With grain farms facing the lowest prices they have seen in several years, many farms will need to utilize their operating line of credit to close out 2014.
Farms are now in the final sprint to do year-end business and financial planning. Some may already be feeling the impact of lower grain prices in their checkbook balances. Many farms often complete the year with some end-of-year purchases (pre-paid expenses) in an effort to take advantage of discount programs offered by many farm suppliers. If a farm is making year-end purchases, it may be necessary this year to tap into the operating line of credit to fund those purchases until crop income is received after the first of the year.
It has been noted that in many cases farms have not found it necessary to use their operating line of credit the past few years. In a few cases, farms have not maintained a current status for their operating line of credit and may now need to re-activate that credit line. For many farms, even if credit is not required for year-end activities, it is projected that many more farms will need to tap into operating lines of credit to manage purchases of inputs for the 2015 crop production season.
It is never too soon to renew or re-activate an operating line of credit to insure smooth cash flow management over the next production season.
Source:msu.edu