Ten tactics to face farm financial issues

Melissa O'Rourke image

Contributed by Melissa O’Rourke, B.S., M.A., J.D. Farm and Agribusiness Management Specialist, Iowa State University Extension and Outreach, morourke@iastate.edu

The farm economy is cyclical in nature, and in recent years has been impacted by one crisis after another. Agricultural credit conditions are described as having an overall decline which deepened in the first quarter of 2020 after some signs of improvement in the fourth quarter of last year. On the ISU Extension and Outreach Farm Management team, we hear from farmers and agricultural lenders about rising debt levels, cash flow issues and farm financial stress. 

Farm financial stress can generally be thought of as an inability to meet debt service payments – both principal and interest. The severity of the financial stress depends on the debt level, interest rates (cost of the debt), and the farm income available for debt service. In recent years, low interest rates and sufficient farm income have kept financial stress at bay for many operations. Nevertheless, we continue to hear from producers and lenders about elevated levels of financial stress on the farm.

Confronting a tough financial situation is a challenge for anyone. It’s not unusual for producers to procrastinate and avoid facing the problem. Just hoping things will get better is not a solution – but many folks do not know where to start.

Following are several suggested actions to get started in figuring out how to proceed. This list of tactics to consider are not necessarily in a particular order – but presented as possible approaches to move forward and address the problems, depending on the farm business and family circumstances.

Tactic One: Seek support for stress management

Financial difficulties can cause significant emotional stress. Start by talking to someone. Do not be embarrassed to reach out to family members, friends, or professionals who can just listen. A good place to start may be the Iowa Concern Hotline via the website (which includes e-mail or chat) or the toll-free number: 1-800-447-1985. Since 1985, the Iowa Concern Hotline has been available 24/7 with trained counselors who can provide access to an attorney for legal education, stress counselors, information and referral services for a wide variety of topics.

Tactic Two: Gather debt and income information. 

While good accounting would direct us all to have current financial documents – starting with a balance sheet (or net worth statement) and income statement – folks who are facing strained finances may have avoided record-keeping tasks. Start by gathering all debt information – both for the farm as well as personal debt (vehicles, credit cards, personal spending). It’s useful to have an online or computer-based accounting system, but do not hesitate to get back on track with a pad of paper or the back of a pizza box. Write it down – balance owed, to whom, and when the next payment is due (monthly, quarterly, annually) and the payment amount. After starting this process, explore the financial planning resources available on the Ag Decision Maker website. Guidance is available on how to build financial statements, including information on understanding and building net worth statements (the balance sheet) and farm income statements

Next, estimate available expected income during the next twelve-month period. Again, include all possible income from on-farm and off-farm sources.

Part of this information gathering should include collecting any written communication or notices that may have been received from lenders. The act of compiling this financial data is a first step in facing the extent of the problems faced. Defining the problem may help stimulate ideas for solutions. And, to get help from advisors, a fairly-accurate picture will be necessary. 

Tactic Three: Evaluate the assets

Again, an updated balance sheet would enumerate and place values on current, intermediate and long-term assets. But think about assets that may not appear on the balance sheet. Go over the most current balance sheet available, and add any assets that might not appear there. Include farm and personal assets. Are there items of equipment no longer needed? Is there a motor home no longer in use? Is there a land parcel that is no longer an essential part of the farm operation? Make conservative, best estimates of the value, and consider whether the asset could be used to generate cash.

Tactic Four: Outline possible plans, identify advisors

Have a personal brainstorming session. This is not intended to be a final, detailed plan, but an outline of possible strategies going forward. To assist, think about who might be able to help identify strategies. This might be the farm bookkeeper, accountant, tax or other financial advisor, a personal lawyer, an insurance professional – someone that can help with financial troubleshooting to focus on where solutions may lie. There may be other respected people with good judgment and a set of clear eyes who could give a fresh perspective on the operation. These are the kinds of people to sit down with, talk things through, and see what ideas might arise. 

Tactic Five: Cash generation and belt tightening

Basically, financial problems arise when income exceeds expenses – due to an assortment of causes. Contemplate assets which could be used to generate cash, either through sale or lease—but remember there may be tax consequences of selling depreciated assets. Is there custom work or other services that would raise some income? Explore off-farm employment of one or more household members. Consider both farm business and personal or family-living expenses. Eliminate or reduce discretionary spending. Medical insurance is a significant expense which may be decreased via off-farm employment. Ideas on how to stretch cash flow can be found on the Ag Decision Maker website.

