Episode 3 - Know Your Numbers: Financial Strategies for Farm Resilience

Ahlishia Shipley sits down with Ryan Loy, Extension economist with the University of Arkansas Division of Agriculture, to talk through the financial realities facing farmers today.  Ryan shares practical financial strategies producers can use to stay resilient, including the importance of accurate budgeting, disciplined spending, and proactive marketing. The conversation also highlights the value of strong relationships with lenders and the role of Extension tools and decision-support resources in helping producers make informed financial decisions. 

Transcript

00;00;00;01 - 00;00;45;29
Ahlishia Shipley
You're listening to the FARM Champion podcast, where we champion farmer and rancher success. In each episode, we sit down with a FARM Champion, a trusted professional committed to helping producers navigate the business side of agriculture. If you're a farmer or rancher or agriculture professional working to build stronger and more resilient farm operations, this show is for you.

00;00;46;01 - 00;01;11;00
Ahlishia Shipley
I'm Dr. Ahlishia Shipley, your host. In today's episode, we're diving into the financial side of running a farm business. From managing loans and input costs to navigating market uncertainty, the financial decisions producers make every day can have a big impact on the long-term success of the operations. To help us unpack that, I'm joined by Dr. Ryan Loy, an extension economist with the University of Arkansas Division of Agriculture.

00;01;11;02 - 00;01;26;15
Ahlishia Shipley
Dr. Loy works closely with producers on issues like farm financial management, agricultural finance, and strategies that help farm businesses stay strong even in challenging economic times. Dr. Loy, thank you so much for sitting down with me today.

00;01;26;17 - 00;01;35;19
Ryan Loy
Absolutely, Dr. Shipley. Thank you so much for having me on the third episode of this. So I'm excited to be a part of this new endeavor. And yeah, I'm looking forward to our discussion today.

00;01;35;21 - 00;01;41;28
Ahlishia Shipley
Fantastic. So to start us off, when we talk about agricultural finance, what exactly are we referring to?

00;01;42;06 - 00;02;14;20
Ryan Loy
Well, agricultural finance kind of encompasses a lot of things. But really, if you boil it down, I mean, kind of just think about it from a 30,000ft view, really all we're talking about in ag finance is the management of money, credit and capital in a farming business. So that comes from things like borrowing money, you know, looking at interest rates, looking at interest expenses as a proportion of the budget that you plan for in a year, you know, looking at investments in land, equipment and livestock, managing your cash flows throughout the year, you know, especially important in agriculture because agriculture, you know, is not a business that gets revenues year round, right?

00;02;14;20 - 00;02;28;04
Ryan Loy
Typically it's going to be one part of the year, but you have expenses in different parts of the year. So it's all about timing of the money. So then even further, just looking at profitability on farm and kind of repayment capacity for the debts that are out there.

00;02;28;06 - 00;02;45;21
Ahlishia Shipley
Dr. Loy, with that foundation in mind, can we talk a little bit about the environment producers are operating in today? And what I really want to know is like, from your perspective as an extension economist working closely with producers, what financial pressures are farmers and ranchers navigating right at this moment?

00;02;45;28 - 00;03;09;12
Ryan Loy
Well, that's a great question because, you know, even if it's in good times of, of the agricultural economy, farmers are always, you know, managing money, you know, looking at investments. And so, you know, it's always, always something that's a struggle even when it's good. And so now what we've been seeing recently, probably in the last couple of years, I would say 3 to 4 years, we've really seen commodity prices.

00;03;09;12 - 00;03;27;28
Ryan Loy
And as some aside here, I work in row crop specifically. So I'm going to be talking about row crop sector. Commodity prices have been depressed and very low and kind of falling, while at the same time the inputs to grow that crop have been steadily increasing. And in some cases, and in fact, more recent cases like the Iran conflict, they've increased sharply.

00;03;28;01 - 00;03;43;22
Ryan Loy
And so when you think about the margin, right, the margin being the differences in what they receive for their crop versus what they pay to put it in the ground, it's been a continuous margin squeeze for them as of late. And so one of the biggest things for them is thinking about, okay, now is not the time to invest.

