Andrew and Emily Schrader were up against a cold hard fact that everyone in agriculture knows all about:

Getting a start in farming or ranching is a mighty tough row to hoe for a young person. Andrew had the skills, he had the desire and he had the commitment. What he and Emily lacked was the capital necessary for a traditional loan down payment.

And that’s where Frontier Farm Credit’s AgStart program offered a leg-up. “It’s a great program,” Andrew says. “Frankly, I don’t think we could have done it any other way. We save what we can, but it would have taken a long time to come up with the money for this particular opportunity and by that time, it would have been gone.”

The opportunity was in the form of 80 acres of bluestem near Alma, Kansas, down the road from Wamego where Andrew and Emily live with their five-month old daughter, Leah Marie. Andrew grew up ranching with his father and uncle. After his dad left the operation, Andrew continued to be part of the commercial cow-calf enterprise but he didn’t own any land. When an 80 the operation had been renting came up for sale, it was his chance to get a start in a business he loves.

“I guess agriculture is in my blood,” explains Andrew, who is also the rental coordinator for Martin Tractor in Manhattan. “We always want to be involved with agriculture in some way and being able to buy this 80 gives us that opportunity.”

Frontier Farm Credit Financial Services Officer Justin Frank helped open the door for that involvement. Working with the Schraders, Frank utilized Frontier Farm Credit’s AgStart program to provide the capital for the land purchase.

“With AgStart, what we at Frontier Farm Credit are saying is that we recognize the value of sweat equity and hard work,” Frank explains. “Obviously there is more risk involved for us as a lender when a lesser down payment is required but we understand there’s a human factor that no computer can analyze. Character is very important to us and so is our commitment to helping young people get started in production agriculture.”

“Frontier Farm Credit is a mission-based lender,” he continues. “It’s our mission to help grow rural America and helping young farmers and ranchers get a start is a big part of that. We all know how difficult it is to start from scratch in farming or ranching. It’s a very capital intensive business so programs like AgStart, as well as financial services which facilitate generational transfer and estate planning, are our way of serving that next generation of Kansas agriculture.”

AgStart focuses on young farmers and ranchers—those who are 35 or younger—and beginning farmers and ranchers— those with 10 or less years experience managing a farm or ranch. Additionally, AgStart provides opportunities for minority applicants. The program includes operating, term and first-time real estate buyer loans with reduced down payment requirements for qualified applicants.

The whole thing is backed up by Frontier Farm Credit’s financial expertise and an individually tailored approach to agricultural credit. For the Schraders, the result is a future in being part of the agricultural community, raising a family in rural America and developing a productive ranching business.

“I couldn’t be happier with the program,” Andrew asserts. “Justin was very helpful to us. He asked about our ideas and our plans and he tracked land values in the area to help us make a good decision. And the process was pretty painless— there was a lot less paperwork than I expected.”

AgStart is just one aspect of Frontier Farm Credit’s commitment to agriculture and rural America. As President and CEO Doug Hofbauer explains, however, the program is a good example of what Frontier Farm Credit is all about.

“Our job is to serve agriculture and rural America,” he asserts. “The future of our industry and rural communities certainly lies in our youth and we have made a commitment to that future. We formed a team to develop AgStart to be a very competitive, flexible program for the young, beginning operator. We wanted it to be something that would give them a start in this industry and we’re very proud to accomplish that.”

Click here to learn more about the AgStart program, or visit with the folks at your local Frontier Farm Credit office.

Later in 2009, the 2010 Nominating Committee will be seeking stockholders interested in being considered for Director and 2011 Nominating Committee positions. If you have an interest in one of these positions, please contact your local lending office or Ruth Compton, Corporate Secretary, at 877-744-7144, Ext. 2831. Or e-mail ruth.compton@frontierfarmcredit.com.

Later in 2009, the 2010 Nominating Committee will be seeking stockholders interested in being considered for Director and 2011 Nominating Committee positions. If you have an interest in one of these positions, please contact your local lending office or Ruth Compton, Corporate Secretary, at 877-744-7144, Ext. 2831. Or e-mail ruth.compton@frontierfarmcredit.com.