Tactic Six: In-depth farm financial analysis

Iowa State University Extension and Outreach offers a free farm financial planning and analysis program. This service consists of confidential financial counseling, a computerized analysis of the farm business, and possible referral to other useful programs or services. The program uses FINPACK software to provide a more complete picture of the farm’s financial situation. An in-depth plan with options helps a farm operator work with lenders to make decisions for the future. Trained extension associates meet with farm operators to discuss the results of the analysis as well as the impacts of possible changes. The service is offered at no charge. 

Tactic Seven: Communicate with bankers, lenders, creditors

Avoidance is not a winning strategy, and it’s common for those facing financial stress to sidestep those to whom money is owed. Make a list of set times to visit in-person about the situation. Bring along the data that has been gathered – accompanied by an outline of proposals to address the problems. Before the meeting, review guidelines of good communication skills. If communication has become strained, consider bringing along one of the other advisors or professionals that may have assisted in brainstorming or analyzing the situation. A third party may be able to serve in a facilitation role, at least to take some of the stress out of the conversation. As part of the communication process, openly share ideas for cash generation or expense reduction. There is the possibility some aspects of the farm operations have become unprofitable and should be eliminated. Talk about ideas for debt restructure – perhaps debts that could be consolidated, or stretched out to reduce payments.  In this regard, it may be worthwhile to talk to other lenders who might have a different view of the future potential of the farm business.

Tactic Eight: Professional advice on debt restructure or bankruptcy

Depending on a wide range of factors, it may be wise to seek professional advice on the need for debt restructuring. Iowa State University’s Center for Ag Law and Taxation (CALT) provides a number of resources and articles that can facilitate the thought process. In particular, there is an article on how to find an attorney who has expertise in this field and can provide solid advice on next steps.  

Tactic Nine: Explore mediation services

Mediation is a process where parties meet with a neutral third-party who assists in identifying solutions to a problem or dispute. Information is available about agricultural mediation services at the CALT website, including a video about how mediation works. In Iowa, mediation may be a voluntary process – but it may also be mandatory. Iowa Mediation Service is a non-profit organization founded in 1985 and dedicated to solutions for farmers, families, and anyone who may find themselves in need of a dispute resolution expert. There is even a short video that explains agricultural mediation services. If the farm’s financial situation has reached a point where professional mediation services are needed, this is an excellent resource available to Iowa farmers.

Tactic Ten:  Contemplate retirement or liquidation

For some folks – depending on age, health, family situation, and many other circumstances – it may be time to consider retirement or partial to full liquidation. Retirement from farming can lead to a new phase of life which could result in new accomplishments. Lessons learned in farming can be a basis for new experiences. While some approach retirement or liquidation with apprehension and a sense of uncertainty, many later report a feeling of relief and freedom to move on to other opportunities and interests. Of course, it is important to consult with a range of advisors regarding tax consequences and obtain guidance on managing future life plans.

In summary, these tactics are offered to provide possible actions for farm families facing financial issues. Consider each action and move forward. Most importantly, avoid isolation at times of stress and work to surround yourself with people who can listen and perhaps provide encouragement or assistance.

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How to streamline your CFAP application

Alejandro Plastina

Contributed by Alejandro Plastina, Extension Economist, Assistant Professor, plastina@iastate.edu

If you are a farmer or rancher who faced price declines and additional marketing costs due to COVID-19, you have until August 28, 2020 to file for the Coronavirus Food Assistance Program (CFAP) with your local USDA Farm Service Agency (FSA) office.

The CFAP application form AD-3114 is available online for producers who prefer to fill it out manually. However, according to the Paperwork Reduction Act, filling out the AD-3114 form is estimated to take one hour per response. In order to streamline the CFAP application in times of social distancing and phased reopening of businesses, the USDA has published a CFAP Payment Calculator that serves multiple purposes:

  • helps producers organize the information needed to apply for CFAP;
  • informs producers of the initial payment and the potential for subsequent payments;
  • automatically populates a printable version of the AD-3114 form; and
  • saves in-person or on-the-phone consultations with FSA staff.

This article provides a step-by-step guide to using USDA’s CFAP Payment Calculator. You will need a computer with internet access and spreadsheet software. In order to print the completed AD-3114 form, you will also need a printer connected to the computer.