00;03;43;22 - 00;04;07;29
Ryan Loy
Now is the time to hold on to what we have, not take on new debt. And, you know, be strategic when it comes to what is planted, how it's marketed and, you know, things, those sorts of things. So the bigger challenges and the financial pressures that they're navigating is figuring out how to make money when what they're receiving on the back end of it is dropping, while what they're paying to put in the ground is increasing over time.

00;04;08;05 - 00;04;32;05
Ryan Loy
That's been a big thing. And really, that's a 30,000ft answer to encompass a lot of the, the bigger issues. Right? We've had higher interest rates, you know, levels of inflation. So all of those impact the on farm business. So again this is a kind of like the 1980s farm crisis in a microcosm. It's not as widespread. But there are very specific parts, especially in the Arkansas Delta that are trying to withstand the storm.

00;04;32;05 - 00;04;34;29
Ryan Loy
And it's becoming an untenable storm to, to withstand.

00;04;35;00 - 00;04;59;13
Ahlishia Shipley
Thank you. That is very valuable insight from the field, so to speak. And it sounds like there are pressures building on farmers in farm operations from kind of multiple fronts. And in that type of context, the financial side of farm management becomes even more important. So, you know, we've seen growing conversations around farm financial stress and even farm bankruptcies in some parts of the country.

00;04;59;13 - 00;05;07;23
Ahlishia Shipley
And you spoke to this a little bit, but what specific trends are you watching and what do they tell us about the financial health of the farming sector?

00;05;07;25 - 00;05;29;10
Ryan Loy
Well, you know, that's a great question. You know, the farm financial stress in the farm bankruptcy portion, bankruptcies have been something that I've been tracking for a while now. And part of our research right now is to figure out why the uptick in Arkansas? So, just as some context, Arkansas in 2025 had the highest level of farm bankruptcies in the country, and that is specific to Chapter 12 bankruptcies.

00;05;29;10 - 00;05;47;14
Ryan Loy
Now, when you think about a bankruptcy, it sounds bad when you look at it as a concept in terms of why you have to do it. But really it's a financial tool to help restructure debt. And a Chapter 12 bankruptcy is very unique because it's not a Chapter 7 where it's liquidation and you have to close up shop and you have to liquidate all of your assets to pay creditors.

00;05;47;15 - 00;06;06;12
Ryan Loy
On the other hand, chapter 12 is designed to be able to restructure your debt, get back on your feet and continue farming. So when we're looking at that and what we see in the farming sector for bankruptcies is, is a good indicator of financial stress, though it does not automatically allude to the fact that they're going to lose their farm in the Chapter 12 scenario.

00;06;06;14 - 00;06;23;18
Ryan Loy
It just means that they may not have that asset base in which they can kind of get themselves out of this, so they have to restructure their debts, be more realistic and be able to pay those off. And so again, in terms of trends, we've been increasing, you know, off of the COVID timeframe, when they were very low because of a lot of government assistance.

00;06;23;18 - 00;06;44;20
Ryan Loy
We've kind of, we've trended back upwards indefinitely, especially last year. And what we see is the decision to file bankruptcy is not made in a growing season time, in one growing season, as an example, because a lot of farmers will have equity, they'll have capital, and they can utilize that to get to next year in hopes that they will make more money that next year and cover what they lost the previous year.

00;06;44;20 - 00;07;03;12
Ryan Loy
What we've seen recently, though, is farmers having to deal with several consecutive years of situations like that and are running out of that capital that they have on farm, and having no way to replace it. What ends up happening is if you don't own land, which, you know, a lot of farmers are renters in the Delta, you don't have that asset base, that non depreciable asset base,

00;07;03;12 - 00;07;22;13
Ryan Loy
if you if you will, to kind of bail yourself out of these situations. And so, you know bankruptcy becomes a very reasonable option. But it is a financial tool that is designed in the tax code to be able to do this. So it's, again, it's a good indicator financial stress. And I think that really just shows the stress that they're under right now in terms of finances.

