Lines of credit: Management tool for economic environment

Bob PanzerBy Bob Panzer, Risk Management Officer

Today’s farm price environment requires changes in how business will be conducted compared to the past few years of higher commodity prices.

For several years producers enjoyed some stronger profit margins and in many cases large amounts of working capital funds were built up. Larger amounts of working capital funds allowed for producers to pay cash for many inputs such as seed, fuel, fertilizer and other required inputs. Several producers had excess working capital that was used to purchase equipment, buildings, trucks and other capital items.

Today many producers are in need of funds to purchase inputs and find working capital funds to be low. This is when lines of credit come into place as a credit tool to move forward with the business plan. There are many types of lines of credit and many thoughts on how to manage them. Typical lines are declining balance, revolving lines, vendor credit lines and capital lines.

Declining lines are often used for crop input loans. A set amount of funds is approved and disbursed as inputs are purchased. The line of credit is paid back at crop sale time, or with dairy producers, monthly payments are made to repay the loan.

Revolving lines are funded for a set amount and funds are drawn out when needed and repaid when funds become available for repayment. The borrower then can redraw funds as needed. Revolving lines of credit are a great tool but often lead to issues down the road.

Man with Blue Tractor

Too often the loan funds are not paid back and the loan balance becomes a permanent balance. This becomes an issue at loan renewal time, and the lender and borrower begin to work to resolve the issue. Some lenders do require the revolving loan to be fully paid once a year. This requirement allows for better management of the loan and less likelihood of resolving a loan balance at renewal.

Vendor lines of credit is one other example of lines of credit. Often vendors such as supply cooperatives will give terms of 30 or 60 days to customers to pay a bill in full. When commodity prices drop, some producers will abuse vendor credit policies and not repay a vendor in the required time frame. This can lead to disputes, being cut off of supplies, legal actions and credit scores being damaged. Vendor lines of credit are not long-term lives of credit and often carry high interest rates.

Lines of credit are great tools for a business. But they need to be managed with thoughts of repayment and how to carry out a plan of repayment. In the consumer world there are credit cards and homeowner equity lines of credit. We have all experienced the pain when too many individuals get caught up in an environment of overextension of credit lines to consumers. This same environment can occur in the business world.

A plan for repayment for a credit line is a must and needs to be put into practice. Abuse of credit lines can harm the future of a business.

Other lines of credit to consider are capital lines of credit and emergency lines of credit. Capital lines could be established for replacement dairy animals or for farm equipment. In the past I have worked with several dairy managers who used capital lines to purchase cattle and then used the sale of culled animals or bull calf sales to repay the capital line.

It may now be a good time to consider the idea of establishing emergency lines of credit to use for only the times when working capital may come under pressure from low commodity prices. A suggestion may be $450 per dairy cow as a target number and that borrowers should be willing to pay a lender for setting up a line of credit that the producer would hope to never have to use.

*This article originally appeared in the Fond du Lac Reporter on July 11, 2015. Bob Panzer recently joined our team in the risk management department.*

Mai Lee joins UNITED FCS

Contact: Lynda Hauge, HR Director
United FCS
(320) 214-5007

July 23, 2015 – Mai Lee recently joined United FCS as an Application Specialist in the Wausau Office. As a member of the Information Technology Team, she is responsible for developing and modifying software solutions for the association.

Lee is attending Northcentral Technical College to earn a Software Development degree. Mai has been an intern at United FCS for the past 7 months, assisting in the Tax and IT departments.

United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 employees.

Does your operation have enough liquidity?

By Jeff Schmidt, chief credit officer

This topic has been discussed in articles in farm periodicals and posts over the last few weeks, given the downturn that has occurred in different agricultural commodity markets the past year. Many producers will look at their unit’s equity position to assess their financial standing but will neglect to look at their working capital or liquidity position.

Grandpa on laptop

Working capital is defined as current assets, which are assets likely to be turned to cash in the next 12 months, minus current liabilities that are to be paid within the next 12 months. If you have current assets of $500,000 and current liabilities of $250,000, you have $250,000 of working capital.

We sometimes hear, “Why do I need working capital?” or that working capital is lazy equity. Working capital allows an operation to survive unprofitable periods when income levels are not high enough to cover all expenses – both family living and lender payments. Working capital is commonly measured as a percent of gross income or on a per unit basis, such as working capital/cow or working capital/crop acre. General benchmarks that we use, depending on the farming enterprise, are 10 to 20 percent working capital/gross income, minimum working capital/crop acre of $200 and working capital/cow of $400.