Follow these steps to calculate your CFAP payment and print the AD-3114 form:

  1. Download the CFAP Calculator and save it to your computer.
  2. Open the Calculator from the saved location. A message highlighted in yellow might appear at the top of the spreadsheet asking your permission to “Enable Editing.” Press the gray button with the legend “Enable Editing” to operate the spreadsheet.
Excel bar for "enable editing"

  1. If a message highlighted in red appears at the top of your screen indicating “Blocked Content”, then proceed as described in Step 4. If no such message appears, go to Step 5.
Excel bar for "Macros warning"
  1. Close the file in the spreadsheet software. To allow your computer to run the program embedded in the Calculator (called “Macros”), use the Windows File Explorer (PC computer) or Finder (Mac computer) to browse to the saved file in your computer, click the second mouse button on the file name to access its Properties, locate the “Unblock” option at the bottom, check the Unblock box, and press OK. Then open the file in the spreadsheet software and click on the “Enable Editing” button. The Calculator should be operational.
  2. The spreadsheet is organized into 5 tabs, but you will enter data only on the “Data Entry” tab, and only in the cells highlighted in light-yellow. You only need to fill out the sections relevant to your operation: Dairy, Non-Specialty Crops, Livestock, Aquaculture/Nursery, and Specialty Crops.
  3. Fill out the top section with State, County, Name, and Address.
  4. If you produced Dairy in 2020, fill out Part 1: enter the total pounds of production, including any dumped milk, in January, February, and March 2020. If you do not produce Dairy, leave Part 1 blank.
  5. If you produced corn, soybeans, oats, or other Non-Specialty Crops (including Wool) in 2019, fill out Part 2: in each row, select a crop from the drop-down menu; enter the 2019 total production across all your farms; and the 2019 total production not sold as of January 15, 2020. If your crop is not listed in the drop-down menu of Part 2, then see if it is listed in the drop-down menu of Part 5. If your crop is not listed in Parts 2 or 5, then it is not eligible for CFAP. If you did not produce Non-Specialty Crops in 2019, leave Part 2 blank.
  6. If you owned Livestock in 2020, fill out Part 3: in each row, select a livestock category; enter the total sales between January 15, 2020, and April 15, 2020 for owned inventory as of January 15, 2020, including any sales of offspring from owned inventory; and the highest inventory between April 16, 2020, and May 14, 2020. If you did not own livestock in 2020, leave Part 3 blank. 
  7. If you were an Aquaculture/Nursery farmer in 2020, fill out Part 4: in each row, enter the name of the commodity that suffered value loss; the total value of sales from all farms between January 15, 2020 and April 15, 2020; and the total value of marketable inventory from all farms as of April 15, 2020. Note that reported losses in Part 4 are not included in the Calculated Initial Payment reported by this Calculator.  USDA is continuing to review data associated with the impact of COVID-19 on value loss crops. Specific value loss crops that meet the eligibility criteria will be identified in the future. If you were not an aquaculture/nursery farmer in 2020, leave Part 4 blank.
  8. If you produced Specialty Crops in 2020, fill out Part 5: in each row, select a crop from the drop-down menu; enter the total value of production sold between January 15, 2020, and April 15, 2020; the total volume of production shipped but not sold between January 15, 2020 and April 15, 2020; and the total acres with production not shipped or sold between January 15, 2020 and April 15, 2020. If your crop is not listed in the drop-down menu of Part 5, then see if it is listed in the drop-down menu of Part 2. If your crop is not listed in Parts 2 or 5, then it is not eligible for CFAP. If you did not produce Specialty Crops in 2020, leave Part 5 blank.
  9. If the CFAP application is for a corporation, a limited liability company, or a limited partnership seeking an increase in the per-person payment limitation, fill out Part 6: enter the names of members/partners or stockholders who provide 400 hours or more of active personal labor or active personal management, or combination thereof, to the farming operation. If 2 or 3 members of the corporation, LLC, or LP are listed in Part 6, the payment limit will be increased from $250,000 to $500,000 or $750,000, respectively. If the application is not for a corporation, LLC, or LP, leave Part 6 blank.
  10. Revise for completeness and correct any mistakes. Check for typos, and make sure you are not leaving out any eligible commodity in the Data Entry tab.
  11. Check your Calculated Initial Payment by clicking on the orange button “GO TO ESTIMATED PAYMENT REPORT” in the top left part of the Data Entry tab. This action will take you to the tab called “ECPR”, and the Calculated Initial Payment amount will appear in the box at the top of the tab. The Calculated Initial Payment equals 80% of the Estimated Gross Payment before limitations and other reductions. For aquaculture/nursery farmers, the Calculated Initial Payment does not include value losses reported in Part 4 (see Step 10).
  12. Your Initial Payment will be the lesser of the Calculated Initial Payment or $200,000 per individual (equivalent to 80% of the $250,000 payment limit per individual). For corporations, limited liability companies, and limited partnerships, the limit is 80% of the payment limitation calculated in Step 12. You can print the calculations in the “ECPR” tab by clicking on the red button at the top of the tab called “PRINT ECPR.” Go back to the “Data Entry” tab by clicking on the blue button at the top called “GO TO DATA ENTRY”.
  13. Save the file for future reference: go to File menu in your spreadsheet software, and select the Save command.
  14. Print the AD-3114 form by clicking on the yellow button “PRINT AD-3114” in the top left part of the “Data Entry” tab. Depending on the number of eligible commodities you produced, some of your commodities might not show up in the printed AD-3114 form. In that case, click on the light-orange button “PRINT AD-3114 Continuation.” Revise the print out for accuracy, sign, and submit the CFAP application to your local FSA Office.