00;07;22;13 - 00;07;35;23
Ryan Loy
Because if not that's penciling, and they don't have that land base. You know, it's very difficult to continue to farm into perpetuity forever, right? If you cannot if you don't see that light at the end of the tunnel in terms of being able to rebuild those reserves.

00;07;35;25 - 00;08;00;17
Ahlishia Shipley
Thank you. That's very valuable information. So it sounds like you're saying that producers have to make decisions about playing the long game in agriculture, even though they face a very uncertain future. So even in that context, what are some key strategies or financial management practices that can help farmers maintain some level of profitability and reduce the risk of financial distress?

00;08;00;19 - 00;08;17;27
Ryan Loy
That's a good question. And it's really going to be based on that farmer’s individual operation, right, because every operation is different. But in terms of just on average overall, you know, strategies are to not overexert yourself, right? Make sure that you're not expanding when you don't have to and make sure that purchases are reasonable. Don't go buy a brand new truck.

00;08;17;27 - 00;08;32;27
Ryan Loy
Right. And then, you know, those sorts of things and then be on the hook for that debt for an extremely long time. Whereas if you already had a truck paid off and it worked as an example and same thing with farm equipment as well. Be mindful of improvements. What is necessary versus what would you like to get done on the farm?

00;08;32;27 - 00;08;55;04
Ryan Loy
Right. Is it necessary to improve your profitability or is it not? And again, think about that long term expectation. Right. So when you think about that long term, what are those things that you can really handle and underestimate what you can handle. And most of the time, those play out in a better way than if you were to overexert yourself, get kind of caught with that large amount of debt, you know, and prices tank and you have no real way to pay it back.

00;08;55;04 - 00;09;09;18
Ryan Loy
And maybe you've burned some of the reserves and so be mindful of those things. And at this time in the farm economy, definitely ensure that purchases that are made, debt that's incurred, is necessary to improve profitability and not going to just be an additional expense item at the end of the year.

00;09;09;20 - 00;09;34;08
Ahlishia Shipley
Ryan, thank you, those sound like some very good strategies to position yourself for reducing risk in an uncertain environment. And so, you know, alongside good financial management practices, looking at, you know, needs versus wants and making sure that you are operating, you know, at the right level for your operation, access to the right tools and resources can also play a major role.

00;09;34;08 - 00;09;47;29
Ahlishia Shipley
So from your perspective and in your work, what kinds of tools and programs or educational resources are available for farmers to better manage their operations and make informed decisions?

00;09;48;06 - 00;10;08;27
Ryan Loy
The University of Arkansas Extension has some resources available. Everything from, you know, we have enterprise budgets like most land grant universities have, and that's basically a budget, a one acre budget for a particular crop. And you can look at that from a state average level and input your own amounts in there and kind of have a better idea of budgeting and also highlight key areas that you can cut.

00;10;08;29 - 00;10;32;15
Ryan Loy
In addition, Dr. Hunter Biram and myself, we like to produce those Excel files into web applications that can be accessed for free by anybody. And so we have some web applications out there that help forecast the profitability on farm for that year. And so it's a good way to have a starting point, compare crops that you can grow, compare returns, and know what the best decision is for you. In terms of educational resources,

00;10;32;15 - 00;10;51;19
Ryan Loy
Again, we have fact sheets, tools out there. And we also, in terms of education, we go out to the farms a lot and we go out with meetings with farmers and talk with them a lot, understand what their needs are and try to fit those needs. And in addition, there's also options through the FSA, the USDA-FSA, in terms of lower percentage loans.

00;10;51;19 - 00;11;11;00
Ryan Loy
Now again, there's those come with their own stipulations, but they are a program available to help in these kind of situations. And then, you know, things like the NRCS or the FSA again, where there's some conservation programs that can be implemented on farm that can kind of help mitigate some of that risk. And even at the end of the day, help you get some extra money to, to implement those practices.

00;11;11;00 - 00;11;21;12
Ryan Loy
So there is a wide range of support no matter what state you're in. Most land grants all offer the these levels of support, and I can say confidently, the University of Arkansas does.

