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March 8, 2023

Understanding Your Agricultural Balance Sheet 

What is an agricultural balance sheet and why is it important?  

An agricultural balance sheet is essentially the “pulse check” on your operation. Agricultural lenders use it as a tool to identify and determine the financial resilience of your operation or, in other words, your capacity for risk.  

An updated balance sheet provides insightful clarity for lenders on how your operation progresses financially from one year to the next in order to create the best loan structure and terms to fit your unique needs. It’s a required document in the agricultural loan process, but if you don’t have an updated one available, it can feel like a daunting task to tackle.   

Fortunately, our team of agricultural finance experts has your back. We’re here to help you through the process each step of the way—starting with your farm balance sheet.  

Top Questions When Filling Out an Agricultural Balance Sheet  

Here are answers to some of the most common questions we receive regarding agricultural balance sheets.  

Why do I need an agricultural balance sheet? 

An agricultural balance sheet is the leading indicator lenders review to assess your debt ratio—total liabilities divided by total assets. These agricultural balance sheet ratios are an important piece of ensuring the borrower isn’t overleveraged and protect them against being put in a difficult financial situation. 

What are agricultural balance sheet ratios? 

Agricultural balance sheet ratios involve both current and non-current assets and liabilities on your farm operation. Assets include investments and capital you have that support agricultural production on your farm, including cash, feed inventories, prepaid costs, equipment, land equity, and more. Liabilities include the current financial responsibility on the borrower’s shoulders, including existing debt with a different lender, farm equipment financing, or any other outstanding financial obligations. A healthy agricultural balance sheet ratio is typically a minimum of 2:1 assets to liabilities ratio or higher. For example, if an agribusiness had $20 million in assets and $10 million in liabilities, that would be considered a healthy financial position.  

If your ratio falls below this threshold, that doesn’t mean there aren’t any financing solutions available to you, as other factors are considered, such as credit, repayment, and income. But understanding your agricultural balance sheet ratio provides us with the necessary insight to ensure your loan is structured in a way that fits your needs best.  

What’s the difference between current vs. non-current farm assets and liabilities?  

Current assets and liabilities are short-term investments that can be converted into cash within one year or less. In agriculture, examples of current assets include crops, market livestock, prepaid inputs, and more. Non-current assets and liabilities are long-term investments, such as land or machinery and equipment.  

What’s the most accurate way to value my land? 

Borrowers will often put the value that they originally purchased their land for, which typically falls below the current value of the land. In order to more accurately value your farmland,we recommend looking at what acres in your area have recently sold for and calculating an average per acre value based on that information.  

How often should I update my agricultural balance sheet? 

Lenders typically need your agricultural balance sheet to be updated within the last three months. Some operations are accustomed to updating their balance sheet annually. If that is the case for you, you can use your last updated agricultural balance sheet as a template and update the numbers to reflect the most recent quarter. The best time to update your agricultural balance sheet can vary depending on your type of operation. For example, post-harvest is an ideal time for grain operators as their information will reflect the most accurate value of the operation. For cow-calf operations, the best time to update would be when calves are on the ground. Having a lender with a singular focus in agricultural finance like AgAmerica can be beneficial in understanding the timing of updating your balance sheet in a way that works best for your unique operation.  

How do I fill out an agricultural balance sheet?  

If you don’t have any prior balance sheets to use as a starting point, we can help you with that too. Below are two free downloadable templates to get you set up for success. The farmer balance sheet includes more in-depth reporting for crop and livestock, while the nonfarmer template does not.  

AgAmerica is Here to Support You 

Back in 2018, AgAmerica asked farmers how they would described the farm lending process and an overwhelming majority responded, “complicated”. We took that insight to heart, and our team of financial experts have been working hard ever since to, not only create financial products that make sense for the farmer, but also to develop resources that can support them through the process.  

With a singular focus on agriculture, we understand the intricacies of rural America and how, just like farming, its financing requires more than a one-size-fits-all approach. Your long-term success is our ultimate goal, because when rural America thrives—we all do. 

Contact us today to learn how we can help you reach your operational goals each step of the way.  

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