Guide to farm loan renewal preparation for 2025 – Agweek

As we head into 2025, many farm operations are coming off a relatively poor profit year in 2024.

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Some farmers had very small profit levels last year, while others had extremely poor results in 2024. In all cases, all farm operators continue to face very tight profit margins for crop production in 2025, as compared to a few years ago. During these challenging farm financial times, it is good to plan ahead before meeting with an ag lender for renewal of a farm operating line of credit or for an annual review of the farm financial portfolio.

Following are some tips for farm operators to be more proactive, as they are preparing for an annual meeting with their ag lender.

• Prepare an up-to-date 2024 year-end farm balance sheet (as of 12-31-24 or 1-01-25).

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Preparation of an accurate and up-to-date year-end balance sheet is critical to the loan renewal process for any farm operation. Updating the previous year’s balance sheet with current year-end numbers can help expedite the process. If the farm operation is a sole proprietorship, most ag lenders will also want personal asset and liability data included. If it is a partnership or family corporation, most ag lenders will also require personal balance sheets from all partners.

A good year-end balance sheet will include:

• List of accounts receivable as of 12-31-24, which includes whom the money is due from, the dollar amount, and the date it will be received. This includes deferred payments for grain sold in 2024.
• List of accounts payable as of 12-31-24, listing who the money is owed to, the dollar amount, and when payment will be due. Be sure to include any items listed as current assets where payment is still due, as well as final 2024 land rental payments that were still due as 12-31-24. 
• List of 2024 prepaid expenses for both crops and livestock as of 12-31-24, which details the input, amount of the input, and the amount that was prepaid. This is for items where payment has occurred. 
• Grain and livestock inventory list as of 12-31-24. The grain inventory should include total bushels of each crop, bushels that are forward priced (date and price for each sale), and any sales plans for the remaining bushels. Livestock inventory should include the number, weight, and any sales information on market or feeder livestock. An updated list and estimated value of breeding livestock should be included as an intermediate asset rather than a current asset.  
• CCC loans on 2024 grain that were taken prior to 1-01-25, listing the bushel amount, CCC loan rate, CCC interest rate, CCC loan maturity date, and sales plans for the CCC grain.
• Review the list of farm machinery and equipment, buildings and facilities, and other capital assets, removing any assets that have been sold or removed, and adding any assets that were purchased or acquired during 2024. Farm machinery values should be adjusted to represent current market values.
• Add any land or other long-term assets that were added in 2024 and adjust asset values as necessary (may want to review this with an ag lender).
• List of all other loans and creditors as of 12-31-24, listing the principal balance, interest rate, payment amount, and payment dates. Be sure to include short-term creditors for crop and livestock inputs, loans with family members, and CCC loans through FSA offices.

• Prepare a 2024 year-end income and expense statement as of 12-31-24.

The year-end income statement from the previous year should be based on actual sales of grain and livestock during 2024, which will likely include some 2023 inventory that existed at the beginning of the year, as well as any 2024 grain or livestock that was sold during the year. The 2024 expenses would include any accounts payable from the beginning of the year balance sheet that were paid in 2024 and any 2025 prepaid expenses that were paid in 2024, in addition to the other 2024 crop and livestock expenses. A preliminary 2024 federal tax return is a good resource to prepare an income statement.

• Prepare a budget-to-actual summary for the previous year (as of 12-31-24).

Once the 2024 income and expense statement has been finalized, and accrual adjustments are made based on the year-end balance sheet, it’s always good to review the actual year-end financial analysis compared to the budgeted cash flow analysis that was prepared at the beginning of the year. Pay attention to the big differences that exist in crop and livestock income and the various expense items, as well as determine explanations for those differences. Analyze for any potential adjustments that are needed for 2025.

• Prepare a preliminary 2025 budget and cash flow analysis.

Preparing an accurate and complete budget and cash flow analysis for 2025 is a very important part of the loan renewal process and can assist with grain marketing decisions for the 2025 crop year. A high-quality cash flow analysis will likely include:

• Planned crop and livestock production for the year, including acres of various crops, anticipated production levels, and any current or planned sales of the 2025 production.
• A grain and livestock marketing plan that includes a list of the amount sold, the contracted price, and the date to be delivered, as well as plans for remaining unpriced grain and livestock inventories.
• A list of planned crop and livestock inputs for 2025, the contracted or planned price of the inputs, and when the expense will be incurred.
• A detailed list of rented farmland for 2025, which includes the name of the farm owner, acres rented, amount of rent (including flexible lease details), and dates when rent payments are due.
• Include income received for accounts receivable on the year-end balance sheet and account for the expenses of any accounts payable at the beginning of the year.
• Include any other farm income (custom work, etc.) and non-farm expenses (family living, personal loans, etc.) that must be accounted for in the cash flow analysis for the farm.
• Provide details of planned 2025 crop insurance coverage, such as updated APH yields, percentage coverage, enterprise versus optional units, and the addition of hail or wind insurance. (Your ag lender may be a good resource for these decisions.)
• Provide a copy of FSA farm program information listing the crop base acres and FSA program yield for each farm unit. Discuss the 2025 farm program choice with your ag lender.
• Include any planned changes or adjustments in the farming operation for 2025 in the cash flow analysis, including farm machinery purchases or sales, adding or selling land or other assets, and any other changes to the farm business, as well as any changes in personal assets or liabilities.
• Once USDA announces details, potential payments for farm economic assistance and disaster assistance could be included. Possible 2024 ARC-CO payment estimates for corn and soybeans, based on final 2024 county yields and 2024 MYA price estimates, could also be included. 

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It is best to include all partners and family members who are part of the farm operation in the renewal process with an ag lender so that all key players are on the same page with financial decisions affecting the farm business. It is very important to be trustworthy and honest in preparing and sharing financial information with an ag lender to help assure confidence in the accuracy of the financial data. View an ag lender as an informal partner in a farm business, as a good ag lender can be a valuable resource in making management decisions.

Farm operators should expect their ag lenders to be well prepared, trustworthy and honest in financial dealings. It is important to remember that most local ag lenders also face a lot of pressure in the process of renewing farm operating loans and that they need to do their “due diligence” to complete the necessary requirements in the loan renewal process. The documentation that is prepared will likely be reviewed by senior management at a financial institution, as well as be subject to review and audits by Federal and State bank examiners. Most ag lenders are part of the local community and want to see farmers have financial success, which is in the best interest of both the farm business and the ag lending institution.

Kent Thiesse is a Farm Management Analyst and writes the weekly “Focus on Ag” column. Contact him by phone at (507) 381-7960 or by email at [email protected].