DB-Lancaster Farming Saturday, August 30,1986
g 'f Brockett's Ag Advice
» By John E. Brocket!
Bp Farm Management Agent
~ Lewistown Extension Office
Coping With The
We in the agricultural com
munity must leam to cope with the
present farm doldrums or farming
may never recover. I did not say
accept the present situation. That
would be defeat and I do not think
fanning is anywhere near defeat.
But, until we all leam how to
handle the present set of problems,
it will be difficult to move on and
change things for the better.
What must we do? The very first
thing to do is look into a mirror and
say “Hey old friend, you are the
only one who can change things
and the only way you will succeed
is to recognize the problem is in
part a management one that you
can handle.” Once that line is
crossed, the rest begins to fall in
place.
1. Use all available management
tools such as soil testing, forage
testing, DHIA, Crop Management
Associations, and above all,
records and business analysis.
2. Become active in learning
about the marketing and con
suming of your product. To do this,
it is a must for you to calculate
your cost of production. You may
also have to talk to some non-farm
people to find out their needs.
3. Become a manager of your
resources, including labor.
4. Talk to your lender or lenders
about rescheduling your loan
payments to bring them in line
with your repayment ability. If you
can show the lender your
repayment ability, it will help your
negotiate the change.
5. Do not borrow any more than
you can show your present income
can handle. Even better, allow
yourself a 10 percent reserve on
top of your payment for possible
financial recessions.
6. Do not buy new capital items
unless you can prove to yourself
The curds and whey
Miss Muffet was eating
when the spider sat
down beside her are still
enjoyed in England but
with a little honey and
heavy cream added for
additional flavor. The
SOYBEAN ROASTING ON
YOUR FARM
Don’t Waste It - Roast It!
This Little Piggy Went To Market,
This Little Piggy Stayed Home,
DALE L. SCHNUPP
RD6, Lebanon, Pa. 17042
PH: 717-865-6611
ALLEN SUMMERS DAVID N. GROFF
703 E Christine Rd RD 1 Box 506 C
Nottingham, Pa 19362 Lewisburg Pa 17837
215-932-4761 717 966 3593
See Us At Ag Progress Days On Third Street
Farm Doldrums
that (a) you can pay for it or (b)
you can handle the payments if you
have to borrow the money.
7.’Leam how to distinguish
between wants and needs in both
your business and in your personal
life. (There is nothing wrong with
buying wants - if you can afford
them.)
8. Leam to accept those things
you can not change, to work like
blazes to change those you do have
influence over, and ask for
guidance in determining the dif
ference.
Debt and Income
Many economists have stated
that the farm asset to liability ratio
is the important factor when
determining potential failure of a
farm. For a long time I have said
that percentage of income to
service debt was the major critical
factor. The other day, I heard an
economist discussing the economic
factors that point to recession or
boom in this country. One of his
main points was the total national
liability to gross national income
ratio. He said the thing that con
cerns him now is that this ratio is
now over 2 to 1. In the past it
seldom exceeded 1.6 to 1. That
would be an interesting measure of
stability.
We have used as a measure of
credit worthiness (capital tur
nover) the ratio of assets to in
come. Unfortunately, this measure
became of little value as assets
inflated in value beyond the assets
ability to generate income.
Perhaps a liability to income ratio
has some merit. You can do this
without estimating inventory value
or market value of other assets.
Simply divide the total value of
your liabilities by your gross in
come for 1985. The answer would
be your liability to income ratio.
If you have an answer of 1.6 or
curds are the soft
custard-like lumps that
form after milk used to
make cheese is treated,
then curdles and
separates. The whey is
the liquid left after the
curds form.
igher Profits From All Grains.
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less, then according to the analyst
I heard, you are probably in
reasonable financial shape. If you
arrive at an answer in excess of 2,
you are probably overloaded with
debt. As with any other measure,
this one too has some problem
areas when dealing with an indi
vidual.
How much debt can an in
dividual farm business handle?
The answer is a little more com
plicated than some of the thumb
rules that are thrown around. A
rule of thumb says a dairyman
should have no more than $3,000
debt per cow. Or a rule of thumb
says that a dairyman should have
a debt payment less than 25 per
cent of income to be a viable
operator--
o\v
list
Babcock
Now that economists says that
dairyman should have a liability to
income ratio of no more than 1.6 to
I. That would mean sales of $1,875
per cow if we used the $3,000
figure. Sales of $1,875 would allow
a debt payment of $468 per cow if
the 25 percent of income figure was
used. A debt repayment
ability of $468 per cow would allow
for a debt of $2,424 per cow if the
debt was a seven year loan at 9
percent interest, or $2,208 per cow
if the debt was a ? year loan at 12
percent interest, or $4,333 per cow
if the debt was for 20 years at 9
percent interest, or $3,539 per cow
if the debt was for 20 years at 12
percent interest.
So all three rules of thumb are in
the ball park, but none of them hit
TRUCKLOAD
SALE $ 9.99 5S
50%
up
to
it and may even be way outside ol
the mark if the dairyman is above
or' below average. Actually an
individual dairyman must con
sider a number of factors to
determine the amount of debt his
or her business can carry. Some of
these factors are;
1. Length of loan life (annual
payments decrease as loan life
lengthens).
2. Interest rate charged would
have a direct bearing on amount
that can be borrowed, (see the
difference between 9% and 12%
above).
3. Debt repayment ability for
that particular farm (it in turn is
affected by the operation’s ex
pense to income ratio and family
living requirement).
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