Capital Press | Ag Financial Services Capital Press Tue, 29 Nov 2016 08:29:38 -0500 en Capital Press | Ag Financial Services Importance of good accountant can’t be overstated Thu, 10 Dec 2015 10:24:45 -0500 Brenna Wiegand One of the biggest challenges farmers and ranchers face is keeping track of their finances.

That’s when a good accountant is important.

“A good accountant will help you plan for the future, retain as much cash as possible and even help you with current decisions,” Bob Kemble, a certified public accountant at the Nichols Accounting Group in Ontario, Ore., said.

“Like most people are, they’re always tax-averse, but I always make sure, if a client asks advice on whether to make a purchase, that they’re doing it for a good business reason,” Kemble said. “If it fits your operation, if it will make your life easier, then by all means make the purchase. But if you’re buying something just to save taxes … if you’re spending a dollar to save 35 cents … that’s not the right reason.

“‘Don’t let the tax tail wag the dog’ is a cliché but it really is true,” Kemble said. “I encourage my clients to look at their operation in a business sense.”

The challenges ranchers and farmers face vary depending on their crops and geography.

“We’re facing a lot of challenges over here with ONDA (Oregon Natural Desert Association) trying to make a big land grab in the Owyhees that would designate about 2.5 million acres as a national conservation or wilderness area,” Kemble said. “That could really affect our ranchers.”

For a large percentage of ag operators, navigating the maze of regulations, achieving proper bookkeeping and other business practices and developing strategies for risk prevention and crisis management proves a daunting task, one they shouldn’t try to go alone.

“Oftentimes a farmer or rancher is the CEO and everything else, so it sure helps to be able to bounce problems or concerns off a circle of trusted advisers,” Kemble said. “A good accountant is not only concerned with minimizing the tax bill but also with the larger picture of how to increase income after taxes and over time … and help them set up systems for record keeping, financial controls and management.”

Bankers, lenders weigh in on the business of ag Thu, 10 Dec 2015 10:35:34 -0500 Brenna Wiegand When today’s farmer approaches a lender, the questions he is asked are different from the ones his father got.

Brian Field, founder and president of agriculture real estate lender Harvest Capital, is much more interested in the structure of a balance sheet.

“When we get somebody coming in we ask, ‘Is your balance sheet actually balanced as far as the level of debt goes?’” Field said. “That’s a different question from what our dads got asked back in the ’70s, which was ‘Are you leveraged enough?’

“What we’re saying is: If you’re using capital markets-type debt, are you using it to where, as agriculture changes, as your operation changes, you are protected against downturns, whether in the market or, more importantly, Mother Nature?”

Steve Terjeson, executive vice president and chief lending officer for Citizens Bank, oversees 15 branches across the Willamette Valley of Oregon.

“About a quarter of our business is agriculture-related,” Terjeson said.

The bank lands money for agriculture real estate, operating lines of credit and equipment loans, and is a full-service bank.

“That is one of our niches. Everything from loans to deposit to merchant accounts and other banking services, including cash management,” he said.

“Our other niches are agribusiness and small business,” Terjeson said. “We cater to both because they fit right into the type of relationship-making that we are proud of. If you don’t have a close relationship, things could get out of hand before you even know it. They need to trust us to be around and we need to trust them to manage their business.”

Brent Fetsch is Oregon president of Northwest Farm Credit Services. Among the benefits of cooperative ownership, he said, is the existence of customer advisory groups at each of their 11 Oregon offices. This kind of engagement gives them insight into local culture and afforded them a front row seat to the recovery of many operations hit particularly hard by the housing crisis following 2008.

In their favor are well over 220 different commodities Oregon farmers grow.

“Our customers have various options and I just think that’s a treasure,” Fetsch said. “One need only to look at the trajectory of world population to feel pretty good about the increasing demand for food, but it won’t be a straight line. Agriculture has generally enjoyed a very good run in recent years. However, we are seeing signals of a down cycle in many commodities.”

Keeping a sense of perspective is an anchor in the storm-tossed existence that is farming.