To answer the question, “Does my operation have enough liquidity?” you need to be able to look at either your cash flow or projection and determine if you have an operating cash flow shortage or projected loss. If you do, you then can look at the shortage and divide your working capital by the loss to determine your “burn rate” (how quickly your working capital will be used up).

If you have a loss of $100,000 and a current working capital of $250,000, your current burn rate is two and a half years. If you are fortunate to be operating at profitable levels you can still calculate a burn rate by comparing your working capital to the level of schedule term payments (principal and interest) due in the next 12 months. Generally, an operation should strive to have a burn rate greater than three years.

United FCS is working with producers to rebalance their operation’s working capital needs in the challenging environments that they face. We encourage you to complete a 2015 cash flow, or projection, for your operation to find where you are at. We recommend you speak with your local financial services officer this summer or early fall to review your 2015 projection, and discuss if your operation has enough liquidity to get through the next couple of years, and if not, what options are available to increase your liquidity.

United on Ag: The beginning of a blogging era

It is official, United FCS has joined the world of blogging with our brand new digital venture, United on Ag! The world in which we now live is becoming more connected by the second, thanks to the progress of technology. Now someone in rural Minnesota or Wisconsin can post an article on the Internet from their smartphone, allowing people from all over the world to read and respond.

home-mobile-image

Being member-focused, we are always looking for the best ways of connecting with those we serve and the general public. We want to act as a resource to help keep you informed on anything from the happenings of our association to major stories around agriculture.

Within this blog you’ll find a diversity of content. Sure, there might be a quite a few financial-related topics, but we also might lighten the mood every once in a while with a cute baby animal story – like the time our Marshfield office saved seven baby ducks using a Shop-Vac!

Communication, though, is not always a one-way street. We invite you to interact with us. We have made it a priority to become more sociable online. With that said you can now like us on Facebook; follow us on Twitter; connect with us on LinkedIn; watch us on YouTube; and hangout with us on Google Plus!

If you have a story suggestion, or have always wanted a question answered about agriculture, be sure to reach out to us. United FCS is blessed to have a large team of experienced professionals, covering all sectors of agriculture, on-hand and ready to help out.

You will find all our United on Ag blog posts under the “news” tab on our website – www.unitedfcs.com.

We hope you join us in this new era of blogging. Thank you for your continuing support!

United FCS Awards $12,000 in Scholarships

CONTACT:
Jennifer Condon
jennifer.condon@unitedfcs.com
320.593.7953, ext. 3012

Willmar, Minn. – In a continuing effort to support youth in local communities we serve, United FCS is awarding 24 scholarships to students from area schools. Each scholarship is worth $500, bringing the total awarded in 2015 to $12,000.

Minnesota recipients include: Wyatt Kaping, Litchfield, MN; Blake Trygestad, Madison, MN; Karson Lindblad, Dawson, MN; Haley Przymus, Ivanhoe, MN; Brent Wiering, Tyler, MN; Cody Johnson, Hector, MN; Samantha Payne, DeGraff, MN; Dana Elliot, Sacred Heart, MN; Daniel Roker, Bird Island, MN; Alison Krieger, Kerkhoven, MN; Anthony Bosch, Montevideo, MN; and Amber Willis, Willmar, MN.

Wisconsin recipients include: Tristan Gardner, Pittsville, WI; Ashley Breu, Auburndale, WI; Derrick Bizer, Medford, WI; Aaron Leiby, Dorchester, WI; Sabrina Bunkelman, Athens, WI; Madeline Brandl, Rosholt, WI; Lucas Hanneman, Edgar, WI; Teressa Baumann, Wausau, WI; Brett Breitenfeldt, Wausau, WI; Tosha Schreiber, Gleason, WI; Kolton Kaduce, Owen, WI; and Julie Benzschawel, Withee, WI.

Scholarships from United FCS are awarded to graduating high school students enrolled at an institution of higher education. To qualify, applicant’s parents, or the student, must be a United FCS customer with a GPA of 3.0 or better. In addition, the applicant must reside in a county served by United FCS. Selection criteria are based on academic aptitude, vocational promise, personal attributes and leadership qualities.

Scholarship Collage

About United FCS:

United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 locally-based employees. For additional information on United FCS, visit www.unitedfcs.com.

