John F. Kennedy, 35th President of the US, understood the plight of farmers when he said:
“The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways.”
Perhaps you own a dairy farm or grow crops like corn, soybeans, and barley. No matter what type of farm you own, you must be resilient. After all, farmers are risk-takers. They expend vast amounts of money before they ever see a return, and most depend on farm financing from season-to-season.
We’re here not only to congratulate hard-working farmers but provide information on top investments you can make as a farmer and ways to plan and budget, so you maximize the money you already have.
The Importance of Farm Financing
Upkeep and maintenance of farm equipment, buildings, land, and other assets take up a good portion of a farmer’s day.
Costs to run a farming operation are expensive.
Not only do farmers need funds for day-to-day operations, but they need money to make improvements and invest in specialized equipment to simplify farming tasks and increase efficiency.
That’s why many farmers routinely turn to farm financing as a way to weather unpredictable changes in finances.
Camino Financial works with clients from a wide range of industries including the agricultural industry. As a lender, we specialize in matching the right loan for your business’s needs and make recommendations to maximize growth. Whether you need funding for small or large projects, we can help.
Farm Financing: Top Investments for Farmers
If you know you need to invest in your farm, but you’re a bit unsure of what type of investments will bring you a higher ROI (return on investment), just take a look at others in your industry. It’s always better to follow in the footsteps of successful farmers who know which investments bring the most return.
1. Land management
If you aren’t in a position to purchase more land, what you can do is increase the yield on the land they do have. For instance, crop farmers can invest a loan to improve the quality of the soil and drainage, while other types of farmers can invest in better resources to increase productivity.
You could invest in the upkeep and maintenance of your land, or even make some needed repairs. Remember, managing and investing in your land is vital to have a successful farm, so don’t overlook it.
2. Explore alternative farming opportunities
If your farming operation seems to be in a rut, look for ways to farm differently with the help of a loan investment.
Consider growing sunflowers and canary grass to sell to birdseed manufacturers or grow specialty and ethnic vegetables such as ornamental gourds, herbs, mushrooms, salad greens, etc. Look into raising exotic animals to include alpacas, reindeer, and buffalo. Use a barn to host weddings, barn dances, and receptions or conduct classes on how to make soap, run a sawmill, or craft wooden toys.
These alternative opportunities might seem out of your comfort zone, but they have a great ROI.
Making upgrades to existing equipment can also improve crop yields, thereby increasing your profit margin. Maybe you want to fix your irrigation system and improve your drainage system, so crops don’t waterlog, decreasing production and quality.
Likewise, something as simple as improving seed quality and fertilizers can significantly impact seed growth and enhance efficiency.
4. New equipment and machinery
Having the right equipment is essential for meeting production yields and growing wealth. Maybe your existing machinery is out-of-date or simply there’s a new model in the market that could help you improve your production.
You don’t just plant seeds. You cultivate the land and add nutrients to improve soil quality, spray crops for pests, and purchase correctly-sized equipment to handle small and larger harvests.
Examples of equipment you may need to purchase include a post hole digger, tractor, tiller, sprayer, front loader, planter/seeder, trailer, and other types of equipment required to run your business.
If you own livestock, you could need watering equipment, medicators, new pens or housing, and milking systems, amongst others.
Depending on what you grow, look into adding the latest technology to maximize earnings. You can shop for the best deals at farming dealerships, auction houses, big box stores (for small equipment), and through private sellers.
5. Needed supplies
Having supplies on hand allows you to keep working without making numerous trips to a farming supply store. Aslo, buying in bulk might be a better option than buying little by little.
In addition to purchasing larger equipment, you will probably need seeds, rakes, shovels, wheelbarrows, hand-held sprayers, farm jacks, chains, or wrenches when working around plants and machinery. Most farmers keep an inventory of fertilizers, pesticides, and other chemicals used to manage and grow crops.
When you sell your goods at farmers markets and other locations, it’s necessary to get the word out to consumers about your products and/or services. Consider advertising through a coop or join a network of growers for more visibility.
You can use loan proceeds to have posters printed, design a farm logo, hire a marketing specialist, or purchase marketing supplies like banners and business cards.
