FRANKFORT, Ky. — As one growing season comes to an end, thoughts of the next are already taking shape, and one of the most important affiliations for the farmer is with their financial institution.

It has long been a practice in farming for producers to head to their local bank to borrow funds to get a new crop in the ground and pay off the loan once the harvest is sold. But farming today takes much more than an occasional loan; more importantly, there are financial tools available to help make operations profitable and sustainable.

David Lynn, senior vice president for financial services with Farm Credit Mid-America (FCMA) said having good business and financial plans are key components in today’s agriculture.

“Net farm income is projected to fall in future years, as compared to where we have been over the last four to five years,” he said. “We look at that and try to provide products and services to producers to help them sustain a period of decreased farm income.”

Something important is to have a balance in one’s debt structure. “Don’t put long-term assets on short-term debt. For example, it wouldn’t be prudent in today’s lending environment to finance a farm on one-year fixed interest rates because with everything we see, it would predict that in the future interest rates are going to rise,” said Lynn.

Couple that with a decrease in net farm income, he added, and it is wise to fix those rates while they are still relatively low. Another recommendation is to know exactly the amount of one’s operating costs.

“If you are a tobacco producer, for instance, it’s important to know what it costs to produce per pound or acre. If you don’t know that, how do you know at what price to sell? And that is particularly true with livestock or row crops.”

Lynn said FCMA stresses the importance of maintaining liquidity in a working capital position – which, in simple terms, means to have current assets that are greater than current liabilities.

“Farm Credit is actually part of a national system that was set up by federal legislation in 1916 as a way to have a reliable source of credit for farmers and rural residences. The organization operates as a cooperative system in that we are owned by our customers,” he explained.

“Of all the acts that Congressed has passed over the years, this is one of the most important pieces of legislation because it provided a stable, reliable source of financing for farmers and producers to clearly help entrust that we will continue to have a safe, reliable food source.”

That’s not just feeding those in this country but a growing world population, said Lynn. In order to do that, FCMA offers a variety of services to farmers and those living in rural areas. One of those is crop insurance.

Lynn said a major component of the latest farm bill was an increase in funding for crop insurance. “Many people fail to understand the importance of that. What crop insurance does is to provide insurance for a producer an indemnity payment in the event they have a significant loss,” he said.

The company supplies a variety of loan products for small, part-time farms as well as the large-scale producer who makes a full-time living off the farm, including operating lines of credit.

While FCMA may have been created by Congress, Lynn said many might assume the funding comes from the government, as well. But that is not the case.

“Funding is accomplished through the selling of Farm Credit bonds by the Federal Farm Credit Funding Corporation,” he said. “That’s the way the Farm Credit system raises its funds. It’s a great example when a cooperative-owned membership is supported through investors worldwide.”

FCMA serves the states of Kentucky, Tennessee, Indiana and Ohio. Lynn said the area is important to the country’s ag sector and it is the diversity within Kentucky’s ag industry that is key to the region’s success. The entire Farm Credit system is roughly a $200 billion company, of which $20 billion comes from the FCMA area.

A report from the University of Kentucky (UK) is due out soon that will highlight the ag industry’s impact throughout Kentucky. During a recent meeting with UK agriculture economists at the Kentucky Farm Bureau Annual Meeting, UK’s Leigh Maynard, Department of Agricultural Economics chair, said the total impact of the state’s ag and food amounts to about $43 billion, or 8.4 percent of Kentucky’s total economy, according to information to be included in the upcoming report.

One reason for the success of agriculture has been the diversity of the sector, much of which has been created by the investment of tobacco settlement funds that have come to the state since the landmark Master Settlement Agreement was enacted in 1998 and sent approximately $206 billion over a 25-year period to participating states.

Half of what is received in Kentucky is reinvested into the agriculture sector. “We have everything ranging from the horse industry to tobacco farmers, to those producing the goods sold at the local farmers’ markets,” said Lynn. “The cattle industry is very significant, as well. It’s a very diversified industry.”