Paul Neiffer, left, and Curt Covington address the 200 in attendance at the Farm Futures Boot Camp being held January 23 in Coralville, IA. The two opened the all-day program with a session focusing on the evolution of the Financial Guidelines and how producers can best use them for preparing financial statements. Both are scheduled to give other presentations during the day addressing subjects such as ‘How to sound smart with your lender” and “Cash versus Accrual Accounting.”
A new year means new revisions to the FFSC Financial Guidelines for Agriculture. Stay up to date by ordering the 2020 edition of our guidelines document.
The Financial Guidelines for Agricultural Production provides recommended standards for format and content of financial reports, recommended financial measures common to all sectors of agriculture, and example statements and measures.
You can order the guidelines here.
What’s new in 2020?
In this edition of the Farm Financial Standards Council’s Financial Guidelines, there are a few important changes to note. As the FFSC integrates new GAAP pronouncements, frequent adjustments are required to the Guidelines. This edition includes updates with respect to leases, hedging, deferred taxes, revenue recognition, and guaranteed debt disclosures.
Many of the changes in this edition affect Appendix B, which is an example of accountant-prepared financial statements. The case farm has not changed. However, fairly extensive changes were made to the financial statements and accompanying footnote disclosures. The financial statements now illustrate the reporting of a couple of different types of hedging strategies (see note 8). The format of the income statement and the statement of owner equity has changed to accommodate reporting other comprehensive income (loss) from certain hedging activities. Also, the income tax rates used in the case were updated, so income tax amounts and deferred tax amounts changed (see note 4). Appendix B now illustrates the new GAAP standard on reporting for operating leases, which requires the addition of an operating lease right-of-use account to noncurrent assets in the balance sheet and the addition of current and noncurrent operating lease liability accounts (see note 11). Other new footnote disclosures were added disclosing revenue from contracts with customers (see note 7), disclosing the fair value of commodity derivatives (see note 9), and disclosing guaranteed debts (see note 12). Note 1 was also updated to incorporate a policy for derivative instruments associated with hedging and options activities. The supplementary information was also updated to conform to changes made to the financial statements. Please note that the footnote disclosures are required by GAAP, whereas the supplementary information is not. The financial measures and ratios included in Appendix D have been updated to reflect the changes made to the financial statements in Appendix B.
One significant recent change in GAAP is a new lease standard. The new standard already applies to financial reporting for publicly-held business entities. It will become effective for business entities that are not public in 2021. It was originally scheduled to go into effect in 2020 for such businesses, but on November 15 2019, the FASB decided to defer its effective date for one year to give not-forpublic business entities more time to prepare for implementing the new standard. Under prior GAAP, operating lease assets and liabilities weren’t recognized on business balance sheets. Under the new GAAP standard, operating leases with a term in excess of one year must be reported on business balance sheets in financial statements prepared in conformity with GAAP. The reporting for capital leases, which are called finance leases under the new standard, is basically the same as under prior GAAP. However, the four criteria previously used to identify a finance lease have been altered and a new fifth criterion has been added. The five criteria applicable under the new standard are discussed in the revised Appendix G in this edition. The FFSC has studied the new GAAP standards related to operating leases and recommends the GAAP approach to reporting operating leases, but also suggests an alternative approach. The recommendations regarding accounting for leases are in Section II. The revised Appendix B illustrates the application of the new requirements to an example of financial statements prepared in conformity with GAAP by an accountant.
Another recent GAAP update requires reporting revenues received from contracts with customers separately from other components of revenues. This requirement can be met by reporting this type of revenue in the footnotes to the financial statements, which is illustrated in the revised Appendix B. This type of revenue could also be separately stated in the income statement.
Our Farm Futures Ag Finance Boot Camp will help you Master the Business of Agriculture. Join us January 22 at the Marriott Hotel and Conference Center in Coralville, Iowa, for our one-day workshop packed with sessions presented by savvy ag finance experts and lenders.
Big Picture Topics:
- How accrual transactions affect income statements
- How to measure business performance using ratio analysis
- How to find and use financial resources to improve your business performance
- How to get what you want when working with lenders and accountants
Certified Crop Adviser Approved CEU Credits: Applied for.
The Farm Futures Ag Finance Boot Camp will help you boost your financial recordkeeping skills for improved farm business management.
Is it REALLY Going to be 2020?