• Keep production records by unit. Mark your grain bins and identify all scale tickets by unit. Split tickets are NOT acceptable in the event of a claim.
• Precision Farming & Yield Monitors may be used for APH purposes only, but in the event of a loss, hard copy records are required.
• If you suspect a loss, contact your FFC Crop Insurance Specialist immediately at (888) 598-8329.
• If a production loss is discovered during harvest, report this loss within 15 days of completion of harvest by crop.
• Please report your production as soon as harvest is complete, so your Crop Insurance Specialist can calculate your RA/CRC guarantees.

For those producers who are planting wheat for 2010, keep these points in mind:

• The crop insurance prices set by the RMA for 2010 are $5.42 per bushel for RA & CRC and $5.20 per bushel for MPCI. These prices are considerably lower than those set for 2009.
• If we have a delayed harvest, keep in mind the final plant date for wheat in your area. This varies by county, so you may need to visit with your Crop Insurance Specialist. If you plant after the final plant date, your crop is still insured but at a 1% reduction in guarantee per day, up to 15 days.
• The wheat acreage reporting deadline is November 30, 2009.
• Please be sure that all of your 2009 wheat production has been reported to your agent by the November 14, 2009 deadline. This is important to maintain yield and unit structure.

Have a safe and bountiful harvest and thank you for your business with Frontier Farm Credit.

Business planning should take place all year long when possible. The tax planning side of the Business Plan does take on more significance at year-end, as there are only a few more months to make adjustments that can save dollars from being paid to taxes.

Your Frontier Farm Credit Business Services Tax and Accounting Specialist can: 1. make sure you have accurate and up-to-date business records; then, 2. help develop and analyze projections for your income and expense items through the year-end. This will enable you to save or defer tax dollars and minimize the impact to your cash flow.

Options for completing year-end business planning include:

Prepay expenses
If you are a cash method taxpayer, you can prepay many expenses, which may be deductible in the year that you pay for them.

Defer income until the next tax year
You may benefit from delaying income until next year. But remember that leaving checks out in the mailbox until January won’t work, because all income that you receive (even if you didn’t bother to collect it) is taxable.

Pay your spouse and children for the work they provide
If your spouse and children work for the business, you may hire them as employees and deduct their compensation. This process can possibly save you social security tax and may increase your contributions to retirement plans. You can provide health insurance as a tax-free fringe benefit to a spouse who is on your payroll, and you may save income tax and self-employment tax at the same time.

Contributions for yourself and family employees to retirement plans
There are many options to fund your future; consult with your Business Services Specialist to learn about your choices of the various retirement options available for farmers and ranchers.

Section 179 depreciation
For the tax year 2009, the deduction limit is $250,000. Qualifying property for Section 179 includes breeding livestock, machinery, single purpose ag structures and drainage tile. Property can be new or used. Property eligible for Section 179 cannot be purchased from a related party (spouse, ancestors, or lineal descendant).

Bonus depreciation
Businesses are allowed to depreciate an additional 50% of the cost of certain property. Eligible property includes: tangible property that has a recovery period not exceeding 20 years, purchased computer software, water utility property and qualified leasehold improvement property. Only new assets qualify.

Take advantage of the New 5-year MACRS Recovery Period
added for 2009 only. New farm machinery and equipment (but not used equipment) placed in service during 2009 qualifies for a 5-year recovery period.

Lease versus purchase
Leasing can be a good option to avoid some of the limitations surrounding depreciation. With the correct structure, your lease payment may be fully deductible each year and even provide a faster write off than with depreciation. If you have used all of your section 179, have purchased too much in the 4th quarter of the year, or have purchased too much over the entire year, leasing may be a beneficial option.

Take advantage of available energy credits
During 2009, individuals can make energy-conscious purchases that will provide tax benefits when completing their tax returns next year.

