From planting time to harvest, 2019 was one of the worst crop production years on record. But it’s time for producers to rip off the rearview mirror and look forward toward the opportunities in 2020.

More than 10 years ago, Ag Resource Management (ARM) pioneered the concept of forward-projecting the value of a future crop. Over time, it refined the methodology of monetizing a future income stream from a crop that’s not even planted yet. While traditional ag lenders tend to focus on balance-sheet equity by looking at land mortgages and equipment liens, ARM uses a very different operating model.

“We’re all about the crop,” says Leroy Startz, ARM director of market channel development. “We have a team of lenders in the field who work closely with the farmer in the communities where they live and farm. Our team can help the farmer look forward; we never have to look backwards.”


The Art of Looking Forward

ARM understands crop financing from the standpoint of looking at the farm’s capacity to generate a crop and monetizes the value of that crop using a well-structured crop-insurance package that might, for example, include a revenue policy. Using the farm’s records and the actual production history (APH), ARM recommends the best crop insurance policy to maximize the revenue a farmer can generate from that year’s crop under a forward-looking structure.

The proprietary model of ARM can quickly forward-project the value of a crop on the farmer’s acres. Based on the APH and the crop-insurance structure, the model optimizes revenue potential that best supports the operating budget needs of the producer.”

“Before the crop goes into the ground, we can put a value on each acre that represents a revenue opportunity, and we structure our loans around those opportunities,” he explains. “Then we discount those revenues back to a crop budget which indicates the expenses needed to produce the crop — from field prep to seed and pre-plant applications to fertilizer to pre-harvest applications. Our model works. We have proof in methodology and know how best to apply it to help farmers get the financing they need.”

Generally, ARM can find ways to enhance the value of the crop during the growing season. By periodically re-evaluating the crop, ARM can determine if there is more value, and if so, they can make more credit available to the farmer than a traditional lender may have the capacity to allow.

ARM has 33 offices in 19 states staffed with teams that work very closely with farmers and stay close to the crop during the growing year. For example, if the crop needs an unexpected application of herbicide, pesticide or fungicide, ARM stands side-by-side with farmer to help evaluate how to get it done.


Benefits Beyond Basic Lending

At ARM, the farmer gains a partner with a comprehensive understanding of crop financing and crop insurance — who also knows how to put those pieces together and create the best financing plan specifically for producing that farmer’s crop, without having to encumber land or equipment to get it done.

“Our farmers also get speed,” says Startz. “ARM’s proprietary computer model enables us to quickly assess what we can do and offer a quick response. It allows us to move away from the ‘slow no’ which often plagues farmers and leaves them scrambling to find financing. We evaluate and hammer out a financing plan quickly. With offices all over the country, we have boots on the ground close by the producers that we finance.”


It’s time to meet with your insurance agent to begin planning insurance coverage for the next growing season. Are you thinking to keep the status quo? Think again. Every farmer should assess a few factors as they as begin to plan for the future.

APH Calculated Correctly?

 First, growers need to ensure that their Actual Product History (APH) has been updated properly by their agent. Step one is an accurate review of the procedural aspects of updating an APH when coming off a prevented planting growing season.

A grower may have been prevented from planting in part of a section or unit. For example, if a grower has 400 acres of ground within a given field and was prevented from planting on 200 acres of it, then 200 acres will be calculated with actual yield. The other 200 acres that was under Prevented Planting and the grower’s APH will be calculated using a blended yield. This can be tricky to evaluate, so be sure to ask how your APH was updated.

Risk Rating Updates

 Next, consider any risk rating changes that may have occurred in your area. Due to the flooding in 2019, river bottom ground or low areas that are flood prone where levees might have been breached may now be considered high risk.

USDA’s Risk Management Agency (RMA) releases rates and actuarial tables every year. During 2019, several levies were breeched and destroyed that had previously protected farmland from flooding.  That land could be rated high risk now because that levee no longer exists. If farming ground that might have switched to a high-risk rating, ask your agent and confirm if this information has changed in any fields for the coming crop year.

