Surviving Good Times:
How Temporary Highs Could Lead to Extended Lows You’re a row-crop farmer in the Midwest. Your 2026 opened with market challenges, and they really haven’t eased up; if anything, things got more precarious, with spiking input costs and breakeven commodity prices at planting that dipped in June for corn even more than soybeans. If you held off on selling and were rewarded with being able to move your own corn or soybean pile for a bigger check in the recent price recovery, congratulations! If you ended up with more revenue than immediate expenses took out of that, it’s important to be wise in how you spend it. It’s not an investment if you can’t afford it Farmers are a smart group of businesspeople—but they’re not necessarily immune to what I call a “casino high,” or the feeling of immense relief at getting a sizable win after a demoralizing losing streak. Some may feel so relieved, in fact, that they are considering big-ticket purchases such as equipment or land. And although real estate is often a wise investment, it’s not if it is going to put you far deeper into debt when you are already struggling. If a farmer has been making do with an old piece of equipment, maybe it feels like it makes sense to use some or all of that unallocated income to upgrade to a later model right now. For one, it’s a tax deduction, and you’re worried about income taxes on those corn and bean profits, right? Also, you only need a down payment because you’ve known the banker for 20 years and they’re willing to loan you the rest. But, consider this. Most farmers expense equipment immediately. That saves on taxes now, but it means a bigger tax bill if you sell quickly—as you might have to if buying this equipment pushes you under. Profitability is tied to the management decisions a farmer makes that generates income, whereas money in the bank can ebb and flow. History tells us that commodity price spikes do not happen predictably. Just because you have money in the bank does not automatically mean profitability. In fact, we explained this in a blog post a few years ago, that I encourage any farmer to give a quick read. Adding more to your debt load with a stressed cash flow, that only recently made extra money because of an atypical fall price run-up, is a recipe for disaster. This is especially true if market predictions hold true that the cost of planting inputs, fuel, and cash rent are likely to remain high or even increase going into spring 2027. Know your options If you had already made plans to purchase equipment or land before the recent price increases, and had budgeted accordingly and determined you could afford to do so, that’s a different situation than the point of this article. Here at Ag & Business Legal Strategies, we want to help farmers avoid going deeper into debt. Sometimes that means helping them restructure their debt or file for bankruptcy. Sometimes, though, it means providing advice on operations and finances that may help farmers avoid the stress of making decisions about overwhelming debt. If you are a farmer who expects a windfall because of recent corn or soybean sales, you’ve already budgeted for high 2027 input costs, and you have money left over, you do have options. You could apply that to the principal of a loan and get ahead on paying it off, or you could put it in the bank. You could invest wisely. And yes, you could put a down payment on equipment or land, but only if it makes sense in your cash flow. If you haven’t budgeted or won’t have money left over—hold up before making any large purchases! You’re not prepared to do so, even if neighboring farmland won’t be on the market again for another couple decades. I advise you to consult with a financial advisor before spending, even if you are not in debt. If it’s been a while since you had an enterprise analysis done on your farm, or you’ve never had one, our office provides that service. And for those farmers who are dealing with debt, whether or not they were able to sell high lately, call our office. We can set up an appointment to discuss your situation and review your legal options. Reach out to us sooner than later. Don’t gamble your farm or future on a casino high—remember, you want the farmhouse to win, not the house. (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow, when it may be too late.