It seems almost impossible that the next calendar year will be 2020! Why, it was just a few short months ago when everyone was concerned about Y2K and what it was going to mean ot the world…computers were going to stop computing…airplanes were going to quit flying…the world was going to end because nothing was programmed to NOT INCLUDE 19 as the century on calendars and dates.
But somehow we have all made it through and in the blink of an eye we are into the second decade of this new century.
Welcome New Members….
We have one new member since the last directory was published, so to save you time looking him up, his information is shown below. Austin is also listed in the new directory which is being released at the same time as this Board Notes. These are members who have come on the Council Team since September. You might drop him a note or give a call if you have the time to do so.
777 East Main, Suite 201
Bozeman, MT 59715
Farm Futures Ag Finance Boot Camp 2020
This will be held at the Coralville Marriott Hotel and Conference Center, Iowa City, IA on January 22. It directly precedes the Business Summit which will be held the two days after. Our own Paul Neiffer and Curt Covington will be carrying the brunt of the day-long event and if you’ve not been to a Boot Camp before, I encourage you to attend the January edition. Here are some links to go to for the program, agenda and registration information. Note that if you register before the END OF NOVEMBER you can save on your registration fees.
New Guidelines Out January 1
The Technical Committee has announced that it will have revisions made to the Financial Guidelines document and will be releasing a revised edition as of January 1. As a member of the Council you will automatically be sent a pdf of the new document when it is released. There will also be a shorter document outlining what is changed and that will accompany the new Guidelines.
Are We Missing Your Picture?
Being sent to all members at the same time as this Board Notes is the latest membership directory. Please look through it and see if you have any colleagues near where you are. You should notice that the breadth of the Council is expanding as we grow more diverse in the geographic area we cover.
But are we missing your photo in the roster? It’s always nice to put a picture along side a name, especially in a group as intimate as we are in size. If we don’t have a photo of you, please send me a jpg or other photo so we can add it to the next directory, which will likely come out after the first of the year. Please, though…make it a high-rez shot of at least 200 dpi so we have something to work with that will show you as the good looking person that you are!! Please….NO 72 dpi screen captures downloaded from a web site!!
Congratulations to Council President Keith Raynor and his organization
TRP CPAs, PLLC is joining forces with McFadyen & Sumner, CPAs PA by combining the two firms into one. They chose to combine the firms to create a truly next-generation accounting firm. The new firm name will be TRP Sumner, PLLC once the merger becomes effective on January 1, 2020 and will make them one of the 500 largest CPA firms in the nation.
Add Cowboy Boots to your Christmas List…
Start planning now to come to the 2020 FFSC Annual Conference which will be held July 26- 31 in Amarillo, Texas!
That wraps it up for now. Happy Thanksgiving.
As the rains and high humidity gave way on Tuesday, drier and much more comfortable air settled in over the Raleigh/Durham area July 24th and stayed the rest of the week making the climate for the 2019 FFSC Annual Conference downright comfortable.
And here’s more of what some attendees had to say…
My husband attended with me and he was very impressed with everything. Thanks for including the guests.”
Met a lot of people committed to improving farm health.”
I was pleased to see the engagement by the attendees with the speakers.”
The speaker on hemp had a lot more boots on the ground knowledge than I expected.”
Had more opportunities to interact one-on-one with some FFSC members I did not know well before.”
I like that FFSC moves this around the country and highlights regional ag in the region that is hosting the conference.”
Enjoy sitting in on the various committees. I’ve attended three conferences and this was the best conference yet.. largely due to the slate of general session presentations.”
Keith Raynor, CPA, a partner with TRP CPAs, Dunn, NC, seated, is elected new president of the Farm Financial Standards Council. He is surrounded by the new leadership team at the Council. Standing, from left, are: Brenda Duckworth, CPA, FFSC Vice President; Todd Doehring, Immediate Past President; and Bill Rutter, Secretary/Treasurer. Duckworth is controller at AgriVision Farm Management in Hartley, TX. Doehring is a director at Centrec Consulting, Savoy, IL, and Rutter is senior vice president and Chief Credit Officer for MidAtlantic Farm Credit, Westminster, MD.
The team was elected at the Council’s annual meeting held in Raleigh. NC July 26.
You can read about committee director realignments that happened at the meeting here.
With the change in leadership at the Farm Financial Standards Council there have also been realignments in some committee chair activities.