Any part of your Calculated Initial Payment (see Step 14) below 80% of your payment limit and above Your Initial Payment (see Step 15) might trigger subsequent payments at a later date.

Note that the present article was developed for USDA’s CFAP Payment Calculator Version 1, last accessed on May 29, 2020. The USDA might update the Calculator without prior notice and render some or all parts of this information outdated.

For more information on CFAP, visit https://www.farmers.gov/cfap.

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Coronavirus Food Assistance Program (CFAP) enrollment

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu

Steve Johnson, headshot

The USDA announced the producer signup for the Coronavirus Food Assistance Program (CFAP) allocated by Congress through the CARES Act that will begin on Tuesday, May 26, 2020. That enrollment will be through your local Farm Service Agency (FSA) office with additional CFAP details and the enrollment process at https://www.farmers.gov/cfap.

The $16 billion available for CFAP includes direct relief for farmers, with $9.6 billion for the livestock industry ($5.1 billion for cattle, $2.9 billion for dairy, and $1.6 billion for hogs). It has $3.9 billion for row crop producers, $2.1 billion for specialty crop producers, and $500 million for other crops.

USDA officials are urging farmers to begin the paperwork process using an online calculator available once sign-up begins. These payments will be coupled with actual production and based on losses due to price declines and supply chain disruptions from COVID-19. To qualify for a payment, a commodity must have declined in price by at least 5% between January and April 2020.

Producers will be paid based on inventory subject to price risk held as of Jan. 15, 2020. A single payment will be made based on 50% of a producer’s 2019 total production or the 2019 inventory still not sold as of Jan. 15, 2020, whichever is smaller. This amount for each crop will be multiplied by 50% and then multiplied by the commodity’s applicable payment rates featured below:

CFAP Payment Rates by Commodity

CommodityUnit of MeasureCARES Act Payment RateCCC Payment Rate
Cornbushel$0.32$0.35
Soybeansbushel$0.45$0.50
See all non-specialty crop rates.

Producers must provide the following information as a part of their CFAP application:

  • Total 2019 production for the commodity that suffered a 5% or more price decline, and
  • Total 2019 production that wasn’t sold as of Jan. 15, 2020.

This video demonstrates how the new CFAP application form can be downloaded, completed, signed, dated, and then mailed or e-mailed to your local FSA office.

Producers should make an extra copy of this completed CFAP application form for their records. Attach any proof of how you determined the 2019 total production by crop and the 2019 production that was “not sold” as of Jan. 15, 2020.

The CFAP program will be open to all producers, regardless of commodity or size. Some farmers may not have traditionally worked regularly with FSA. Once signup begins, some producers may want to contact their local FSA office to schedule an appointment. In that case, FSA staff will help those producers complete portions of form CCC-902 Farm Operating Plan. Other forms will also be needed to apply for CFAP, although if you’ve dealt with FSA before, it’s likely they already have these on file.

These forms include:

  • CCC-901—Identifies members of a farm that is a legal entity. Member information will be completed by legal entities and joint organizations to collect member names, addresses, tax ID numbers, and citizenship status.
  • CCC-941—Reports your average adjusted gross income for programs where income restrictions apply.
  • CCC-942—This certification reports income from farming, ranching, and forestry for those exceeding the adjusted gross income limitation.
  • AD-1026—Ensures compliance with highly erodible land conservation and wetland conservation.
  • AD-2047—Provides basic customer contact information.
  • SF-3881—Collects your banking information to allow USDA to make payments to you via direct deposit.