Megan Altermatt joins UNITED FCS

Contact: Lynda Hauge, HR Director
United FCS
(320) 214-5007

Megan AltermattMarch 10, 2015 – Megan Altermatt recently joined United FCS as a Customer Service Representative (CSR) in the Litchfield Office. As a CSR, she will provide first-contact customer service to customers, along with providing administrative support to all members of the retail delivery team.

Altermatt graduated with a Bachelor’s degree in Business Management from Southwest Minnesota State University in Marshall. She has experience in the agriculture industry providing customer service, home loan processing and loan documentation. Megan and her family reside in Spicer.

United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 Billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through twelve branch office locations and 194 employees.

2014 Patronage Day

Infographic 3United FCS will be celebrating Patronage Day by hosting open house events at each of our 12 locations on Tuesday, February 24th. Join us from 10 a.m. to 3 p.m. at your local United FCS office as we distribute cash patronage checks to qualifying member-owners! Pie and light refreshments will be served.

2014 marks the thirteenth consecutive year that the Association has distributed money back to our member-owners, returning $6 million this year.  Since 2002, over $72 million has been given back.

All remaining checks not picked up on Patronage Day will be mailed out Monday, March 2nd.

We hope to see you Tuesday, February 24th!

Farm Credit Organizations Proud to Support the 10th Annual Immigrant and Minority Farmers Conference

Annual event for new and aspiring farmers to take place this Saturday and Sunday in St. Paul

St. Paul, Minn. – Three Farm Credit organizations in Minnesota have joined together to support the 10th Annual Immigrant and Minority Farmers Conference (IMFC) to be held this Saturday and Sunday, February 7 and 8, at the University of Minnesota Continuing Education and Conference Center in St. Paul, Minnesota.

Agricultural lenders AgStar Financial Services and United FCS joined AgriBank, their St. Paul, Minn.-based funding bank, in sponsoring the two-day event designed to support new and aspiring farmers and their contributions to building an adequate supply of local foods, local economic development and healthy communities.

“There are a lot of barriers facing farmers trying to get their start,” said Bill York, AgriBank CEO. “Efforts like these that share information and create connections for fledgling farmers are an important way to fulfill Farm Credit’s mission to support all agriculture.”

“Agstar’s committed to promoting opportunities for immigrant farmers,” said Sai Thao, emerging agribusiness officer, AgStar. “We believe these entrepreneurs serve as important role models for their communities and provide fresh and healthy foods to local consumers.”

Hosted by a collaborative of farmers, volunteers, and government, nonprofit, and University of Minnesota personnel, the conference provides education and resources to small-farm operators, and fosters relationships between farmers and community partners. The event is free for farmers, and language interpretation is available in Spanish, Hmong, Karen, Bhutanese and Somali.

“Immigrants and minorities have always played a vital role in Midwestern agriculture,” said United FCS CEO Marc Knisely. “It is important to the future of ag that we help support and educate new entrants, particularly those that participate in local food systems.”

More than 12 different workshops featuring experienced farmers and professionals will cover topics essential to successful farming and vegetable production. Past workshops have included topics such as understanding the rules and regulations that govern the production and sale of food and flowers, marketing concepts and practical skills, critical but basic recordkeeping, modern farm practices, food safety for specialty crop farmers, soil health and USDA programs that can improve and strengthen farms.

ABOUT AGRIBANK
AgriBank is one of the largest banks within the national Farm Credit System, with more than $90 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. About half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.

ABOUT AGSTAR
AgStar Financial Services, ACA, headquartered in Mankato, Minn., employs more than 600 full-time team members. The company is part of the national Farm Credit System and has a public mission to serve 69 counties in Minnesota and northwest Wisconsin. AgStar’s industry specialization, client segments and market delivery systems result in diversification nationwide. The company has expertise in the corn, soybean, swine, and dairy and bio-energy industries. AgStar has developed successful programs in loans, leases, rural community development, crop insurance, consulting and rural home mortgages. As a value-added financial services cooperative, AgStar allocates patronage dividends to its 15,000 stockholders. The company is also committed to giving back to rural residents, organizations and communities through AgStar’s Fund for Rural America. Visit www.AgStar.com.

ABOUT UNITED FCS
United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 locally-based employees. For additional information on United FCS, visit www.unitedfcs.com.

For more information and to register for the conference visit: http://www.imfconference.org/.