Shane Eloe, Dickinson & Clark CPAs, moves into the co-chair position for the Marketing Committee, a position he will share withDavid Olsen, Compeer Financial. Eloe replaces Brenda Duckworth, CPA, AgriVision Farm Management, who is now vice president of the Council.
Joe Kessie, Lake City Bank, is named co-chair of the FFSC Finance Committee, sharing responsibilities with Mark Compton, Compton Accounting. Kessie replaces Scotty Elston, Ag Texas Farm Credit Services, who retires from the position after many years of service.
The Technical Committee will continue under the leadership of Jeff Bushey, Nietzke and Faupel, PC and Alan Miller, retired Purdue University professor.
Responsibilities for the Membership Committee will continue to be shared by Grace Richardson, Freed Maxick CPAs and Thomas Groppel, a farmer from Jerseyville, IL.
Pauline Van Nurden, Center for Farm Financial Management, St. Paul, MN is elected to a 3-year term as a Director with the Council. She replaces Bill Rutter, MidAtlantic Farm Credit who is elected Secretary/Treasurer. Rutter will continue as the Farm Credit System representative on the leadership team. Angela Chesley, Van Bruggen/Vande Vegte, PC, is elected to a second 3-year term as a Director.
Join us July 24-26 in Raleigh, North Carolina, for our annual conference!
Nothing Could Be Finer than to be in Carolina in the Morning
The words of Gus Kahn in a song first published in 1922 as “Carolina in the Morning” will serve as our mantra for the 2019 Farm Financial Standards Council Conference.
The Farm Financial Standards Council will take a closeup and intimate look at some of the influencers affecting the ag industry and ag financial reporting, both locally and nationally, when it gathers in Raleigh-Durham, North Carolina. Not only is Raleigh-Durham home of North Carolina State University with its ag financial training and education center, it is also the site of the Research Triangle Park, the largest research park in the United States with the 3 points of the RTP being the research university North Carolina State University, Duke University and the University of North Carolina at Chapel Hill. As well, the Triangle, as its more loosely known, is home to the world’s best college basketball and the annual World of Blue Grass Conference each September, the International Bluegrass Music Associations annual showcase and awards show.
Here are some highlights:
- Wednesday Committee Meetings (always open to anyone interested in joining in)
- An overview of regional agriculture and some of the extreme pressures being felt
- Land is Your Legacy…..the challenges in transitioning farm ownership
- Lease Accounting – taking a deep dive into a difficult subject
- The Hemp revolution….it’s not just ditch weed anymore
- Agriculture under attack …. It’s happening HERE!
- The 2018 Farm Bill…did anything really change?
- Mixing Fin Tech with Ag Tech…..Oil and Water?
- Great Opportunities for Networking
- Unique free time entertainment that can ONLY BE FOUND in Carolina…
Get more information by downloading this file. (If you prefer to register via mail instead of online, there’s a registration form included in the downloadable document.)
by Michael Langemeier, Associate Director, Center for Commercial Agriculture
(Excerpt reprinted by permission of the author and Ag Banking Magazine. Find the full article here.)
Repayment capacity measures include capital debt repayment capacity, capital debt repayment margin, replacement margin, term debt and capital lease coverage ratio, and replacement coverage ratio (Farm Financial Standards Council). Capital debt repayment capacity, capital debt repayment margin, and the term debt and capital lease coverage ratio address a farm’s ability to repay operating loans and to cover the current portion of principal and interest due on noncurrent loans such as a machinery, building, or land loan. The replacement margin and the replacement margin coverage ratio enable borrowers and lenders to evaluate whether a farm has sufficient funds to repay term debt and replace assets. For a farm to grow, it is essential that the replacement margin be large enough to repay term debt, replace assets, and purchase new assets, and that the replacement coverage ratio be greater than one. This article defines and illustrates the use of key repayment capacity measures.
The capital debt repayment margin is computed by subtracting interest expense on term debt, principal on term debt and capital leases, and unpaid operating debt from prior periods from capital debt repayment capacity (accrual net farm income, off-farm income, interest expense on term debt, and depreciation minus family living expenses and income and self-employment taxes). The capital debt repayment margin enables borrowers and lenders to evaluate the ability of a farm to generate the necessary funds to repay the current portion of term or noncurrent debt. For this to happen, accrual net farm income, off-farm income, and depreciation have to be large enough to cover family living expenses, income and self- employment taxes, principal and interest on term debt, and unpaid operating debt from prior periods. It is important to note that the appropriate margin will vary among farms, and depends on the size of the farm and the type of enterprises produced.