Enterprise Analysis: Not Just an End-of-Year Exercise
Much of the work we do is helping farmers decide how to restructure their debt and whether to file bankruptcy—and if they do file, representing them in navigating their case. We are also committed to assisting farmers and small business owners in examining their operations so that perhaps they won’t reach the point of needing to restructure their debt or file bankruptcy. This is our enterprise analysis service—which, as indicated, is for both farms and businesses, although the vast majority of our clients are farmers. The goal of farm enterprise analysis is to help the producer figure out which flows, or “enterprises,” of their business are or are not pulling their financial weight. Common enterprises on one farm might include two or more of the following: It is also possible to use enterprise analysis to determine whether to continue renting certain farmland, or whether it might be wiser to give up a lease further away for one much closer that might cost more in rent but save on fuel, hauling, and time. For growers in Iowa¹, summer is a prime time to have analysis done for purposes of renting (as the September 1 deadline looms to inform landlords or tenants of non-renewal in March 2027), and also to adequately prepare for input purchasing decisions later in the fall. Right now most of the analyses we perform are for row-crop-heavy farms, but the process is useful for any farm type. How the analysis helps It’s important to assess each individual enterprise to see if it can support itself, but also for the impact it’s having on income for the entire farm. These individual assessments usually provide surprising insights to even the most knowledgeable farmer. Recently we worked with a client to perform an analysis on each of his farm’s six enterprise flows, to help determine which pieces of equipment to keep or sell while writing his Chapter 12 plan of reorganization. We determined how much each piece was used in each enterprise—which included combining, planting, spreading manure, grain storage, spraying, and custom cattle finishing—to assign a percentage of each machine’s use to the enterprise(s) using the equipment. Then we divided the cost of the piece among them accordingly and calculated the income from each enterprise against that and its other costs. In the end, we showed many of these enterprises could not support all the equipment required to conduct that work. This is the type of process that helps a farmer decide if they should continue with a specific enterprise and, if they do, if they really need the equipment. Another good example is a farmer raising corn and soybeans, with some of the corn being used as feed for their livestock. The key question here is: What is the effective price per bushel that the farmer is receiving for what is being fed to livestock, and how does that compare to the market price it would fetch at an elevator? If the price received by walking the grain off the farm is less than the elevator payment, the farmer should ask, “Why am I continuing to feed livestock?” A secondary line of questioning would be: Is this a short-term anomaly or a long-term issue? If it is long-term, can the enterprise be turned to a profit? If not, what are the financial ramifications of ceasing the livestock operation? Would the farming operation be more profitable by either selling the crops at market price or divesting the farm of that livestock? (319) 363-1641 Honesty in outside advice It is not uncommon for farmers we work with to realize during an enterprise analysis that the numbers they’ve been working with aren’t precisely accurate. Good longtime farmers develop gut feelings about their work and the supplies they need—but when margins are as tight as they are right now, every opportunity to trim costs should be considered. We’ve heard everything from, “So I’m really not using this equipment enough to justify having it?” to, “I didn’t realize my yield estimate was that far off my actual average.” Producers confident in their cost versus profitability have been surprised, for instance, to see their actual piglets per sow per year in black-and-white, or more dry days for dairy cows between weaning and estrus than they had been figuring. This is where an outside perspective is so valuable. Farming is a business, but it’s also a calling with much emotion tied up in it—and as such, the people who do it sometimes justify unnecessary expense as a given. We provide an impartial, honest point of view that works in facts and data. It’s good to love your work, but to avoid losing money or the farm, it’s great to know your assets, liabilities, and the profitability of each enterprise on the farm. If your overall income far exceeds your costs and you can afford to keep equipment you’re not adequately using or extra livestock that costs more to feed and medicate than you earn in marketing them, you are unlikely to need our assistance. (However, even in this case, not keeping your eye on costs and profitability could lead to declining net worth and unwise borrowing later on, that could eventually result in financial distress.) If you see reduced return on investment, experience mounting debt, or otherwise feel you could better streamline your farm’s expenses, Ag & Business Legal Strategies can help you pinpoint where to make changes. Call us to find out where you’re really headed—and if it’s a good idea to pivot and change course. (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow, when it may be too late. ¹Lease termination deadline in Iowa
Don’t Wait to See How Harvest Plays Out