Use 3-year income averaging
Farmers can elect an amount of their current farm income to divide equally among the previous three years. Savings may result if the previous year’s income was taxed at a lower tax rate than the current year.

Defer disaster payments and crop insurance indemnity payments
You may postpone reporting crop insurance proceeds as income until the year following the year the damage occurred if you meet certain conditions. The insured must suffer actual physical loss in yield.

Utilize a Health Savings Account
A Health Savings Account (HSA) is a tax-exempt custodial account that must be used in conjunction with a highdeductible health plan. The contribution limits for a Health Savings Account in 2009 are: single $3,000 and family $5,950.

Tax law can be complicated. We at Frontier Farm Credit specialize in rules that apply to agricultural farm and ranch taxation. Our goal of tax planning is to minimize your taxes for the long run, not just this year.

Contact your local office to work with a Business Services Specialist.

by Joe Metzen




Just a few thoughts on some benefits of leasing as you plan
around year-end:

• Tax Advantages – Faster write offs, larger expenses
• No Down Payment
• Preserve Working Capital
• Flexible Payment Schedules – Meet cash flows
• No Mortgage – Allows customer to improve property without affecting current agreements
• Specialized Equipment – Avoid risk of obsolescence
• Joint Leases – Makes payments and depreciation easier to share

Sale/Leaseback – FCL purchases equipment from you and leases it back:

• Can create working capital if too much cash is tied up in equipment
• Can use lease to spread the depreciation out if not as much is needed in 2009

Bonus Buster pricing on leases ends December 31, 2009

• 0.65% discount to the customer

So far in 2009, twenty-seven existing or new customers of Frontier Farm Credit have taken advantage of these benefits. Check with your Financial Services Officer for more information.

While we may be slowly working our way out of the global recession here in the second half of 2009, it just won’t feel like it in many areas of the economy. Productivity is up, balance sheets are being de-levered, and we continue to work our way through excesses in areas like housing. The job markets, however, are tough, and will continue to be so as consumers are more cautious and confidence is still precarious. An increase in government regulation and oversight and intervention into the markets will also mute some of the economic recovery, at least here in the United States.

The dollar is likely past its “flight-to-quality” phase and looks to continue the long-term downward movement versus other major currencies. With real interest rates relatively low, and huge amounts of liquidity as well as debt as a drag on the dollar, many prognosticators are indicating a weaker dollar and perhaps accelerating inflation in 2010. An increase in inflation with a weaker dollar would likely mean increased input costs for agricultural producers partially offset by firmer commodity prices.

Volatility has the potential to be significant and business risk management will still be a very important component for agricultural producers to consider. We know from recent history that markets can disconnect and move very rapidly. Additionally, there is always the potential for “shocks” to the markets such as H1N1 and the geo-political risk that is a constant in today’s world.

American agriculture has proven that it is the most productive and innovative in the world. To fully leverage that productive advantage, farmers and ranchers must also bring a working knowledge of risk management to many areas of their operation to include production, legal, marketing, operational and financial risk management.

Frontier Farm Credit wishes to earn your business as your full financial service provider and can bring a host of experts to the table to help you navigate during these interesting times. Not only do we offer a full host of competitive loan products to include variable, adjustable and fixed rate loans, but also a whole suite of related products and services. Please contact your FSO with any questions you may have about insurance, record keeping, estate planning, appraisals and tax preparation.

I love the fall! Maybe it’s the harvest season or maybe its football, but in either case we’re finding out how the preparation and work will be rewarded. To use the football analogy, our Association is into our 4th quarter of a year with tremendous volatility and challenge. Because we have some customers that have really been challenged this past year, our Association results through 3rd quarter 2009 have been stressed.

I have used the corollary with staff that our customer’s fortunes are like the “Tale of Two Cities.” Generally, grain operations have been and are continuing to do very well. The market certainly has taken a dip from last year’s highs but countering that are generally good growing conditions and what should be excellent yields. The livestock sector, especially pork, has been hit hard with only about two profitable months in the last 24. H1N1 and the hoopla around it certainly hasn’t helped.