00;11;21;14 - 00;11;49;11
Ahlishia Shipley
All right. Thank you. I learned a little bit myself there, Ryan. So I want to dig a little deeper into something that you just mentioned and that we touched on a little bit before, which is loans and access to capital, which is another major part of agricultural finance. So right now, what should producers understand about working with lenders and navigating farm loans, particularly in the time that we sit in, which is kind of flush with economic uncertainty?

00;11;49;17 - 00;12;11;27
Ryan Loy
And that is that, you know, it's a difficult question because that is really all up to the person. Right? And it depends on how long you've been a borrower from them. It depends on the relationship you have with them. And I really want to emphasize that. If I can give you one sentence answer for this question, it would say that getting a loan is as much of an equity issue as it is a relationship situation.

00;12;12;00 - 00;12;32;01
Ryan Loy
Building relationship with your lenders, you'd be amazed at how far that goes, right? If you're a good borrower with a great relationship with the lender, you know, they work with you, right? Because you're a customer and they want your business. But it's all about relationships. It really is. Now, at the end of the day, money's also the very important part of it, but it's all about the relationship you build with your lender over time.

00;12;32;02 - 00;12;54;20
Ryan Loy
Because again, there's many options in terms of perhaps rolling over debt, consolidating debt that may or may not be an option to you if you don't have a great relationship or you don't know that that's an option to you if you don't have a working relationship with your lender. And I'm going through a mortgage thing right now, and so I can tell you from experience that having the relationship and building that, is extremely helpful in scenarios like this.

00;12;54;23 - 00;13;22;05
Ahlishia Shipley
You know, you have mentioned the importance of relationships and it has been underscored, the talks I’ve had with other guests recently. And also I've seen it in my work in the producer community, that relationships, cultivating them and maintaining them, cannot be understated, like the importance of them and just navigating so much in the, the ag community, in the rural community so that, you know, that's very important that you share that.

00;13;22;05 - 00;13;43;14
Ahlishia Shipley
So you've talked a little bit about strategies and steps, and I want to go back to it just to kind of hone in on it for producers who are listening and who may be feeling some of the financial pressure right now, what are 1 or 2 practical steps that farmers and ranchers can take away to strengthen the financial position of their operation?

00;13;43;19 - 00;14;07;13
Ryan Loy
Well, we're talking about financial position. You know, that's really, you know, looking at it from just a one snapshot amount of time. And when we're looking at positions on farm today, financial positions, if I can give them two things, it would say, know your budget and make sure it's accurate. And one thing I always say when I'm meeting with producer groups or even any group, is that if you don't know what your budget is to the penny, then you really don't know what your profitability is or lack thereof.

00;14;07;13 - 00;14;39;21
Ryan Loy
So ensure that budgets are accurate and they represent what you plan to do with no unexpected expenses in there or different seeding rates. Right? You know, make sure that that budget reflects what you will do and what you carry out. And if it doesn't, then make sure it's updated so you know that profitability. In addition, knowing what your budget is, knowing what you can expect from your crop, also helps you market your crop so you're not at the mercy of cash prices at harvest, which are historically the lowest time of the year in terms of prices because of the high supply that gets delivered at harvest.

00;14;39;21 - 00;14;57;09
Ryan Loy
So, you know your budget, market throughout the year and, you know, book some of your crops ahead of time. If you're looking at your crop and you say, well, futures market just hit a price where it's at least a breakeven, or I'm in the black a little bit, by in the black profit, book some there. I'm not saying book 100%, but book some there.

00;14;57;09 - 00;15;13;16
Ryan Loy
Right. You're just basically hedging yourself across the year to ensure that you're just not at the mercy of a cash price. And that way you'll know, hey, I need to plan and get some extra cash or no, I'm good. I'm going to be able to have some cash to put back in reserves this year. Those are the two things I would really say, market and know your budget.

00;15;13;22 - 00;15;23;24
Ahlishia Shipley
Fantastic. Thank you so much. And with our producers that may need support in developing a budget, could you point them to a resource that may help them with that?

00;15;23;26 - 00;15;37;16
Ryan Loy
Absolutely. You can reach out to me any time. I'd be happy to help with it. But we again, we also have the, the enterprise budgets for the university. And part of what I do is help try to tailor those to what their farm is. And we also have those tools out there where you can input your own costs.

00;15;37;16 - 00;15;44;21
Ryan Loy
So again, I'm sure my contact information will be linked somewhere in this episode. So reach out any time and I’d be happy to help with that.

00;15;44;24 - 00;16;03;17
Ahlishia Shipley
All right. When you heard it here, Ryan is a resource. So thank you very much. So Ryan, as you look ahead to the future of the farm economy, what gives you confidence that producers can navigate these financial challenges and continue to build resilient, profitable operations?

00;16;03;20 - 00;16;29;14
Ryan Loy
Well, if there's one thing I've learned working with farmers is that no matter what, farmers have to be financial managers. They have to be accountants. They have to be farmers first of all, right? They have to be computer scientists to some degree. Right? They have to be the, the master of all trades. And they are. And what gives me confidence that they're going to be resilient and get through this situation is that, out of any sector of any any group of individuals I've worked with, farmers are the most resilient.

00;16;29;14 - 00;16;48;28
Ryan Loy
They're the smartest people, and they know how to make something pencil. And so while difficult times hit us all and it's all very important to, you know, hold on to what we have out of any group that I know, including myself. I think farmers are the ones that are going to be able to weather a storm. And no matter how bad it is, farmers are the ones that are going to be able to weather the bad storm.

00;16;49;01 - 00;17;13;05
Ahlishia Shipley
You are absolutely correct in that. So, you know, Ryan, I've learned a lot from you today and I appreciate that. And I'm sure a lot of our listeners have as well. Before we close, we like to end each episode with what we call a resilience reflection. And it's a brief moment where we ask our guests to step back from the details and, and reflect on the bigger picture of building a resilient farm operations.

00;17;13;05 - 00;17;40;01
Ahlishia Shipley
So, you know, I've worked with a lot of farmer serving professionals, and the toll that working with producers takes on them is not something that can be understated, because producers are just so important to the health and the success of our nation and just kind of our everyday life in general. And lots of times, as you've mentioned throughout our conversation, is that there are a lot of things that are out of the farmer's control.

00;17;40;01 - 00;17;50;18
Ahlishia Shipley
There's a great deal of uncertainty. So the question I want to ask you is, what keeps you committed to this work when there's so much complexity in the challenges facing farmers and farm businesses?

00;17;50;20 - 00;18;06;21
Ryan Loy
Well, what keeps me committed to this work from a personal standpoint, which is the less important standpoint, is that I enjoy doing it. I find it a very, very interesting sector of our economy. I like learning about it because there's always something to learn in agriculture and farming. It always is something to learn, and so I enjoy doing that.

00;18;06;25 - 00;18;34;15
Ryan Loy
Most importantly, though, what keeps me going through this is that even if I can help one farmer, if it means I'm helping somebody, then it's worth it. And so that's really a big thing, especially with us extension folks. I think the more the extension folks you talk to, that's really why we do what we do, is that, you know, I don't care if you're a homestead farmer compared to a 10,000 acre row crop farm or a one acre specialty crop farm or five acre specialty crop farm, it doesn't matter, because if we can help, then we want to do it.

00;18;34;15 - 00;18;43;28
Ryan Loy
And if we can make even the slightest impact on your profitability and your outlook in terms of your your farming enterprise, then it's worth it. It's always worth it.

00;18;44;00 - 00;19;10;00
Ahlishia Shipley
Thank you so much for such a thoughtful response, and thank you for the work that you do, and your commitment to support producers navigating these decisions and building and maintaining resilient operations. So to explore tools and resources that support farm business success, please visit agftap.org and learn how to connect with a FARM Champion like Dr. Loy in your area.

00;19;10;00 - 00;19;39;25
Ahlishia Shipley
And don't forget to follow and subscribe to the Farm Champion podcast. Thank you for listening. See you next time.