More information will be available on the Ag Decision Maker blog as details on CFAP are released.

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Plan how best to work with your local FSA office

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu

Steve Johnson, headshot

The ongoing COVID-19 situation has changed the way your local USDA Farm Service Agency (FSA) office is conducting business with producers this spring. Local FSA offices are currently using alternative methods to provide service and ensure compliance with FSA provisions. Appointments can be made by phone, mail, or e-mail – rather than face-to-face interactions. Once producers have completed planting their 2020 spring crops, they should contact the local FSA office to obtain their certification maps to complete the annual acreage certification process.

The following is a 4-step process provided by a county FSA office in Iowa to their producers for completing their 2020 acreage report:

  1. Your local FSA office can provide farm/tract maps upon your request. They can provide them through the mail or e-mail. Once received, write in a legible pen what crop is planted in each field, including hay ground, grassed waterways, terraces, CRP, etc. and the approximate acreage amounts in those areas. 
  2. Next enter the planting date for each field below the crop type.
  3. If the producer shares the crop with another producer(s); list each individual/entity and their respective share of the crop. The total of listed shares must equal 100%.
  4. If the producer is unable to legibly write the crop, planting date, acres and producer shares (if necessary); then provide a sheet of paper along with the map that lists the field number, the crop, date planted, acres and shares.

Once you have all the acreage on your tract maps accounted for, contact your local FSA office to schedule a phone appointment to go through your maps. This can be handled in one of two ways:

Option 1) You may return your completed maps to the county office for loading into the crop certification software via mail, e-mail, fax, or the drop box located outside your local FSA office.

Option 2) FSA staff can contact you and go through your maps over the phone together. This includes FSA updating your crops/dates/acres/shares and entering them into the crop certification software and allowing you to provide any other pertinent information.

In either case, you will subsequently receive the printed acreage form for your signature in the mail or via e-mail. Indicate to FSA your preference when contacted. Then return your signed FSA Form 578 via mail, e-mail, fax or drop box located at your local FSA office. The deadline is July 15, 2020 for filing this form .

Producers should plan to keep good records at planting each year and file a timely FSA Form 578. Annually these records include the date, the crop and acres planted, and producer shares along with the reference to the farm number. Do not forget you will need to include hay ground, grassed waterways, terraces, CRP, etc.

Filing an accurate and timely acreage report for all crops and land is important. This report is an essential part of determining your eligibility for critical programs, including crop insurance, price support, disaster relief and conservation programs.

Remember, both the FSA office and your crop insurance agent will need accurate planting information and your signature when you complete the acreage certification FSA Form 578. The planted acres on this form are verification for your crop insurance agent in determining your 2020 crop insurance coverage, and thus your final premium to be paid this fall.

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April’s USDA WASDE and Export Sales reports

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest WASDE report.

Chad Hart image

In the reports released today, usage declined, but by less than the trade expected, so futures moved slightly higher with the release of the report. For corn, feed usage was increased by 150 million bushels.  This is due to corn directly replacing part of the loss of distillers grains as ethanol plants close and distillers disappears. Ethanol usage of corn declined by a staggering 375 million bushels. At least eight ethanol plants that have idled, with many more slowing production. The weekly fuel report from the Energy Information Administration showed a roughly 40% cut in ethanol production over the past two weeks. Add in a couple of other minor adjustments and ending stock projections rose 200 million bushels, putting 2019/20 ending stocks at just shy of 2.1 billion bushels. USDA lowered its 2019/20 marketing year price estimate 20 cents, to $3.60 per bushel.

For soybeans, crush was raised 20 million bushels, but exports were lowered 50 million. The increased crush is to create more soybean meal (again, replacing distillers grains). Export pace, while improving, has been well below what was needed to reach USDA’s original export estimate. Factor in a 25 million bushel drop in seed and residual (mainly an adjustment to the planted acreage number), and 2019/20 ending stocks rose 55 million bushels to 480 million in total. The 2019/20 marketing year average price estimate was lowered 5 cents to $8.65 per bushel.

While the WASDE report did not reflect positive news from exports. The weekly Export Sales report did show higher than expected corn sales, along with soybean sales that were within expectations, but at the higher end. China has been a pleasant surprise in the corn market (up 88% for the year). The Asian markets, outside of China, have been improving for soybeans.

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