By Joseph PeifferFounding Attorney At nearly the halfway mark, 2026 is providing farmers with some of the most challenging economic times they’ve seen in a generation. This is from a combination of lower commodity prices than what they were seeing just a couple or so years ago, to increases in fertilizer, chemical, and other input costs. On the plus side, the One Big Beautiful Bill Act that Congress enacted last year contained safety net mechanisms that increased the statutory reference prices for key crops including corn and soybeans. This means higher ARC and PLC payouts are likely to be triggered. And the USDA is disbursing one-time bridge payments to some growers from a $12 billion fund announced to help offset losses stemming from tariffs President Trump put in place. On the down side, adding to the tariff-related losses and lower commodity prices are 50 percent higher fuel costs and other elevated input expenses because of the Iran war and subsequent difficulty getting products through the Strait of Hormuz. The payments mentioned above are better than nothing, but they’re a bandage — not a solid fix. Farmers would rather have stable, dependable markets for their products, than what they view as handouts. Instead, many are projected to lose money on the corn and soy acres they’ve planted this year. This is leading them to consider hard decisions, which is always better tackled sooner than later. Our office is receiving more calls than at this time last year, from farmers seeking help with debt restructuring or filing for Chapter 12 bankruptcy. I would have expected to hear from more in January or February than since mid-April, but that has not been the case. The first cash rents for the new farmland lease year were due March 1, and if a farmer was going to decide they wanted to trim their expenses or restructure debt for 2026, they had more options in January-February than they now have. Those who were unsure but pressed forward with renting to plant more anyway may have figured they could use their bridge payment to get through this season and then reevaluate after harvest. They were not expecting war nor its effect on expenses. (319) 363-1641 Potential Income Options Farmers who have significant operating capital and/or little to no debt are probably safe to weather 2026 to farm another year. That doesn’t mean they won’t lose money. But what does this year mean for those who don’t have that kind of capital and do have debt? If this is you, what can you do between now and harvest time to protect your financial interests? One of the first steps will be to review planned inputs for this summer. For example: It’s not that growers don’t normally consider this anyway, but 2026 will require even more examination of expenses versus return. If it looks like you’re only going to trade dollars one-for-one, why do it? If you can’t trim expenses enough to meet financial obligations, including loan and other debt payments, you may need to earn more income through an off-farm job, contract work such as harvesting or hauling grain or livestock for others, or finding other ways to add value to your operation. I have a client who has set up a transloading platform at his farm, where he can load crops and other commodities into containers to be shipped for export — this increases the price of his product by 50 cents per bushel. Other exporters have recently begun paying him to use the platform for their products as well. In addition, he recently attracted outside investment into opening a mixing facility to be able to ship specialized product to South Korea — an established mixing facility recently closed, so he took advantage of the brief market vacuum to fill a need. If you are a farmer with sufficient equity and liquidity, and vision, to do something like this right away, it’s certainly something to consider. But if this is not within your means and you don’t have an investor — and it won’t be, for most farmers — perhaps there is another way you can add value to your operation or find a market niche either without such a large investment. What should you be doing? If margins are tight but you are nonetheless making money this year, don’t be afraid to pay the taxes you owe. Borrowing to purchase equipment you don’t need right away, just to claim a large deduction against income and to lower taxes, might hurt you in the long run. The key here is “borrowing” — going into loan debt isn’t necessarily smarter than paying taxes, if you’re going to owe the bank for a while. If you can see that you will struggle this year to make loan payments, talk with your banker now. I can tell you after more than 40 years of this work that the farmer who comes to the bank, acknowledges their problem, and proposes how they can help solve it typically has more luck getting the bank to help them rework the loan than those who put off such a meeting. It’s never great to have the banker come to you after a default, when you had not told them that you would not be able to meet your debt service obligations. Finally, if your financial problems run deeper than one loan, it may be time to analyze operations and think about serious restructuring. Ag & Business Legal Strategies offers enterprise analysis, which reviews your liabilities and assets, revenue and expense streams, and shows you where you are losing and making money so you can decide how to move forward. If after this step you are still unsure how to proceed, our attorneys can help by reviewing options. Whether it is refiguring your operations, or needing to restructure debt or file for bankruptcy, Ag & Business Legal Strategies is dedicated to helping farmers work toward an outcome that is beneficial for their unique situation.