Furthermore, launching a website may help you reach more consumers globally while a farm open house exposes your business to local clients. And don’t forget the power of online ads and social media, they will help you reach a wider audience with a lower investment.
The best farm investments according to the US Department of Agriculture
This list summarizes which expenditures maximize ROI.
- US agricultural growth has seen an increase in productivity even though the number of active farms decreased from 6.8 million in 1935 to 2.05 million currently. The USDA attributes the growth to innovations such as technoscientific improvements in equipment, animal and plant genetics, chemicals, and farm organization. When farmers invest in innovative technologies, they improve their chances of obtaining a profit by improving efficiency and saving time.
- If farmers aren’t seeing the return on investment they desire, it may be time to consider using your assets differently. The USDA reported in 2018 that corn and soybeans accounted for 40% of all crop receipts. Moreover, cattle/calf sales accounted for 38%, poultry, eggs/poultry 26%, and dairy 20% of the total animal and animal products.
- The USDA makes farm loan programs available to established and beginning farmers who can’t obtain credit from a traditional bank. The top ways that farmers use the proceeds are to purchase supplies, land, equipment, and livestock or to make improvements and construct buildings. These critical investments help farmers avoid falling behind financially, maintain and upgrade existing assets, and expand their operations.
- Other top investments include buying more land to produce goods, hiring more employees, and consolidating several loans into one.
Tips to Make Smart Farm Investments
Investing wisely not only builds your farming business but strengthens your resolve to succeed. Use these budgeting, planning, and management tips to help your farm grow and your finances to become stronger.
Assess capital needs
Once you have a history of actual revenue and expenses, you can determine how much working capital you need on an ongoing basis. Of course, you’ll need to make adjustments if your farming business operates seasonally to account for fluctuations in income and expenses.
You should not take a bare-bones approach to how much cash flow you have on hand. At all times, have at least 20% more capital than you actually need.
Plan for revenue plunges
When your farming operation is booming, that’s the best time to pay down debt and make improvements to buildings, land, and equipment. Then, should the economy take a turn downward, you’re in a better position to weather the storm.
Make a 5-year plan
Outline your goals and strategies, and establish timelines to achieve your objectives. Detail what each member of the operation will achieve and their talents. Also, make 5-year financial projections for your farming business factoring in progressive growth.
Your objective when making a 5-year plan is to demonstrate that your goals are doable, and your goods or services are marketable. Your business plan is your blueprint for growth but also serves as a document your lender would review to approve a loan.
Since the majority of farms are family-owned, it’s important to gain input from everyone involved when writing a business plan.
Know the economy’s pulse
Keep a close eye on market trends should you need to scale back your operation temporarily or expand it.
Pursue free and paid educational resources
The USDA Farmers Market Directory helps farmers find new markets and food hubs. Likewise, The National Resource Conservation Service provides educational resources for small livestock and fruit and vegetable producers, providing tips like animal waste management and information on the newest irrigation devices.
Additionally, resources are available relating to business management, marketing, legal strategies, sustainability, and other farming concerns.
Keeping yourself updated is one of the best investments you can ever make.
Diversify your assets
If you have more land than you can manage, consider renting out land to a farmer just starting out. You could rent equipment, buildings, and other assets you don’t regularly use to generate income or barter services to save money.
This will help you have extra cash that you can re-invest in your farm.
Protect your farm
One of the smartest things you can do to protect your assets and your investments is purchasing farm insurance.
A basic policy includes property and liability coverages. Most blanket policies typically cover farm property such as livestock, equipment, buildings, etc. It’s essential to avoid undervaluing property to lower payments.
Make sure you purchase insurance for anything that’s not covered in a standard policy.
Investing is a Good Idea
“Farmers don’t work ’til the sun goes down. They work ’til the job gets done.”
Business owners from all walks of life know that investing loan proceeds wisely leads to a healthy financial future. Maximizing your investment means you purchase what your business needs to increase profits. And, it’s equally important to be just as clever when you plan and budget for future expansion.
At Camino Financial, we encourage farmers to keep moving forward and work through financial difficulties. We’re here to help you, not only as a lender but to provide information like this post, so you stay informed about how to finance your business. Keep reading: