy from Nutrien Financial shares tips for young producers with Dakota Farmer.Andrii Yalanskyi/getty images

For young and beginning producers, the journey to financial well-being may look a little different than their parents’. Hollie Rudy, territory sales manager for Nutrien Financial sits down with Dakota Farmer to share advice for young producers wanting to better their finances in 2024.

How can young producers ensure strong buying power for land, equipment and large purchases amid the current interest rates? Operating costs, including the cost to borrow money, are higher now than we’ve seen in recent times, but there are still plenty of opportunities for young farmers to create financial stability so that they can make those big-ticket purchases without too much heartburn.

Access to capital is typically a big hurdle for younger growers, so it’s important to focus on capital management strategies. If you’re still establishing your operation, consider all the options when it comes to how you pay for expenses. This can help you preserve cash and afford some financial flexibility when it comes time to invest in your operation.

Most people zero in on interest rates, but dig a little deeper to make sure you’re evaluating your true spending, which includes product costs and the cost of interest. Young farmers should consider the differences between a variable- or fixed-rate loan. In a declining rate environment, a variable rate might make sense for your operation, but pay attention to market trends and be prepared to convert to a fixed rate if necessary.

A fixed-rate loan offers the security of a consistent interest rate for the entire borrowing period. This can provide greater budget certainty and could be a better choice, especially if you don’t have the time or energy to monitor the markets closely.

Another benefit of utilizing financing programs to pay for operational needs is cash preservation. There are many financing options available, including specific programs designed to complement your operating line of credit. Strategic use of financing will enable you to keep more cash on hand, which can be helpful for younger growers who probably don’t have a wide financial safety net. This cash gives you more options when the unexpected happens and strengthens buying power.

Lastly, don’t overlook the basics when it comes to managing farm finances. Young growers need to be proactive in managing credit use, monitoring credit reports, avoiding late payments and being careful not to overextend. Having a clean credit report signals to lenders that your financial character is sound. This may help you afford a better rate on those bigger purchases, which in turn creates beneficial savings to lessen the financial burden of those investments.

Where can producers look to find options to cut costs in their operating budget? Research the most economical ways to pay for things needed and review those options regularly. Credit card rewards might sound great, but are they benefiting your organization in the long term?

Plenty of growers still operate in a cash-based environment, but those growers might miss out on opportunities to take advantage of cost savings. For example, if you use all your cash to pay operating costs, you might be forced to finance at a higher interest rate when you unexpectedly find yourself needing to buy a new piece of equipment.

This scenario exemplifies how strategic use of credit can help you manage costs, and why it’s advantageous to keep an eye out for promotional interest rates when they are available so you can keep some cash intact.

In the current market, where interest rates have been rising steadily over the last few years, your interest expenses can fluctuate quite a bit. You can better manage those expenses by taking advantage of promotional financing that a retailer might offer. Take a hypothetical example of a grower who is managing a $50,000 budget for each of the following three inputs over the same financing period. A financing package might look like this: 

  • seed at 1.9% annual percentage rate 

  • crop Protection at 2.9% APR 

  • fall applied fertilizer at 9% APR 

If this grower used their operating line of credit to pay for these products, they would end up paying significantly more in interest year over year as market rates range from 8.25% to 11.5% APR. The other option, which offers an advantage in terms of lower overall interest expense, would be for the grower to consider using a blended rate approach. In that scenario, the grower finances the purchase of all three products and brings their effective interest rate down to 4.6% APR. 

What extra financial work may need to be done to expand farm operations in 2024? Growers are managing many different variables. It’s easy to overlook how everything connects. It’s not necessarily extra work, but it does aid profitability to ensure your crop plan and your financial plan are in lockstep so you can see how different scenarios are going to affect your bottom line and proactively make adjustments. Young growers will also have more success advancing their operations if they understand their cash flow needs and align those to their crop plans.

This time of year, growers are actively planning ahead. Beyond what the 2024 crop plan looks like, you should also be thinking about your tax position and working with an accountant to maximize tax deductions. Look at weather considerations and grain contracts when you are evaluating income. Can you project any harvest income, analyze depreciation, consider tax rate, consider investments back into the operation or prepay for supplies you’ll need next year?

These are all areas of farm management that, with a little extra attention now, can have a positive impact on your financial success going into the new year.

What is the best advice you can give young farmers to start their operation off with a strong financial background? Research, and constantly reassess your capital management strategy, which means thinking about where loans, leases or cash makes the most financial sense. Other tips to consider:

  • When financing, look for terms that align with your cash flow expectations to enhance the likelihood that you’ll be able to make a timely payment and build your credit profile.

  • Challenge yourself to question how every dollar is going to be best spent. This includes your personal living expenses.

  • Recognize there’s the real possibility that you’re going to need off-farm income, especially in the beginning stages of establishing an operation. Having additional cash flow could translate to getting access to capital that you need to establish or grow your operation and might result in better interest rates.

  • Lastly, take advantage of training programs and mentors who will help improve your understanding of the economic and financial health of your operation.

Read more about:

Farm Finances

About the Author(s)

Sarah McNaughton

Editor, Dakota Farmer, Farm Progress

Sarah McNaughton of Bismarck, N.D., has been editor of Dakota Farmer since 2021. Before working at Farm Progress, she was an NDSU 4-H Extension agent in Cass County, N.D. Prior to that, she was a farm and ranch reporter at KFGO Radio in Fargo.

McNaughton is a graduate of North Dakota State University, with a bachelor’s degree in ag communications and a master’s in Extension education and youth development.

She is involved in agriculture in both her professional and personal life, as a member of North Dakota Agri-Women, Agriculture Communicators Network Sigma Alpha Professional Agriculture Sorority Alumni and Professional Women in Agri-business. As a life-long 4-H’er, she is a regular volunteer for North Dakota 4-H programs and events.

In her free time, she is an avid backpacker and hiker, and can be found most summer weekends at rodeos around the Midwest.

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