Media Contacts
Krystal Ohlhaber, AgStar, Krystal.ohlhaber@agstar.com, 507-923-5903
Adam Ulbricht, United FCS, Adam.ulbricht@unitedfcs.com, Office: 320.214.5076, Cell: 320.249.5577 Kirstin Brost Grantham, AgriBank, Kirstin.Grantham@AgriBank.com, 612-547-6397

United FCS to give back $6 million in cash patronage to members

FOR IMMEDIATE RELEASE

CONTACT:
Adam Ulbricht

adam.ulbricht@unitedfcs.com
320.214.5076

Infographic 3Willmar, Minn. – Following another strong year, United FCS will be sharing $6 million with its member-owners in the form of cash patronage. Although some agricultural industries faced greater adversity last year, the Association was able to continue its success.

2014 marks the thirteenth consecutive year United FCS has distributed cash patronage to members. Since 2002, over $72 million has been returned.

“United FCS is a member-driven organization,” said Brad Sunderland, chairperson of the Board of Directors. “It is important to our mission that we give back and pay tribute to our members for their continued support of our association. Our cash patronage program is just one example of the way we are accomplishing that mission.”

“I am pleased with our ability to give back to those which we proudly serve,” said United FCS CEO Marc Knisely. “Producers across several agricultural sectors were presented with great challenges last year. As we enter into a time of readjusting markets in 2015, we will continue to focus on ways in which the Association can fulfill our brand promise of devoting ourselves to the success of our members and the rural communities of Minnesota and Wisconsin.”

Members will be able to pick up patronage checks from their local branch office during an association-wide open house event, scheduled for Tuesday, Feb. 24.

 

About United FCS:

United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 locally-based employees. For additional information on United FCS, visit www.unitedfcs.com.

Farmshed project receives $30,000 donation from Farm Credit Organizations

The donation will go towards heating revitalized greenhouses

farmshed-smStevens Point, Wis., Jan. 15, 2015 – New high-efficiency natural gas heaters will soon be installed as part of the Greenhouse Project by the Central Rivers Farmshed, thanks to a $30,000 donation from United FCS, the top provider of agricultural loans in West Central Minnesota and Central Wisconsin, and AgriBank, its St. Paul, Minn.-based funding bank.

Two greenhouses, totaling 7,000-square-feet, were once the site of a garden center, but fell into disarray from years of vacancy. Farmshed volunteers restored the structure with an aim of converting it into a production facility.

“We believe, as a farmer-owned cooperative, it is important to support local food system initiatives that are inclusive of all aspects of agriculture,” said Marc Knisely, CEO of United FCS. “This project will be a benefit to our members and the people of Central Wisconsin. Local food efforts like this are a great way to educate the public about food production and build successful relationships between producers and consumers.”

“Farmshed is grateful for the support of United FCS and AgriBank to heat the greenhouses at our community food center, located right in the heart of downtown Stevens Point,” said Central Rivers Farmshed Executive Director Layne Cozzolino. “Each passing year, the interest in local foods continues to expand and Farmshed is excited to find partners willing to support models that aid in rebuilding those relationships between communities and producers who are growing their food.  Together, we will create opportunities that build upon and strengthen the local food system in Central Wisconsin.”

Future project plans call for a USDA-approved commercial kitchen to be installed. An additional building on the property will house a learning center and gathering space for local producers.

“Over the last few years, hundreds of volunteers have come together to transform this property,” said Bill York, CEO of AgriBank. From home gardeners to large operators, people have always been passionate about growing food and feeding their communities. For nearly 100 years, Farm Credit has shared that passion with our mission to support American agriculture.”

Outside of the new Greenhouse Project, the Farmshed hosts a number of other community agriculture efforts such as a farm-to-school program, sustainable agriculture education events and the annual Local Food Fair.

About United FCS:
United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 locally-based employees. For additional information on United FCS, visit www.unitedfcs.com.

About AgriBank:
AgriBank is one of the largest banks within the national Farm Credit System, with more than $90 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area stretching from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.

About Central Rivers Farmshed:
Central Rivers Farmshed is a 501c3 nonprofit organization representing all aspects of the food system whose members are committed to making Central Wisconsin a renowned, local food community. Farmshed’s mission is to expand the connection between local residents and their food by providing opportunities for participation, education, cooperation, and action to support a local food economy in Central Wisconsin.