Navigating Tighter Margins with a Farm Operating Loan

The start of a new year is the perfect time for grain farmers to assess their financial health and strategize for the future. As we enter 2025, many farms are facing another year of tighter margins, making strategic financial planning more critical than ever. Managing working capital, optimizing capital purchases and securing the right farm operating line of credit can help farmers maintain liquidity while navigating uncertain market conditions.

Whether you're planning for seed, fertilizer or unexpected expenses, having access to flexible farm operating loans or equipment financing can help ensure your farm stays financially resilient.

Working Capital: A Key to Farm Resilience

Effective management of working capital will be key over the next couple of years as we scale down expenses to align with current revenue projections. With fluctuating input costs and unpredictable market conditions, maintaining liquidity ensures you have the cash flow to cover essential farm operating expenses.

Key Considerations for Equipment Financing:

• Align Depreciation with Loan Terms – Matching depreciation schedules with loan repayment periods can prevent future tax complications.
• Balance Repayment Margin and Working Capital – A healthy repayment margin is essential to ensure you have enough cash to service your debt and maintain a positive working capital position.
• Evaluate Loan vs. Cash Payment – Paying in cash may strain working capital, while financing offers structured payments and lower interest rates.

Operating Loans: Flexible Financing for Everyday Farm Needs

Having access to an operating loan for your farm ensures that you can cover seasonal expenses, input costs and unexpected financial needs without disrupting long-term plans.

Why Consider a Compeer Farm Operating Loan?

• Customized Credit Limits: Tailored to your farm’s cash flow and revenue cycles.
• 24/7 Access to Funds: Draw funds through online banking, drafts, ACHs or Access Card.
• 1% Cashback Rewards: Earn cashback on purchases made with the Access Card, allowing you to reinvest in your farm.

Tip: Create a cash flow projection and profit-and-loss statement before securing a loan. This helps both you and your lender determine the right sized farm operating line of credit for your needs. A solid projection is the foundation to good decision making for the year. It is key for developing a grain marketing and risk management plan, including crop insurance decisions.

Interest Rate Management: Reducing Costs on Credit

With elevated interest rates, efficiently managing farm operating loans can help reduce overall financing costs.

How to Minimize Interest Expenses:

• Pay Down Balances Strategically: Keeping your operating loan paid down when possible reduces interest expenses.
• Utilize Farm Cash Management Tools: Your associated Farm Cash Management account automatically sweeps excess funds, helping clients save on interest while, in turn, earning interest on excess funds.
• Monitor Loan Usage: Use online banking tools to track loan balances and adjust your repayment strategy as needed.

Did You Know? Higher interest rates can also be beneficial during peak revenue periods when farms may have surplus cash on hand. Strategic fund allocation can maximize returns and minimize borrowing costs, even if short-term in nature.

Plan Ahead, Stay Financially Strong

Taking a proactive approach to farm financial planning can help you avoid any undue stress from cash flow shortfalls, especially as we continue to work our way through the current grain farming environment. By securing the right farm operating loan, managing working capital wisely and making informed capital purchase decisions, you can set your farm up for long-term success.

Work with your trusted lending and crop insurance partners, like your local Compeer team, as you plan ahead for tighter margins.