Producers turn their eyes to 2023

By Kyle Kuphal

With the harvest now complete, many farmers are reviewing how 2022 went and starting to make plans for 2023. As part of that process, many farmers meet with agricultural lenders.

Brad Bruxvoort, chief credit officer and market president at First State Bank Southwest in Pipestone, referred to this time as “renewal season,” when the bank renews producers’ lines of credit.

“We review financial statements and project their borrowing needs based on cash flow projections for the next year,” Bruxvoort said.

Bruxvoort said he sends letters to producers with the previous year’s financial statements around this time and the producers update the information and sends it back. He said it’s very important to look at the financials before the start of the next season and compared the financial review to an annual checkup.

“The numbers tell us if an operation has been profitable,” he said.

If the numbers don’t look good, Bruxvoort said, the financial review can provide an idea of what happened and what needs to be fixed. Maybe the food ration was changed, fertilizer was changed, a new marketing plan was implemented or the operation was expanded and it affected profitability.

“All these things come into play,” Bruxvoort said.

He said each operation is unique and requires case-by-case individual attention, but that bankers use financial bench marks to monitor whether anything is out of line with averages.

Kent Vander Lugt, senior vice president at First Bank and Trust in Pipestone, said tax planning is also done between now and the end of the year. That includes deciding when to pay for some of next year’s inputs – such as seed, fertilizer and chemicals — and make equipment purchases based upon the tax impact.

“A lot of guys have in their mind, on some of the inputs, what they want to do,” Vander Lugt said. “They might pay now or they might pay right after the first of the year, depending on their tax planning.”

As a whole, those in the business said this was a good year for producers. Yields were all over the board, but commodity prices are strong.

At the same time, input costs are much higher than usual. Equipments costs and interest rates are also higher than they have been recently. The increasing interest rates reduce purchasing power and will make a big difference if a producer has to borrow money for land or equipment.

“Unfortunately for them, if they’re borrowing money, interest expense is going to be a bigger deal next year than it was this past year,” Vander Lugt said.

Bruxvoort said the increased costs of doing business mean break even points are generally higher, which is something he advises producers to consider when making any decisions.

Vander Lugt said lenders also look at historical data to see how decisions would likely impact the operation in the future. He said farmers are calling now to look at input costs for next year and get their lender’s opinions.

Post harvest is not the only time bankers interact with producers. They meet with them at various points of the year to do financial analysis, prepare financial statements, do cash flow planning and make site visits to see how the growing season is going.

Vander Lugt said farmers today are handling larger amounts of money than ever before and that agriculture is a large part of the rural economy.

“As a bank probably, on the lending side, 65 to 70 percent of our business is ag-related,” he said.

The bankers said their overall role is to help farmers identify threats, manage risk and be successful.

“We look at helping them manage risk the best that they can,” Vander Lugt said. “They have to make the final decision, but sometimes it’s just helping them make the decision.”

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