Farm Credit recently announced the 10 recipients of their 2022 Farmers on the Rise program, awarding $100,000 in prizes to young, beginning, small, minority, and/or veteran farmers in their territory. The following agriculturalists received this year’s honor:

• Michael and Marion Alway of Boyce, Virginia
• Kristi and Devin Barto of Landisville, Pennsylvania
• Ryan Brown of Mechanicsburg, Pennsylvania
• Tyler Butts of Hedgesville, West Virginia
• Ariel Herrod of Clear Spring, Maryland
• Shawn Lawrence of Littlestown, Pennsylvania
• Nia Nyamweya of Damascus, Maryland
• Josh Smith and Amanda Fabi of Greenwood, Delaware
• Robert Todd of Downingtown, Pennsylvania 
• Renee Wilson of Parkton, Maryland

“This year, we received over 120 applications from producers located across our 100 county footprint,” says Tom Truitt, CEO of Horizon Farm Credit. “It’s truly inspiring to hear their agricultural stories and learn about their future plans. We’re honored to support this year’s recipients as they look to grow their businesses and expand their local impact.”

The contest was open to applicants that identify with at least one of the following categories: 18 to 35 years of age, a minority farmer, a veteran farmer, small farm operator with annual gross ag income less than $250,000, or a beginning farmer with at least two years of farming experience, but no more than 10 years of farming experience. To learn more about the program, visit farmersontherise.com.

Farm Credit has announced that registration for the AgBiz Masters, the nationally recognized learning series for young and beginning farmers, is open now until December 23, 2022.

“Farmers and agriculturalists are, by nature, lifelong learners,” says Tom Truitt, CEO of Horizon Farm Credit. “We’re proud of the additional educational opportunities our AgBiz Masters program offers those looking to either break into the industry or expand their business knowledge.”

The two-year educational program is available to young, beginning, and small producers who are interested in refining their business management, financial, and marketing skills to help them as they launch or grow their businesses.

This year, Year 1 is being offered virtually. It will focus on trends in agriculture, strategic business planning, financial management, and constructing both a balance sheet and income statement. Year 2 is being offered both virtually and in-person. This class features learning modules centered on understanding lending decisions, growth and transition management, personal financial management, and leadership skills.

“To date, we’ve had 708 students graduate from our AgBiz Masters program,” says Johanna Rohrer, Horizon Farm Credit’s Member Education & YBS Program Specialist. “Agriculture is a constantly changing industry, and we encourage young and beginning farmers to sign-up for the course to help them develop their business skills, as the continue expanding their farming efforts.”

The next AgBiz Masters class begins in January 2023 and will run through April. The registration fee is $225, with full reimbursement available to those who successfully complete their registered year.

For more information about the AgBiz Masters educational program, please visit agbizmasters.com, or call Johanna Rohrer at 888.339.3334, extension 5277.

Not everyone enjoys doing taxes, but they are an annual requirement for most of us. If you are a farmer or small business owner, tax time can be especially challenging!

Have you been maximizing your tax deductions? Are there items that are falling through the tax cracks? As a farm tax accountant, I highly encourage you to look at these common items that you may need to analyze every year.

Take control over your tax plan

Annual tax planning is a proactive way to minimize tax liabilities and ensure all available allowances, deductions, exclusions, and exemptions are working together in the most tax-efficient way. This can reduce your total income tax paid each year. We’ve seen increased commodity prices and unexpected twists and turns in the industry this year. Items like equipment trades, timber sales, and even a large business loss can affect your bottom line and tax return this year, but may also prevent an unexpected tax bill in future years.

Decrease taxable income

Common expenditures to reduce taxable income include:

• Prepaying inputs and other allowed items, capital expenditures, and retirement contributions. Depending on your entity structure, retirement plan contributions can be significant, especially for self-employed individuals via a Simplified Employee Pension (SEP) or other qualified plan. Having a diversification of retirement assets outside of farming is a good thing!
• Healthcare deductions: create an employee benefits deduction to allow for business deduction of these expenses. A common way that farmers do this is farm income averaging. This is a way to average all or some of your farm income using rates from the three prior years.

Increase taxable income 

If a farm loss is inevitable, common ways to increase income include:

• IRA distributions
• IRA to ROTH IRA conversions. In the pathway of an IRA to ROTH IRA conversion, this can generate taxable income on the tax return, but the earnings are tax free. If you have a farm loss, this income that is generated by the conversion and no income taxes would be owed on the money rolled into an IRA.
• Selling of non-farm capital assets
• Are your repair bills high this year? You can make an election to capitalize repairs rather than expensing them. This can be adjusted on an annual basis.

Before tax planning, review the following items:

1. Update your balance sheet and profit/loss statement.
   Having your records up-to-date is important because the balance sheet gives a financial snapshot of your business at that time. Comparing your profit and loss year-end statement aids you in measuring your business’ success. This means you have to dig deep into reconciling your bank accounts and cleaning up the check register. If you aren’t sure where to start with these items, contact us – we have a few templates for you to use!
2. Review your budget and examine your cash reserves.
   This process is important to know how much cash you'll have available between now and yearend. Did you purchase or plan to purchase any fertilizer, feed, chemicals, etc. that are considered a prepay? These were purchased at a discount, but are usually stored and used in the next coming year. It's important to identify the prepaid expenses to possibly move these items to the balance sheet. These prepays can increase your expenses, but may take your profit into a loss. A rule of thumb is to use 50 or 100 percent of the prepays andmove those into the next year.
3. Do you have dead assets? Be sure to review your depreciation schedule for all of your current livestock buildings, machinery, and equipment. Clearing out old items that are no longer on the farm is important to update on the depreciation schedule.

Last, but not least, start tabulating your amounts for 1099 filings and wrapping up your fourth quarter payroll filings. Soon, it will be time to file 1099s and distribute your employee’s W2s. This year’s tax deadline for entity filers is March 15, 2023 and individual filers is April 15, 2023.

Keep these items on your to-do list for tax preparation to save some money or spark your interest to get last year’s tax filing amended and save you tax dollars. Call your tax accountant and business financial team to schedule an appointment for more guidance and to discuss these options. 

Financing equipment is a great tool to keep working capital in your hands. Loans and leases are both viable options, but what is the difference between the two, and which will work best for your operation?

Most people are familiar with a loan, but leasing is another way for customers to obtain the equipment they need to get back in the field. A lease is an agreement between the equipment owner (lessor) and a customer (lessee) to pay for the use of the equipment in the form of rental payments for a specific amount of time with an option to return or purchase the equipment at the end. At the end of the lease term, you then have the option to purchase the equipment you have been using.

An important term to understand when it comes to leasing is residual value, which is the value of the equipment at the end of the lease (and the stated purchase price that the lessee would pay should they choose to purchase the piece at the end of the lease). The residual value helps determine what payments will be. A higher residual means lower lease payments.

Let’s look a little closer at the differences between loans and leases, then look at an example.

Let’s walk through an example:

A customer is looking to acquire a $100,000 tractor. He’d like to work with Farm Credit for a loan or lease and is comparing the two options.

In this case for leasing, the lessor or owner of the equipment would be Farm Credit. The lessee is the customer. The residual value of the tractor after 60 months of use is 51% ($51,000), which was determined by several factors including how many hours of use, term length, and what the customer wants to do at the end of the lease (walk away, renew the lease, or purchase the tractor). In this case, the customer planned to renew the lease or purchase the piece, and that new contract would work off the $51,000.

It is important to note that when leasing a piece of equipment, the customer is also responsible for all insurance, maintenance, taxes (if applicable), and all other costs of ownership (example: fuel).

Most customers are comfortable with a loan, but less familiar with leasing. Why would someone lease?

• Leases offer 100% financing, with no down payment required. However, the first payment is required at signing.
• Leasing can save money. Your payments accrue on a smaller balance, with the residual acting like a balloon payment at the end, rather than the full cost of the equipment. Talk to your lender for more specifics on this.
• Leasing helps preserve working capital for other purposes, as you are only paying for the portion used, rather than the full value of the piece.
• Cash flow can be improved since the flexibility of leasing allows for the payment schedule to be extremely customized.  
• When leasing, equipment can be replaced faster to keep up with current technology, ease the difficulties of equipment obsolescence, and ensure access to reliable, low maintenance equipment with the newest options at all times.  
• There is less ownership risk - the lessor bears the risk on the residual value (ex: equipment values are extremely high now, and if they fall, that is the lessor’s problem, not the customer’s).
• Leasing is a great tax management strategy. Payments can be deducted as operating expenses to lower taxes. Larger deductions over a shorter period accelerate the write-off.
• Leasing is also predictable expensing, rather than “one and done” with bonus depreciation and Section 179.
• Leasing is a great estate planning tool. Leased equipment is easily transitioned to the next generation at the end of the lease term.

Always consult with your CPA or tax professional to make sure you are choosing the best financing option for you and your business.

It is no secret that the current market for equipment is unlike it’s ever been before. Availability is still an issue, although better than this time last year. Prices have certainly increased, and there are a number of other reasons customers site for caution with their equipment acquisitions. Let’s assume that most pieces are 20% more than they were two years ago. On a big purchase, like a forage harvester, that is extremely significant. A lease can be much more palatable, especially with high residual, thus creating lower lease payments.

To learn more about leasing, talk to one of our ag lending experts today at 888.339.3334.

This article was written by Emily Snyder, Farm Credit EXPRESS Relationship Manager.

Evaluating your loans, rates, and use of cash reserves each year is a best business and personal finance practice. Planning is key, and these tips should aid in your decision making on current and future loans.

Everything is costing more money today, and borrowing money is no exception. Whether its mortgages, auto and equipment loans, personal loans, home equity lines of credit, or business lines of credit, payments on borrowed funds have increased significantly in the last 12 months.   

You’re probably wondering, “What is driving the increased payments?”  In early 2022, the Federal Reserve announced they were raising the key interest rate in order to fight inflation. Since then, they have raised rates by 2.25 percent, meaning for every $1,000 owed, borrowers are paying an additional $22.50.  As interest rates rise, the amount of interest due on borrowed money increases, thus resulting in a higher required payment.   

For those who have a fixed rate loan, your payments should have remained the same, because at the time the loan originated, your interest rate was locked in for a set period of time, resulting in a consistent payment over the term of the loan. An exception would be if you obtained a fixed to variable rate loan at time of origination. On these loans, after a certain period of time, the rate will become variable, meaning it is subject to change, which could affect your payment. Reach out to your lender to see when the fixed rate expires and discuss your options.  

If you have a loan with a variable interest rate, you have probably noticed a considerable increase in the required payment due because as the benchmark or index rate changes, the interest rate on the loan has also changed.  While a variable rate loan is not as enticing in a rising rate environment, there are benefits to using them:

• Short term borrowing needs where the interest rate may still be lower than if you were to obtain a fixed rate
• Situations where you will be advancing the funds over a period of time, instead of taking one lump sum at time of origination  

If you currently have a variable rate on a term loan, you may want to discuss options for fixing the rate for the remaining term with your lender. There are advantages and disadvantages to both fixed and variable rates, which is all dependent on your particular situation.  

We are often asked by customers if they should pay off their loans early with extra cash at the end of the year. For some of our crop and dairy operations, it is a good year. Yes, input costs are up, but it may be the third or fourth most profitable year for some dairy producers with probably the highest milk price we have seen in the industry. When asked about paying loans off early, the standard consulting answer is, “It depends”.

Before paying your loan off early, it’s important to consider:

• The type of loan (line of credit, equipment, or long term mortgage)
• Interest rate on the loan
• Plans you have the next few years

If you know you have plans to build something or make a major purchase in the next few years and will need to borrow, it may be better to use your cash and keep the low interest rate loan you have, especially if it is fixed rate.

If you have no major investments in the short term (3-5 years) planned, then paying off variable rate loans first isn’t a bad move.

We recommend to producers these same best practices during both good and bad times:

• Pay down lines of credit first. These are great cash reserves when you need them.
• Build liquidity and more importantly, liquid reserves. Liquid reserves outside the available line of credit are cash and/or investment accounts and prepaid expenses (normal operating items we pre-purchase to defer income taxes – this is not equipment purchases to defer taxes).
• Consider putting some funds away for retirement. This will make transitioning the business easier in the future if you have saved some for retirement.
• Purchase capital items that are needed or necessities (not wants), as long as the goals for the above three items are met.
• Reduce your debt. Putting this at the bottom of the list assumes that the business is in a good financial position and has positive cash flow prior to paying off debt first. Increasing rates may make it more important to not pay off low interest rate loans if you are planning to borrow more at higher rate (even though rates are still low compared to the 80s and 90s).

How do we decide where to put the funds? Planning! Tax, cash flow, and business planning are key to doing this well. If we have good goals with our plans, it will make deciding what to pay off, or what not pay off, easier.

If you’re ready to start the conversation for a loan or about your current farm finances, reach out to our team at 888.339.3334 or visit HorizonFC.com today.

By Johanna Rohrer, Member Education and YBS Program Specialist, Horizon Farm Credit

Regardless of age, experience, or geographical location, the agricultural industry presents an opportunity for young and beginning farmers to pave their own unique path. Here at Farm Credit, we believe in providing them with the resources to do just that.

Our Association’s footprint is uniquely positioned across five states, serving 100 counties of urban, suburban, and rural agriculturalists alike. The mid-Atlantic region offers a diverse perspective of agriculture in our corner of the United States – and while our Association’s area of reach may have grown recently due to our merger, the passion and investment we have for our community has remained the same.

Still holding true to the centuries-old traditions of agricultural life, we have seen a new generation of producers utilizing their diverse professional backgrounds and experiences to engage consumers in innovative ways. Young agriculturalists, some returning from school, others pivoting from their current career path or continuing the family legacy, are finding opportunities in agriculture.

As a rural and agricultural lending cooperative, Farm Credit knows farming can be a challenging business, particularly for those producers just starting out. We also know the average age of the American farmer is 57.5 (according to the 2017 U.S. Census of Agriculture), and in order to ensure we continue to produce the food, fuel, and fiber consumers near and far demand, it is essential to support young and beginning farmers.  

This year, we have decided to continue our Farmers on the Rise award program to honor, empower, and reinvest in the next generation of agriculture. This program was created to commend farm owner-operators who excel in their field based on their efforts in agriculture, financial character, leadership, community involvement, and environmental stewardship. We will offer up to ten $10,000 awards to the finalists selected by a judging panel. Applications are accepted online at FarmersOnTheRise.com by September 30, 2022.

We are excited to see all of the groundbreaking plans that our future ag leaders have on the horizon! If you’re ready to discuss options for loans or programs for your farm business, give us a call today at 888.339.3334.

Horizon Farm Credit partnered with the Pennsylvania Dairymen’s Association for a milkshake popup event on August 17 at their Headquarters office to raise money for the Central Pennsylvania Food Bank. Farm Credit matched the price of all milkshakes sold that day with a donation to the Central Pennsylvania Food Bank, totaling $2,500.

“As a cooperative, our Association is deeply connected to our local communities and customers,” says Tom Truitt, CEO of Horizon Farm Credit. “We are proud to be able to assist the Central Pennsylvania Food Bank with a donation to continue fighting hunger and improving lives in our region.”

The milkshake popup event was the first official welcome to Horizon Farm Credit’s Headquarters office for industry partners and community members in the Mechanicsburg area. More than 75 visitors stopped by to purchase a milkshake in support of the Central Pennsylvania Food Bank and to network with Farm Credit staff. Members of Horizon Farm Credit’s Executive Leadership team were in attendance, as well as Beth Hamilton, Director of Food Sourcing & Logistics for the Central Pennsylvania Food Bank, who accepted the check on behalf of the organization.

“The PA Dairymen’s Association has been a trusted partner throughout the years for Farm Credit and for the state of Pennsylvania’s dairy farmers,” adds Truitt. “Horizon Farm Credit is happy to continue working with this statewide organization to support the dairy industry and education.”

To learn more about Horizon Farm Credit, visit HorizonFC.com today or call 888.339.3334. Information about the Central Pennsylvania Food Bank can be found at centralpafoodbank.org. Learn about the PA Dairymen’s Association at padairymens.com.