Ask Questions about your Coverage Level

 Once you know your APH and your risk rating, it’s time to really consider how your policy performed the prior year. The best approach is to sit with your agent and start asking questions. Keep last year in mind but maintain your focus on the future and what you can do to make your coverage better.

Consider these questions to help get in the risk management mindset:

  • If we were to have another year like 2019, how do you feel about the protection you’ve got in place?
  • Were the correct options in place to maximize Prevented Plantings payments?
  • Do you need more or less coverage in 2020?
  • Is there a private product that could further minimize my risk?
  • What are your eligible acres for the next growing season?

An easy trap a lot of farmers fall into is sticking with the status quo or doing what their neighbor does. Every farming operation is different, so what your neighbor does may not be right for you. Challenge your agent to customize a policy that manages your risk and makes your policy work for you.

Managing production risks for the American farmer starts with utilizing the Federal crop insurance program. This excellent system offers a variety of different insurance plans at reasonable prices. More than 90% of broad-acre, row crop farmers participate in the program and the majority engage in revenue protection.

Revenue protection manages loss of production and price risk, whether it’s the risk of prices going up or managing the risk of prices falling. The Federal crop insurance program contains many options you should learn about and understand. Many growers fail to ask questions and fall into the trap of taking the same policy as their neighbor or taking the policy they’ve always taken. Getting the most out of your risk-management investment requires a customized program that works for your farm.

Successful execution relies on good record keeping with timely and accurate reporting of your actual production history (APH) to the agent. Growers also need to make sure their agent is updating their APH and obtaining a correct quote annually.

The APH quote should show the per acre cost and per acre coverage. Once you understand the per acre cost of insurance and per acre liability, it gives you the power to become a better marketer because you know the guaranteed income per acre. This allows you to spend what you need on inputs to help your crop reach its yield potential. The APH offers in-depth visibility into your operation that is not available elsewhere.


Private insurance can fill risk gaps

Managing production risks with revenue protection insurance is critical, but it may not cover a grower completely. Such as when input costs do not fall as fast as the downward trending market, this leaves the farmer in a precarious position. Many times, where they will be operating on thin or even negative margins.

The good news is private insurance products can fill this void. Several carriers offer products that provide a band of coverage over the top of a multi-peril policy. For example, a standard multi-peril policy includes a deductible of 15% to 25% depending on what level of coverage was elected at sale closing date. Growers can potentially minimize that deductible to as little as 5% or 10% in the private market. This delivers a lot of extra assurance for just a little bit of additional money.

“Every grower should shop for products that provide protection beyond their multi-peril plan. While putting together the crop plan, it’s so important to discuss this with the agent to determine if additional coverage is needed.” ~Billy Moore, Ag Resource Management President of Insurance and Field Operations


Marketing strategy offers protection and peace of mind

Having a safety net allows farmers to confidently take advantage of pricing opportunities encountered during the year.

For example, a 200 bu/A farmer who purchased 80% RP coverage is guaranteed 160 bushels at the established price of $4/bushel. The farmer has $640 worth of liability on every acre. If a pricing opportunity arises where the farmer can book 140 bu/A, it provides the assurance of locking in those bushels. No matter what comes along, the crop insurance policy provides the money needed to get the farmer out of the delivery contract or the marketing tool used.

Marketing opportunities vary across the country. Up until planting time, it’s possible to use these marketing strategies. Once the crop is planted, if another opportunity arises that is profitable, the farmer can lock in additional bushels and take advantage of the price using forward contracts.

“Farmers can set a price floor and double protect themselves from things that could go wrong during the year. You’re not leveraging the dollars twice, but you’re protected in two ways.” ~Billy Moore, Ag Resource Management President of Insurance and Field Operations

In closing, building a customized risk strategy for your farm isn’t easy. The key is to work with an agent who can answer your questions and lay out all the available options to you. At the end of the day, find a person you trust who can provide wise counsel and set your operation up for success in the future.

