2020 has been about as interesting of a year as we have seen in a long time. We have seen daily fluctuation of commodity prices, the influence government programs have on cash flow, while experiencing COVID-19, and all during an election year. What a difference nine months can make. We can acknowledge that, at times, it has our heads spinning. It has done the same for our clients.
As agricultural bankers, one of our common goals is to council our customers on what can be done to smooth the effects of volatility. 2020 will be no different. Here are a couple of the thoughts I will be sharing with my clients over the next few months.
Are they financially prepared for year-end 2020? The government programs and wild commodity swings have had a larger-than-normal effect on income. Make sure to encourage your clients to have a preparatory meeting with their tax planner. I have had conversations with clients that are in preparation of needing to prepay expenses prior to year-end for tax purposes.
Have they applied and completed applications with various government programs? CFAP 2.0 applications started on September 21 and run through December 11, 2020. This program follows the initial CFAP that ran from May 26 to September 11. Both programs give significant income to farms. I don’t know if many bankers or producers expected a second round and quite a few less saw what the CFAP 2.0 impact would be. Make sure they have taken the time to apply with the correct agencies. In addition, I would encourage you to stay in contact with your producers to complete the SBA forgiveness of the PPP Loan. The forgiveness application process has been a moving target. If you have any questions, our Wisconsin Bankers Association is a great resource to keep yourself updated on these changes.
What actions are your farms taking to ensure viability and profitability in the immediate future? Do they have a good financial system that explains their cost of production? We know that the primary reasons for financial success is that operations know their costs to produce the bushel, the CWT, the pound, etc. The breakdown of those numbers will give a compass on farm goals for next year. The ability to know the cost of production will enable the farm to make sound financial decisions when considering capital purchases, hedging of expenses or products to be sold, it also can help in a debt retirement plan.
Volatility will never remove itself from the agricultural industry. However, we can reduce the effects of volatility with a well thought out plan. Preparation, then executing that prepared plan will avoid stress to our clients and to the bank In what seems to be an divided world, I’m pretty sure we all agree that less stress and more success would be a great thing. Keep up the good work!
Tony Betley is vice president, senior agricultural banking officer with Investors Community Bank in Eau Claire, and also serves on the WBA Agricultural Bankers Section Board.