Closing the Loophole on Misapplied Loan Payments
Perhaps you pay for your auto, mortgage, home equity, equipment, and other loans each month through your bank’s online portal or app. In these cases, you select which account is receiving the transfer, and there’s a digital record showing where the payment was applied. Not every farmer does this, as many prefer to mail or hand-deliver payments to their bank or lender. And even tech-savvy producers run into situations where they have no contact with money going directly to their lender—for instance, the proceeds of an auction or sale that are sent directly to the lender. One of our clients was a farmer who sold some equipment at auction. Notably, he still had an active loan with his bank on one piece of equipment, which a family member had helped secure by signing a guaranty that he would assume the debt if the primary debtor—our client—could not pay. Rather than the farmer receiving the sale proceeds and turning them over to the bank, the auctioneer remitted directly to his bank. Instead of applying this payment as expected to the equipment loan, however, the bank put it toward another of our client’s loans. He learned about this a short time later when the family-member guarantor received a letter from the bank advising that a payment had been missed on the still-open equipment loan and that he, the guarantor, was financially responsible. We spoke with the bank and its attorney and, after some discussion, fortunately the bank agreed to reapply the auction proceeds to close out the equipment loan instead, and we did not need to take the matter to court. We were thankful our client had a good outcome, but it wasn’t guaranteed—and the entire problem could have easily been prevented. Be clear about intent To avoid this, we advise clients and auction sellers to write the specific loan number(s) on the payment checks to lenders or note it in correspondence before or with the payment being transmitted to the lender. It’s also a good idea for the client-debtor to contact the bank and explicitly state which loan should receive payment and then follow up to ensure it happened. The fact is, if you have more than one loan with a bank, credit union, or other lending institution and you don’t specify where a payment should be applied, under Iowa law the lender can apply it where the lender prefers. If Grandma signed a guaranty to help you buy a combine but you also have a mortgage only in your name and its payment deadline is looming, the bank may decide to allocate your payment to the mortgage. It is a larger loan, for one; and two, bank officials figure they can always go to your guarantor if further payment doesn’t materialize. They are going to look out for their financial interest first and foremost—especially if you the borrower are having money troubles If you can put your request for allocation of payment in writing, do so. Although oral contracts and instructions have the same weight as written ones, it’s much easier to point to something in writing than to try to resurrect a verbal discussion. If you must make a payment and instructions by phone, get an email address so you can follow up with a note reiterating where you want payment applied, with the loan number. You can also write a restrictive endorsement on a check made out to you, that you’re signing over to the lender. This just means on the endorsement line on the back where you would normally write, “For deposit only,” write, “To be applied to loan #…” and substitute your loan number for the ellipses. It’s a good idea to check if the lender prefers specific wording for this type of endorsement—they should interpret what you write reasonably, but it’s easier for everyone if you use the language that triggers the lender to do what you want. If you write a check for payment instead, include the loan number(s) in the Memo line. Remember: You have the right to direct how payments are applied to your loans. It’s your money, and while the lender might have its own preferences about how to apply payments, you have the right to control how your money is used. If a lender refuses to allocate a payment as you direct, you should seek legal advice if talking with the lender doesn’t resolve the issue. And if you are close to a financial cliff—facing mounting debt, about to fall behind on payments, or experiencing a shortfall of expected income—Ag & Business Legal Strategies can also help with the larger decision about whether to pursue debt restructuring or bankruptcy. Our attorneys can additionally assist with delving into your farm’s financial health with an enterprise analysis. As our Founding Attorney Joe Peiffer often says, a decision to do nothing is a decision to let others decide for you. Don’t wait until things go from bad to worse to seek legal counsel! (319) 393-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow, when it may be too late.