Contact Ag Resource Management to create your customized plan of insurance.


Top Questions to Ask Your Agent

Building a customized plan of insurance for your farm requires asking a lot of questions and taking a deep dive into the policy structure to learn all your options. Not sure where to even start? We’ve developed a short list of questions to start the conversation and open the discussion about possible production risks on your farm.

• Does your farm have flood-prone ground?
• Is your operation widely spread across the county/state?
• Do you have some pieces of land that performed drastically better than others?
• What is your unit structure?
• What is your level of coverage?
• What is your actual production history (APH)? What will be the impacts of prevented planting to your APH for the coming year?
• Contract pricing endorsement?

Everyone in agriculture is ready to say goodbye to 2019 and ring in 2020. To say 2019 has been challenging for agriculture is certainly an understatement. The farm economy has weathered many challenges over the past five years or so. With farm income down and net worth decreasing in many cases, working capital will continue to erode, especially in areas where we saw higher than average prevented plant acres. Crop insurance can help many farmers, but it may not solve all the challenges farmer’s balance sheets have faced over the last five years.

Hello 2020

The unique lending process of Ag Resource Management (ARM) looks at a farming operation’s finances on a year-by-year basis. When we consider working with a farmer, we pay attention to what that farmer plans to plant from a crop mix perspective that year and allow that crop to stand on its own. We only look forward, taking a fresh approach in the marketplace.

Historically, financial institutions take a three-year average of balance sheets, tax returns and earnings and use that information to support their commitment for the following year. That traditional approach works well for banks. ARM typically partners with banks and distributors to take on riskier pieces of business. So, banks continue their long-term relationships, managing real estate loans and equipment term debt, while ARM manages the operating loan.

Keeping Farmers Farming

Every farm situation is different, and many financial challenges arise through no fault of the farmer. Our mission is to create a financial loan package designed around the planting intentions for the upcoming crop year, based around a detailed budget, production history and crop insurance — all while securing the loan with the growing crop.

After identifying a financing solution, ARM sets up a systematic process to help manage risk. We help the farmer acquire the right amount of crop insurance, spend capital on the inputs needed to get the highest potential yield and then pay the loan when the crop is harvested. This in-depth involvement in the operation increases the chance of success. We help manage some of the operation’s detail, so farmers can continue to do what they do best.

As a resilient group of people, farmers find ways to make farming work year-in and year-out. Bankers appreciate opportunities to offer additional value and options to their clients. ARM supports both of these groups, offering a solution that allows financial institutions and distributors to keep lending and farmers to keep farming.

Contact your nearest Area Manager for more information.

This is the second of four blogs in our Credit Crunch in Farm Country series. To start from the beginning, go to Part One – The Lay Of The Land.

Addressing The Issues

Credit Crunch in Farm Country - Addressing The IssuesLeroy Startz has some meaningful solutions and caveats for credit crunched farmers:

“For the guy who still owns all or some land there are some products out there where the landowner can go to either restructure his land debt, increase his mortgage value on his property, or pull some additional equity out. But as I said before, a lot of them have done that for several years so the equity is beginning to run thin. If you were lucky enough to buy your equipment before we got into this low commodity price environment, there may be some value in that equipment that you can borrow against to help bridge the gap in operating capital that might be needed. There are some programs out there being provided by some of the larger equipment companies that have unsecured credit available on a credit scoring type basis and people are tapping into that as much as they can, but again that is eroding as well as credit scores are not as good as they were 5-10 years ago.”

The Rise Of Alternative Lending Solutions

The above scenario can read as somewhat bleak, but Startz is hopeful about the rise of alternative lending solutions, and he’s actively recommending them to clients.

“I think the market is actually at a point now where it’s critical for them (farmers) to find alternative and non-traditional credit solutions. And there’s not a lot of them out there. Traditional credit is still primarily based in equity of land or equipment ownership. Now lenders are also feeling the struggle of trying to take care of their customers. But at the same time, they need to satisfy the needs of the regulatory body that controls what they can and can’t do. That’s where solutions like Ag Resource Management become a perfect fit.”

