3 Key Finance Lessons from a Veteran Ag Banker
Farm Journal’s AgPro
By: Sara Schafer
At the 2020 Top Producer Summit, Curt Covington will explain how and why it’s time to think differently about your farm operation. (Sara Schafer)
“Don’t tell me what you value, show me your budget,” says Curt Covington, executive vice president and chief credit officer with Farmer Mac. “If you show me your budget, I’ll tell you what you value.”
As we close the books on 2019, this frank and realistic view from Covington is a great passage to ponder. What challenges and opportunities will you discover in the years ahead? How can you best be prepared?
“Farmers need to think strategically about financial decisions,” he says. “That allows you to remain nimble in a volatile business.”
Covington will be the kickoff speaker at the 2020 Top Producer Summit, which takes place Jan. 27-30 in Chicago.
At the Summit, Covington will explain how and why it’s time to think differently about your operation. He’ll also share some important lessons learned during his 40-year career in agricultural banking. Here are just a few such lessons.
Lesson 1: Leverage kills.
“High commodity prices, strong land values and low interest rates cover a multitude of sins,” he says. “Every farmer appears bankable in that environment. It was true in decades past, and it was true just a few short years ago. Debt payments are fixed costs that don’t care where commodity prices are. Debt piled up in the good times still needs to be paid in the bad times.”
What’s the right leverage number? “There isn’t one, unless you make crippling decisions in your business, and then you’ll see exactly where it should have been,” he adds. “Understand that if you see that number going up, you are adding financial risk to the business.”
Lesson 2: Time does not fix the problem, action fixes the problem.
Not long ago, Covington says, he heard a young farmer say, “I’m farming next year, but I’m not sure that my banker is.”
“That’s troublesome thinking,” Covington says. “Ag lenders sometimes think, ‘If you’ve got dirt, you can’t get hurt.’ That is misplaced optimism and, oh by the way, yes you can.”
Lesson 3: Taxes are a form of debt and deferring them has consequences.
“Deferring crop revenue is a tax gift that keeps on giving—that is, until the income train comes to an abrupt halt,” he says. “Unfortunately, the tax man wants his money when the farmer doesn’t have it. The problem gets compounded with capital gains tax when the farmer attempts to right-size his or her balance sheet by selling long-held land assets.”
For your farm business to thrive today, you need to employ three keys to cash flow freedom, Covington says.
- Commit to short-term planning.
- Know your cost structure.
- Control your cost structure.
Top Producer Summit
Join Top Producer at the 2020 Top Producer Summit, which takes place Jan. 27–30, Chicago, Ill., and includes the Top Producer Seminar, Executive Women in Agriculture, Tomorrow’s Top Producer, Hemp Summit and Legacy Project Conference.
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