Clark: Finance should be top
As young and beginning producers look into starting their own operation, Farm Credit Services of America (FCSA) Financial Officer Esther Clark says that the financial piece must be considered.
“There are a number of places that young farmers and ranchers can go if they are just getting started,” Clark says.
A number of organizations have programs for young and beginning farmers, including programs that are typically administered by the Farm Bill.
Clark points out that FCSA has a young and beginning farmer and rancher program for qualified producers.
“To qualify, applicants must be 35 years old or younger and have not had their own operation for more than 10 years,” she says. “Our young and beginning program is set up so we can work with people who don’t meet the standard equity ratios we normally require when financing an agriculture operation, including owner’s equity and the current ratio.
“However, operations still have to be able to cash flow,” she adds. “We will work with projections for upcoming years to determine repayment capacity and offer interest rate reductions for qualified applicants.”
Other programs help to provide discounts for land purchases.
“One of the most important things for young people is understanding costs,” says Clark. “Along with that is making good, solid projections.”
In looking forward, Clark encourages young producers to err on the side of caution, utilizing conservative prices and being realistic.
“We have to be realistic in the price of calves and how many we are going to sell each fall,” she explains. “Don’t expect a 100 percent calf crop. We have to be realistic.”
Realistic projects are rooted in understanding the expenses that will occur.
As a beginning producer, understanding and mitigating risk is also important.
“In the farming and ranching industry, there is always adversity, and we need to prepare for whatever might happen,” Clark comments. “Whether we look at price risk, drought, weather or mortality risks, we need to determine if there is anything that can be done to mitigate those risks.”
By conservatively projecting and utilizing options such as livestock risk protection or crop insurance, Clark notes that risks can be managed.
“If young people understand the risks and look for ways to mitigate them, as well as develop a good solid understanding of their costs, that will help their bottom line and working capital,” she says. “Having a positive working capital is very important and is a sign of liquidity.”
“It is really helpful to utilize whatever resources are available,” says Clark.
By talking to others in the industry and relying on their expertise, she says that beginning farmers and ranchers can glean more information.
“The more knowledge young people can gain, the better off they will be in the end,” she adds. “Utilize whatever resources are available.”
Importance of finances
“Finances are really important,” Clark notes. “There are a lot of people who want to borrow lots of money to buy a big ranch and jump into it headfirst. Sometimes that works out.”
However, she adds that the best avenue may be to start small and work into a larger operation.
“Producers really need to understand what they are doing financially,” Clark comments. “If it doesn’t work financially, no matter how hard young producers work, it won’t work.”
This is the third article in a series of articles detailing steps that young and beginning producers can take to get started on their own farm or ranch. For more information, Clark can be reached at 307-577-4700 or contact your lender.