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Corn+Soybean Digest

The Road Warrior of Agriculture

When It Is Not Feasible

An agri-lender recently commented that he noticed that some of his borrowers had large losses on row crop operations. These operations had diversified into poultry and swine to become more feasible.

He asked, “At what point do you stress to a borrower that his or her operation is not feasible?” This is an excellent question given the inflated input costs and stressed revenues that producers are currently facing as results of global competition.

First, I would request the assistance of an accountant or CPA to get the financial records in order. Cash to accrual analysis needs to be conducted to differentiate real losses from just cash deficits.

Next, an enterprise analysis needs to be developed on each crop or livestock enterprise to determine which ones are making or losing money. In this analysis, determine whether it is a trend or a one-year abnormality. Is the loss a result of external events, like weather, disease, or competition, or internal problems like mismanagement or ineffective marketing?

A sign of real problems is carryover of operating debt being refinanced every couple years. Increases in credit card debt and accounts payable are sure signs of deteriorating financial status. Late real estate or income taxes and over seven different sources of credit can be an indicator of “robbing Peter to pay Paul.”

In today’s world of high cash rents and land values in large businesses it does not take long to come out on the negative side of the ledger.

My e-mail address is:sullylab@vt.edu

Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.

To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.

This online exclusive is brought to you by The Corn and Soybean Digest

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