The term debt and capital lease coverage ratio is closely related to the capital debt repayment margin. To compute this ratio, divide capital debt repayment capacity by principal and interest on term debt. A ratio greater than one indicates that the farm has enough funds to cover principal and interest on term debt.
The replacement margin and the replacement margin coverage ratio take the analysis one step further. The replacement margin is computed by subtracting cash used for capital replacement from the capital debt repayment margin. This measure enables a borrower to evaluate a farm’s ability to repay term debt and replace assets. It can also be used to evaluate a farm’s ability to acquire additional assets. Cash used for capital replacement can be measured using actual capital purchases (more specifically the portion of capital purchases that need to be paid for in the first year) or depreciation. The idea behind using depreciation is straightforward. Depreciation represents wear and tear, and obsolesce of machinery and buildings. Over the long-run, a farm needs to be able to replace machinery that is wearing out, to be able to afford new technology, and to be able to expand. We typically recommend using depreciation plus another 10 to 20 percent of depreciation as the farm’s measure of cash used for capital replacement to account for wear and tear on depreciable assets and farm growth. This amount will likely not be covered every year. However, over the long-run, it is essential that the replacement margin be positive. Without a positive replacement margin, a farm will not be able to fully replace depreciable assets or grow. Like the capital debt repayment margin, the replacement margin varies by farm size and type.
The replacement margin coverage ratio is closely related to the replacement margin. To compute this ratio, divide capital debt repayment capacity by the sum of principal and interest on term debt, unpaid operating debt in prior periods, and cash used for capital replacement. If the replacement margin coverage ratio is greater than one, the farm has sufficient funds to repay term debt and replace assets.
Find the full article at Ag Banking magazine’s Bank News website.
Reprinted by permission of the Purdue University Center for Commercial Agriculture
In April, the Purdue University/CME Group Ag Economy Barometer recorded the fourth largest one-month drop since data collection began in October 2015. The barometer, which is a sentiment index based on a monthly survey of 400 agricultural producers across the U.S., declined 18 points to a reading of 115, down from 133 in March.
This month’s decline in the barometer was driven by worsening perceptions of both current economic conditions and weaker expectations for the future. The Index of Current Conditions fell 21 points to a reading of 99, and the Index of Future Expectations declined 16 points to a reading of 123.
This month producers also expressed caution about making large investments in their farming operations. In the April survey, when asked whether they feel now is a “good time” or “bad time” to make large farm investments, only 22 percent of farmers stated it was a “good time” while 74 percent stated it was a “bad time.” That combination pushed the Large Farm Investment Index down 9 points compared to March.
Producers also expressed less optimism regarding prospects for resolution of the on-going soybean trade dispute with China. On the April survey, only 28 percent of respondents felt that the dispute would be resolved before July 1, down from 45 percent in March. However, 71 percent still feel the dispute will ultimately be resolved in a way that benefits U.S. agriculture. In a separate question, when asked whether they felt that the U.S. should rejoin the Trans-Pacific Partnership (TPP), 47 percent were favorable, 28 percent were not in favor, and 25 percent stated they were uncertain.
Since January, there has been an increase in survey respondents indicating they have concerns about commodity prices. As a result, we’ve been asking additional questions related to commodity prices in order to understand producers’ perspectives on the future direction of corn and soybean futures prices. For the past four months, those results have been compared with futures and options market-based probability estimates to determine whether there is a significant difference in sentiment between the producers and futures and options market participants. Early findings indicate producers have consistently been more pessimistic compared to those who participate directly in the futures and options markets. Moreover, producers became relatively more pessimistic over the course of the winter and early spring. This increasingly pessimistic view of corn and soybean prices may be playing a role in the reduction in barometer sentiment as well as the recent drop in both the Index of Current Conditions and the Index of Future Expectations.
Read the full April Ag Economy Barometer Report which is linked to the following address: https://purdue.ag/barometerreport. The report includes insights into producer’s year-over-year attitudes toward farmland values and a breakdown of the comparison between producers and futures market participants regarding the future direction of corn and soybean futures. The site also offers additional resources, such as past reports, charts and survey methodology, and a form to sign up for monthly barometer email updates and webinars. Each month I also provide a video overview of results from the barometer survey. That video can be viewed either directly on the Ag Economy Barometer’s website or on the Center’s YouTube channel at https://purdue.ag/barometervideo.