Our cattle producers are generally faring better, but overall profitability is down. Equity lost by pork producers and cattle producers has been discouraging at a minimum and devastating to some. Even in the face of really tough times for the livestock sector, I really admire and respect our customers. They’ve worked hard with us to find solutions. Solutions not always that easy to find.

So what’s the overall impact to our Association? Credit quality remains above 90%, which historically is still a very positive number. We are fortunate that we’ve gone into this credit downturn with very strong credit quality and capital. All during the turmoil in the financial markets, the Farm Credit System and Frontier Farm Credit have met our mission and accessed ample funds at competitive rates for our customers. We never engaged in sub-prime lending or anything like it and have “stuck to our knitting” with solid underwriting standards that have proven to serve us well during this downturn.

Earnings are more challenged. Decreasing credit quality and an increase in non-performing loans require funding additions to the allowance account for loan losses. That directly reduces Association net income. Historically low interest rates lower returns to our net worth just like it does to your savings accounts. Our funding bank – US AgBank – incurred investment losses and lower returns on their capital. As a result, our costs to the bank have gone up and they have chosen not to pay patronage to Associations in 2009. These factors have all contributed to below acceptable earnings for our Association so far this year. Our board will take all of these factors into account in determining if we can pay customer patronage next year from 2009 earnings.

So what have we put in place to offset some of the negative news in earnings and credit quality? We instituted a number of cost savings including reductions in staff compensation, travel, director expenses, and overall budget by nearly $1 million. For financially stressed customers, we jointly developed a plan to return their loan to profitability if at all possible. The Farm Credit System is the only lender that includes borrower rights for distressed loan customers allowing them to apply for loan restructuring. Our mandate is to find a resolution representing all stockholder interests meeting the dual test of being of benefit to a stressed customer while finding the lowest cost alternative for the Association.

We have slowed growth to remain strongly capitalized. We’ve chosen to slow overall growth by temporarily limiting participation purchases. Purchasing participation interests in diverse industries, generally from other Farm Credit lenders across the United States, is an important diversification strategy we’ve employed since 2004. Today about 15% of our loan volume is composed of participations. This has and continues to be a good diversified source of income to the Association. While temporarily limiting participation purchases, we remain focused on meeting the needs of both our current and credit worthy new customers.

This year has been and continues to be stressful financially, as the worldwide recession ripples into the agricultural economy. The prediction is for dramatically less farm income in 2009 as compared to 2008. The general economy appears to be emerging from the recession; however, the recovery appears to be a long and slow climb and that certainly affects both domestic and foreign markets.

Sometimes it’s hard to remain optimistic in the face of what seems to be constantly negative news; however, we do remain optimistic about the opportunities in agriculture. We see customers every day that are making very good progress and building a solid and financially strong business. We’re proud to be of service in helping make that happen for you and your family. It’s a privilege to work with the very best customers and people in the world. Thanks for the opportunity and thanks for your business.

This program is designed to enhance management skills and provide new decision-making tools and strategic planning strategies for agricultural producers.

The program starts with a two-day on-campus orientation Nov. 16-17, 2009, where participants meet one another, as well as program administrators and faculty who teach the online modules. After the orientation, participants return home to work on the modules on their own time.

The modules, taught by K-State Department of Agricultural Economics faculty, cover such topics as land, machinery, financial analysis, human resources, tax and policy, risk management and marketing.

The program will end with a second on-campus visit Feb. 23-24, 2010. At that time, class members will provide feedback and participate in a graduation ceremony.

The cost of tuition in the 2009-2010 MAST program is $1,250 per person or $1,100 per person if two or more participate from the same business. Frontier Farm Credit is offering a limited number of partial scholarships for their members. More information is available by contacting a local office or Alicia Goheen, MAST coordinator, at agoheen@agecon.ksu.edu.
http://www.AgManager.info/MAST/