Farm Financial Standards Council
FFSC Home
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.
Want to know what you missed? Just take a look at our summary of the event (with lots of photos, too) right here.
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!
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:
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. Index of Current Conditions
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
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 R
The FFSC is proud to be a sponsor of the National Farm Business Management Conference! We’d love to have you join us in Sheboygan, Wisconsin, from June 9-13.
You can find an agenda here, and you can register online here. Information about lodging at the beautiful Blue Harbor Resort and Conference Center is here.
Your Council has been busy. Council members hit the new year running with presentation to groups in Wisconsin and Iowa all in the past few weeks.
On January 9 Brad Guse, Senor VP with BMO Harris in Arpin, WI was joined by BMO Managing Director Sam Miller, Appleton WI at a special program, Supporting Farmers During Challenging Times held in Kiel, WI.
The program was sponsored by the University of Wisconsin Extension. An audience of well over 100 came from a four-county region to hear the presentations. The two discussed the critical need for helping farmers realize the importance of organizing their financial records and being completely open and honest in their relationship with their lender. Council Administrator Carroll Merry attended and managed the FFSC trade show display. He also gave the audience an overview of the Council and the resources it has to offer.
On January 23 Past Council President Paul Neiffer, a principle with CliftonLarsonAllen, Yakima, WA, in photo at right was joined by past Council Director Curt Covington, Executive Vice President at FarmerMac, Washington, DC, in photo below, at the Farm Futures Ag Financial Boot Camp program in Coralville, IA. Over 170 farmers defied winter storms to attend the one-day event. Neiffer and Covington did the
heavy lifting in terms of presentations at the gathering. Again, the need for good financial record keeping was stressed along with the need to maintain completely open lines of communications with lenders. Administrator Carroll Merry also talked about the evolution of the Council and the resources it offers.
Council Vice President Keith Raynor, principle at TRP CPAs, Dunn, NC is wrapping up details on the program for the Annual Conference which will be held July 24 – 26 at the DoubleTree by Hilton, Raleigh Durham Airport at Research Triangle Park near Durham, NC.
Keith’s program will include an up close look at NC agriculture, how anti-animal agriculture groups are working to get rid of the pork industry, as well as a ‘deep dive’ into some accounting issues that are important to the Council….AND MORE! Details on the entire program will be coming out very soon, but in the meantime please mark your calendars and plan on attending.
Yes, many of us are snow-covered now and somehow getting along with very frigid temperatures, but Keith promises there will be no snow in sight when we are there in July and it should be too early for hurricane season.
The most current listing of Council Members is in the membership directory that accompanied the email version of this newsletter.. We dropped a few members last summer at renewal time and that was expected….but we have added many new names, so look through the Directory and see if any of our new colleagues are near you. If you don’t have a copy, let us know and we’ll send you one.
Send us a Photo of Yourself
We would very much like to have more member photos in the directory….if you have a recent color head and shoulders photo of yourself that you would like to share with other Council Members, please send it my way and we’ll add it to the next directory
Some Changes in the Directory
We have included the roster of our Corporate Partners in a listing at the back of the Directory as well as the names of our new Imeritus Lifetime members.
New Guidelines Out January 1
An updated version of the Financial Guidelines for Agriculture was sent to you on January 1. If you did not receive your pdf copy, please let me know and we’ll try to find out why.
Share your thoughts about the Council
One of the keys to attracting new, and even retaining current members, is the sharing of your thoughts regarding your experience/relationship with the Council…we are always looking for comments from members that can be used to promote membership. Have you met colleagues from across the country? Found participation in one of the committees to be rewarding personally and/or professionally? And if you have a complaint or other concern that should be shared with the leadership, we want those as well!!
Think Spring !!
Carroll Merry
Administrator, FFSC
cmerry@countryside-marketing.com
262-253-6902
More than 100 producers from across the United States (and one from Canada) joined us for our Farm Futures Boot Camp event in Coralville, Iowa.
An updated version of the Financial Guidelines for Agriculture has been released by the Farm Financial Standards Council. With a January 2019 issue date, this 272-page edition replaces other versions of the document that have been in circulation since 1991. The most recent prior update was done in 2017.
“The members of the Technical Committee work very hard to keep the Guidelines relevant,” says Todd Doehring, Centrec Consulting Group, Savoy, IL, current president of the Council. “This has included changes to one of the case farms to reflecting changes in farm size, commodity yields, and prices as well as other inputs to the practical examples that make up so much of the document. In this case, we have integrated new pronouncements on Generally Accepted Accounting Practices (GAAP) in the treatment of deferred income taxes as well as terminology changes as market values is replaced with net realizable value with respect to inventory values.”
He says the most noticeable changes is a new case farm in Appendix A. This one is based on a Kansas farm business.
“It is our goal to take accounting principles and apply them to realistic farm production scenarios. It is especially helpful when users of the Guidelines can identify with the examples that are in the case farms in the document,” Doehring explains.
The purpose of the Guidelines is to help produce standardized financial statements of farm and ranch operations. It is available as a downloadable PDF here. The cost is $30 each for the Financial Guidelines for Agriculture as well as the Management Accounting Guidelines. Another document, An Implementation Guide, is available as a download at no charge. This is designed for those individuals without an accounting degree to better understand how to make the maximum use of the information in the Guidelines.
The Council evolved from the financial crisis of the 1980s and is an all-volunteer organization of farmers and ranchers, accountants, finance and tax professionals, academics, lenders, consultants, and organizations which produce agricultural finance software. Membership on the Council is open to anyone who has an interest in managing agricultural finances. There are currently over 150 members from all across the U.S.
