IS IT TIME TO QUIT
FARMING?
Roland P. Freund
Penn State Farm
Management Extension
Agent
With the combination of the
effects of the 1999 drought and
the present low commodity
prices, many farmers are under
financial stress. It is important
now to take a critical and honest
look at the operation to help us
decide if there is a future for this
farm. To do this, let’s look at the
process and the questions to be
asked and the factors that we
need to check.
Can This Farm Survive?
That depends upon many fac
tors, which include the history of
the business, the equity situa
tion, profitability, management
decisions, and good fortune,
blessings or luck, depending on
our viewpoint.
How Do We Decide to
Continue Or Not?
1. Check Family satisfaction.
Is everybody happy with the
situation?
Is each member achieving
his/her goals?
Are temper outbursts under
control?
Are you resolving all major
differences?
Is this the way you want to
live the rest of your lives?
If you say “no” more than
twice, consider change.
2. Check the history of the
business.
RCNRISSRNCC NUTRITION, INC.
WINTER FARMER MEETING
Thursday, February 10,2000
9:30 am - 2:30 pm
Yoder’s Restaurant & Buffet
New Holland, PA
Schedule of Events
9:30 AM
9:45 AM
10:30 AM
11:00 AM
12:15 PM
1:15 PM
Top 5 Methods to Combat Low Milk Prices
Dr. Mike Hutjens, University of Illinois - Dairy Specialist
Please R.S.V.R by February 4th to your local Renaissance Distributor or
call 1-800-346-3649 to place your reservation. At that time, please let us
know how many people from your farm plan to attend.
We look forward to seeing you on February 10th!
ft€NAISSfINC€ NUTRITION, INC.
P. O. Rox 229
Roaring Spring, PR 16673
800-346-3649
Is there a regular pattern of
setbacks?
Has it been refinanced one or
more times?
Are operations often untimely?
Are you a victim of circum
stances?
If you say “yes” more than
twice, consider change.
3. Check profitability.
Has Schedule F been nega
tive regularly?
Have accounts payable grown
most years?
Are you working away to sup
port the farm?
Are you accumulating operat
ing losses?
If you say “yes” more than
twice, consider change.
4. Check equity.
Is it growing over time? If so,
you are better able to handle a
setback. Is it eroding? (Inherited
farm free and clear, now you
have very little equity.)
Remember “the first law of
holes.” When you are in the hole,
stop digging!
Three example farms will
help us to examine equity. To the
casual observer they all appear
to be the same:
Assets
Current
Intermediate
Long-term
Total Assets
Invites You To Its’
Welcome (Coffee & Donuts)
The Costs of Environmental Stress on Dry Cows
Dr. David Byers, Independent Veterinarian and
Nutritionist
All Ration Programs Are Not Created Equal
Dr. Mike Hutjens, University of Illinois - Dairy Specialist
How Forage Digestibility impacts Your Bottom Line
lan Shivas, Dairy Nutrionist, Renaissance Nutrition
LUNCH & DOOR PRIZES
Farm A Farm B
$,OOO $,OOO
50 50
300 - - - 300 •
600 600
950 950
R€NRISSRNC€ NUTRITION, INC.
The banker can see some dif
ferences
Farm A
Liabilities: $,OOO
-Bills 60
-Line of Credit 50
-Credit Cards 40
Current total
Intermediate
Long-term
Total Liabilities 850
We see that all three farms
enjoy the same level of assets,
and all have the same problem
of current liabilities. But there is
considerable difference in term
debt. This can make a big differ
ence to their chances of survival.
Three example farms sum
mary.
Total Assets
Total Debt
Equity
Debt. Asset
Hang it up
Suggests:
Farm A has already taken on
more debt than the farm should
be carrying. Either they pur
chased real estate before the cat
tle and machinery were paid
down, or they have already been
forced to refinance.
Farm B is still in the ‘ red
light” zone, but they might be
able to survive a refinance, how
ever they should seriously con-
Farm C
$,OOO
50
300
600
950
Farm B Farm C
$,OOO $,OOO
60 60
50 50
40 40
150
300
400
150
200
400
750
sider partial liquidation to
reduce the debt burden, or com
plete liquidation to preserve the
equity they still have.
Farm C has some options, but
they are not out of the woods.
They can not survive many more
bad years.
When we look at debt, there
Farm A
S.OOO
950
850
100
Farm B Farm C
$,OOO $,OOO
950 950
750 550
200 400
89.5%
79%
Maybe''
is a danger that we just look at
the advantages of refinancing
obligations into longer repay
ment periods to give us “breath
ing room.”
The charts below illustrate
the credit we can get for a pay
ment of $l,OOO per month at 10
percent interest.
4. Cont. Check Equity - Growth
Loan for $l,OOO / mo. payment
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1110 ouu
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Lancaster Farming, Saturday, January 29, 2000-A37
150
200
200
550
58%
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ID Year*
15 Y<»r*
We must also check on the
long-term impact of stretching
payments. The chart below
shows that if we keep our term
of debt to 10 years, then in 30
years we can retire three 10-
year obligations of $76,000 each,
a total of $227,000 and pay
$133,000 in interest.
If we stretch our debt out to
30 years, we can only retire one
“dose” of $114,000 and pay
$256,000 in interest for the priv
ilege. Stretching out payments
kills our chance of enjoying
healthy equity growth.
7. Check liquidation.
1. Consider partial liquida
tion if there is valuable equip
ment, livestock and even land.
2. Try to keep any asset sale
voluntary-you control it.
3. Avoid forced sales where
banks, and creditors control
things. These result in bargain
priced auctions and serious loss
of your equity.
8. Check bankruptcy
This is never desirable, but it
may preserve a little equity and
it may provide some tax protec
tion. It is important to consult a
CPA and consult an attorney.
Consider the future conse
quences-can you live with these.
9. Check alternatives.
Sell out and start over.
Perhaps the definition of insani
ty applies-doing the same thing
and expecting a different out
come.
Off-farm employment may be
a mixed blessing. How long do
you want to subsidize an unprof
itable farm?
New career opportunities do
exist in our present economy.
Remember, there is life after
farming!
10. Check heroes.
Abraham Lincoln continued
to pursue his goals despite
numerous setbacks. Milton Her
shey failed at several businesses
before he made a success of the
last one.
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(Turn to Page A3B)
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