“I marvel at the progress farmers and ranchers have made,” Fetsch said. “Look at the yields off just about any crop on the same number of acres; the efficiency with which they’re able to use irrigation water and so on … when you look back 25 years to today the production increases are remarkable.”

Farmers face strong dollar, interest rate uncertainty Thu, 10 Dec 2015 10:18:12 -0500 Brenna Wiegand A stronger dollar and the possibility of an interest rate increase are two factors that could impact farmers and ranchers this winter, experts say.

“Market volatility remains elevated as uncertainty seems to have intensified,” said Brent Fetsch, Oregon president of Northwest Farm Credit Services. “We look for the dollar to hold onto its gains and for us here in Oregon — and quite frankly across the Pacific Northwest — that strong dollar will continue to negatively impact exports.”

Fetsch said 80 percent of ag products in Oregon go out of state; 50 percent of those are sold internationally, and that the combination of the strong U.S. dollar and Port of Portland’s loss of Terminal 6 container carriers will likely continue to adversely impact Oregon agriculture.

“The next Federal Reserve meeting is in December and all eyes are on chairwoman Janet Yellen to find out whether the Federal Reserve will increase interest rates in December or early 2016,” Fetsch said. “We’re at historic lows; we’re at almost zero percent monetary policy, meaning you can’t take it any lower without going negative. … The threat of weaker employment and economic growth are among the many factors that could lead to deferring on raising rates.”

Though long-term rates have fallen a bit, near-term rates are inching up, said Brian Field, founder of Harvest Capital, an independently owned real estate lender based in Canby, Ore. “We’re not down to the level that we were in May of 2013 — that was probably the low of our lifetime.

“I’ve been doing this for 35 years and have got it tracked back to 1960,” Field said.

“If I’m an investor I would be indifferent at borrowing from the U.S. government at the Treasury rate exactly which, say for a 3-year bill is under 2 percent, or if I add 2.5 to 3 percent for risk,” Field said. “I could lend that out to agriculture secured by real estate and it’s a risk-adjusted spread between perfect credit and agriculture real estate credit.”

Understanding concepts like this can mean the difference between failure and success, he said.

“I think it ought to be a state requirement that every young person who wants to go back to the farm spend five years after they get out of college working for a regional bank or a real estate investor in agriculture so they can live and breathe this stuff and then take that back to the farm,” Field said.

Crop insurance a key component of many farmers’ finances Thu, 10 Dec 2015 10:22:47 -0500 Brenna Wiegand With the 2014 Farm Bill ending direct payments, crop insurance has become the main tool remaining to help farmers manage risk and live to fight another day when Mother Nature and other forces deal them a tough hand.

Steve Terjeson is executive vice president and chief lending officer of Citizens Bank, headquartered in Corvallis. He grew up in Eastern Oregon, where crop insurance is a matter of course.

“With the rainfall and soils in the Willamette Valley you can usually produce a pretty good crop,” Terjeson said. “This year was a good example of a fairly down year; there was some light grass seed yield that we saw. In other years it might be wheat that’s down.”

Last year U.S. farmers spent roughly $3.8 billion on crop insurance premiums. Those policies protected 128 different types of crops planted on 295 million acres valued at more than $129 billion.

“The evolution to crop insurance has effectively moved risk management away from the public sector, funded exclusively by taxpayer dollars, toward the private sector, where farmers and crop insurance companies help shoulder part of the cost of natural disasters,” Northwest Farmers Union President Kent Wright said in a recent opinion piece published in the Capital Press. “This takes taxpayers off the hook for the entire bill when disaster strikes and is good for farmers who must always keep their risk management plan in mind, and good for rural America because farmers are the engines that generate economic activity.”

Terjeson revisits the subject of crop insurance in annual reviews with clients.

“Is it worth buying that insurance?” he asks. “Are you well-diversified or are you depending on one crop? Each farmer’s a little bit different.”

The degree to which a farm is affected by crop failures, markets and the economy may be foretold in their balance sheet, said Brian Field, founder and president of Harvest Capital in Canby, Oregon.