GRAND FORKS — Farmers and ranchers need to push aside sentiment and emotion to make sound financial decisions, relying instead on discipline and sound tools, two extension specialists say.
“There’s probably more emotion in farming than other business. But it is a business, and you need to be disciplined when you make financial decisions,” said Nathan Hulinsky, a Marshall, Minn.-based educator with the University of Minnesota Extension.
He and Pauline Van Nurden, a Willmar, Minn.-based educator with the extension, spoke Wednesday at the annual Prairie Grains Conference in Grand Forks. They led a session on “Taking Charge of Your Finances: How to Survive & Thrive” even in tough financial conditions.
The two-day event, which ends today, normally attracts about 900 people. It crosses commodity and state lines, drawing people primarily from northeastern North Dakota and northwestern Minnesota — an area that was pounded by a winter storm this week.
Organizers decided to hold the event anyway, and attendance — scant Wednesday morning — picked up in the afternoon as travel conditions and roads improved, especially in rural areas.
More than 50 people, most of them relatively young farmers, attended the session on financial planning. It was billed as primarily for “the next generation” of producers. Most of the comments and questions at the session came from older producers.
Hulinsky and Van Nurden used material from the UM Extension’s Finpack, a comprehensive farm financial planning and analysis software package. The material features a hypothetical, but representative, Minnesota farm family that raises corn and soybean on 1,250 acres.
The family wants a $500,000 operating loan for 2017 — up from a 2016 operating loan of $125,000. It also wants to borrow $27,000 to buy a $30,000 roller: the family would put down 10 percent, or $3,000, of the purchase price. The family’s thinking is, a bigger operating loan would provide more breathing space in paying 2017 expenses and a roller would improve soybean yields. In the past, the family had a neighbor custom-roll its soybean ground.
Participants in the session were asked whether they would approve the loans if they were bankers.
Hulinsky and Van Nurden then led the participants through a series of exercises that determined the hypothetical family’s balance sheet and income statement, among other financial tools used by bankers.
“It all comes back to looking at these decisions from what makes financial sense, not what you’d like to do,” Hulinsky said.
The material has been used at previous educational events, and participating farmers typically have a mixed response to whether they would approve the hypothetical family’s loan requests, he said.
In some cases, the full $500,000 operating loan and the $27,000 roller loan are approved. In others, more than $375,000, but less than $500,000, is approved. Likewise, some participants approve the roller loan, while others do so only if the borrower will do custom-rolling with the equipment to cover part of its cost.
The participants, being mainly farmers, don't necessarily look at the loans the same way way bankers do, Hulinsky notes. But understanding and using the financial tools bankers utilize will help farmers and ranchers make better decisions, he said.