The barrier, Startz says, is in operators’ knowledge of their options in alternative lending. Tradition, regulations, and shifts in decision models can leave farmers in a bind of sorts.

“I think a lot of growers are a little on the lost side right now. A lot of them have had relationships with community banks for upwards of 30 years. And now because of regulatory limitations these legacy bankers are having to tell operators ‘look I love having your land loan and your equipment loan, but I just can’t do this crop loan anymore.’ And they are kind of walking away with their hands open wondering what do I do next? Where do I go?”

Read more in the third part of our series: Modern Ag Lending Solutions For Modern Ag Challenges

Credit Crunch in Farm Country

The Lay Of The Land

Credit Crunch In Farm Country - The Lay Of The LandAnyone in the field can tell you that agriculture has evolved drastically over the past 10-20 years. From equipment, to seed, to the integration of technology, every aspect of the industry has shifted to help today’s farmers be as agile, productive, and profitable as possible. However, every efficiency comes at a cost somewhere, and farmers are feeling it when it comes to credit and acquiring the capital they need to operate. This leaves a lot of farmers at a crossroads as they look for cash flow solutions. Leroy Startz, Director of Market Channel Development at Ag Resource Management, has been working with both operators and lenders for years and has some insight and solutions for today’s credit crunched operator. In this blog series, we’ll explore the changes in agriculture finance and how today’s farmers can stay funded into 2020.

A Shift In Agriculture Lending

In order to get a handle on the best solutions, Startz says it’s important to understand the recent changes in agriculture business models. “The overall picture of Agriculture Lending has shifted dramatically in the past 10-20 years.” says Startz. “And a big piece of that lies in land ownership.”

“Ownership of land has been shifting from farmer owner to investor owner,” Startz explained, and with that comes a shift in costs and margins. He elaborates that “land is now being rented back to the operator at values that are considerably higher than what they were when the farmer owned the land and may have actually had it paid for. Now that it’s being owned by an investor, the investor has to rent it out at the current cost value. And that becomes an increase in operating costs.”

That’s just one aspect. This evolution in operating models has also affected input providers, and thereby, the farmers they work with. As Startz says: “There’s been a considerable amount of consolidation that’s taken place in the ag input space both from the supplier manufacturer side and the distributor side. And a lot of that merger activity took place at the expense of the acquiring companies’ balance sheets.”

A Shift In Operating Models

That input consolidation, while efficient and competitive, comes with a shift in operating models.

“There may have been numerous small independent distributors who were acquired by a big regional or national corporate distributor. Prior to the acquisition, they may have been able to provide a certain amount of trade credit in their trade territory”. Now that they’re part of a larger corporate structure,” those efficiencies that were brought to the table by the larger acquiring entities may have changed the dynamics of the independent, local distributor and caused a decline in available credit that had traditionally been made available to that farmer in that region by that retailer. “Startz says.

He also says that this is just the tip of the iceberg.

“The other thing that really needs to be addressed is that we’ve been through 6 or 7 years now of really low commodity prices. And while a lot of our farmers from across the country have been able to survive, it’s been at the cost of equity. Their balance sheets have been strained because they have had to tap into the equity of their land and the equity of their equipment in order to keep operating. And so there’s strain being put on those balance sheets today when 10 years ago we had a good run at high commodity prices and really good yields, cash flow was abundant, there was a lot of extra money in the pockets of farmers to invest in their equipment and acquire precision technologies maybe even make additional land acquisitions or infrastructure like grain storage etc. We just don’t have that today. Cash is strapped. Every day is a day people are looking to try and find a way to source enough capital to operate when the equity continues to decline.”

He’s right of course. These shifts are enough to make any farmer rethink their strategy. But what solutions exist for today’s farmer operating in a credit crunch? What new modern solution exists to source capital? Here, Startz is full of meaningful solutions- and caveats.

Read more in the second part of our series: Addressing The Issues.

Credit Crunch in Farm Country