Horizon Farm Credit recently announced their second annual Farmers on the Rise program, awarding up to ten $10,000 prizes to young, beginning, small, minority, and/or veteran farmers in their footprint.  

“This award program was created to honor ten outstanding farm owner-operators within the diverse agricultural community looking to expand their existing agricultural business,” says Tom Truitt, CEO of Horizon Farm Credit. “Those selected to receive an award will be recognized based on their efforts in agriculture, financial character, leadership, community involvement, and environmental stewardship.”

The contest is open to applicants that identify with at least one of the following categories:

• between 18 and 35 years of age,
• minority operator,
• veteran operator,
• operate a small farm with annual gross ag income less than $250,000,
• or a beginning farmer with at least two years of farming experience, but no more than 10 years.

In 2021, Farm Credit awarded six recipients with Farmers on the Rise awards. “Farm businesses ranged from livestock and grain to aquaponics and produce for urban communities and CSAs,” says Johanna Rohrer, Member Education & YBS Program Specialist at Horizon Farm Credit. “Our panel of judges is looking forward to reviewing the applications this year and seeing the inspiring dreams of our region’s producers.”

This program is open to all farmers. You do not need to be a Farm Credit customer to apply, but must reside in Horizon Farm Credit’s footprint. The deadline to submit an entry is September 30, 2022. For more eligibility requirements and to apply, visit farmersontherise.com. If you have any questions about this program or application, please email learning@horizonfc.com.

Ellie Grossnickle, Ag Relationship Manager, Horizon Farm Credit

We are officially in the heat of the summer, which means it’s nearly impossible to drive anywhere without passing a roadside market with fresh produce. I could make a meal off of fresh-picked sweet corn. In Maryland, where there are more than 90 famers markets to choose from (according to Maryland Department of Agriculture’s 2022 Farm Market Directory), getting my sweet corn fix is no problem. Whether you’re stopping by the farmers market, on-farm store, or roadside stand, buying local is a perfect way to support your local community’s economy while getting the freshest product.

Aside from a delicious taste and friendly staff, one of the best parts of buying local is knowing exactly who you are buying from, and having the satisfaction that everything you are paying for is going directly into a farmer’s pocket. As a fellow farmer and neighbor, I’m able to see the countless hours spent and sacrifices made to get their product from farm to table, so even if I do pay a little more than I might somewhere else, it’s worth knowing who it’s helping. Astronomical input costs have created a trying first half of 2022 for all farmers, so I feel good knowing my contribution goes a long way.

A couple that is serving up some of the best locally grown food is Jamie and Robin Enders of Glen Arm, Maryland. The Enders own and operate Willow Valley Farm where they raise beef, pork, chicken, and eggs, which they sell in a small store located at the entrance of their farm. Along with their own products, they also sell a variety of goods sourced from other local farmers. When asked why the Enders believe in buying local, Robin says, “By supporting local farmers, you are enriching your community by keeping resources local. Willow Valley Farm employs many local teenagers that are often looking for first time jobs. Buying local also reduces travel costs, which helps not only our wallets, but our environment.”

Buying local doesn’t mean you can’t also support farmers that don’t have the ability to sell to a direct market, but it’s a convenient way to get a fresh product while supporting local communities. My family ships milk to the Maryland and Virginia Milk Producers Cooperative, which eventually ends up in grocery stores. While I firmly believe in the quality and freshness of that milk product, I still love to support our local creameries and enjoy some freshly churned ice cream when I have the chance. And, if you’re searching for locally grown food in Pennsylvania, look for the PA Preferred checkmark logo on products in grocery stores like Giant, ShopRite, Walmart, Wegmans, and Weis.

Supporting both markets is important to the viability of our food system. With National Farmers Market week being celebrated August 7 through 13, be sure to check out what the farmer next door to you has to offer. To find a market in your area, check out the 2022 National Farmers Market Directory: ams.usda.gov/local-food-directories/farmersmarkets.

If you’re dreaming of growing local products for your community to enjoy, or currently raising products and need financial assistance, reach out to me or a member of our team today by calling 888.339.3334 or visiting HorizonFC.com. Farm Credit is ready to help you take the next step in your farming business.