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Time for a farm financial checkup

While the final numbers on this year’s harvest won’t be in for a few weeks, it is worthwhile to start thinking about the financial state of your operation post-harvest or roundup.

Commodity prices are very volatile and expenses are trending upwards because of a weaker Canadian dollar. Severe weather may have reduced your margins. Issues with delivery or shipping could cut your cash flow. If you end up in any of those situations, there are some things you can do.

Farm finance quick test

Start with your current ratio: your crop and input inventory (accurately valued) and cash divided by your accounts receivable, your operating loans, advances and your principal payments on debt coming due within the next year.

If this ratio is 1.5 to one or greater, you probably can focus on other things for the short term. If the ratio is under 1.5 to one, you should probably be concerned about how things will look for the winter. If the ratio is below one to one, you should be taking steps to make sure your farm survives to the next growing season.

You may also want to look at your debt service requirement. This is the total of your principal and interest payments that are due in the coming year, expressed in cost of production per unit.

As example: if you have a 2,000-acre farm with $600,000 of debt, with a debt service cost of $80,000 principal/year plus interest at five per cent, your debt service requirement per acre is $80,000 (principal) plus $30,000 (interest) equals $110,000, divided by 2,000 (acres), equals $55 per acre.

This number can be used to quickly gauge if your yield-price combination will be enough to pay the input costs and make your payments.

Talk to your lenders

Proactive, regular contact with your lenders is an important part of farming. Lenders consider themselves as partners in your operation and will usually work at maintaining a relationship with you. You should view things the same way.

As a farm manager, keeping your lenders up to date with what is happening on your farm is very important, especially when things may be tightening up in cash flow or profitability.

With proper lead time, most lenders will try to work with you to maintain a manageable cash flow and keep your farm moving forward.

Other sources of financial help and information

MAFRD farm enterprise specialists are located throughout the province and have the expertise and tools to help you analyze your farm finances and put together a plan to move forward. Visit the website for the specialist closest to you.

The Manitoba Farm Industry Board is in place to assist Manitoba farmers in financial difficulty. One of its mandates is to provide mediation as an alternative to legal action by creditors. The board has financial advisers who can work directly with farmers. Call 204-945-0357 for more information.

Farm Debt Mediation Services is a Canada-wide service for farmers. Its activity is governed by the Farm Debt Mediation Act, which protects farmers against foreclosure. This service has financial advisers who can work directly with farmers. Visit for more information.

Greg Fedak, Sharon Ardron, and Bob Gwyer are MAFRD business development specialists.

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