Don’t Sleep on These 2025 Farm Income Tax Tips
It might surprise you that there is one step even some seasoned farm income tax filers need reminding of, namely: When preparing your 2025 tax return, make certain you’ve counted all your income in addition to all expenses. Sounds obvious? Read on. In our experience, it’s not difficult for a farmer to remember reporting expenses, since they can reduce income tax liability. People will make an extra effort to search for farm and other business costs they’ve paid since last January 1, to receive the fullest deduction they can claim. But a common error our attorneys have seen over the years is that one or more sources of income were left out of a submitted tax return. Maybe it’s an oversight and not intentional. People make mistakes, and the IRS does have forms for amended returns, and to extend the deadline to file a tax return. The problem with this oversight is if you sign and submit a return that doesn’t include all reportable income, even if you later voluntarily file an amended return, the burden may fall on you to prove you weren’t committing tax fraud. The IRS takes its collections very seriously and may label what you would call an “error” as fraud. For this reason, even if a professional is helping prepare your return this year: Gains – or not – on grains While there are a few types of accounting methods individuals and businesses use to track finances, by far the most common for everyday taxpayers and farmers is cash basis accounting. With few exceptions, income is reportable when salary or payment is received, and expenses, when they are paid. Another method is accrual basis, mostly used by large corporations that are barred from using cash accounting. Under accrual, timing on when to report income and expenses differs from cash basis—one example is that grain from an accrual farm may be taxable inventory as soon as it’s harvested, but for a cash farm, there’s no income until the farmer is paid. If you are using cash basis to keep your books and file taxes, carrying over unsold stored crop into 2026 simply means you’re deferring that income to this tax year instead. It’s only income when you sell it. If you are using accrual, there are tax implications to discuss with your accountant or preparer. Carrying over corn or soybean inventory does impact a cash farmer in other ways: Although a lot of farmers have seen less income, there are some who harvested enough to pay their debts and still have grain in the bin. If they want to benefit a particular charity and empty the bin, they can donate grain directly to their beneficiary of choice. Note: This is not selling the grain and then donating the money for a deduction; it is donating the grain directly, and the elevator or other trustee sells it and disburses the payment to the charity. By doing this, a farmer can still claim eligible input costs for producing that grain but does not pay income taxes on its sale. The disclaimer on this, of course, is that the gift must be made in the reportable tax year—now is too late for 2025, but it’s something to think about before the end of 2026, if you are in this situation. Talk with your tax preparer for details. (319) 363-1641 Notable “et ceteras” In 2017, Congress’s Tax Cuts and Jobs Act made some changes to how equipment trade-ins are reported on income taxes, beginning with the 2018 tax year. Although this is several years old, there are frugal farmers who have not traded in equipment since then, who may have recently done so (or are considering it) and are unaware of these changes. Before 2018, if you traded in fully depreciated used equipment, any trade-in value you received would be applied as your down payment, and the “boot,” on the new item would be the tax basis for the newly acquired piece of equipment. Since 2018, in this same scenario, you are required to report the trade-in value like a cash receipt treated as income—but you can also report the entire new purchase value as the tax basis for the newly acquired equipment, which can then be utilized for a Section 179 deduction. This income can have an effect on income used to determine the cost of Medicare Insurance premiums, so talk with your tax preparer to understand those impacts. This advice is also applicable to everything in this article, so be sure to hire a knowledgeable tax professional who understands farm finances. Another consideration for some farmers is an upcoming change in the alternative minimum tax. The AMT was enacted decades ago by Congress to ensure wealthy individuals and corporations would pay a certain level of tax no matter how many deductions they could claim. Over time, though, more “regular” taxpayers began to fall under this umbrella because of how inflation raised their incomes. Under the 2017 Tax Cuts and Jobs Act, new AMT rules significantly reduced the number of taxpayers affected by it, by raising income exemptions and phase-out thresholds (income level at which one must pay the AMT). However, Congress did not vote to renew the 2017 Act, which means 2025 is the last tax year to which it will apply. Major triggers for AMT include: These triggers will be somewhat lower when filing for the 2026 tax year, in 2027. These are just some considerations to be aware of when prepping your 2025 tax return. We repeat: Be sure to report all your income as well as expenses for the year. Aside from anything else, the 1099s and other income forms you receive are also transmitted to the IRS, which an agent may compare to your signed return. Hire a qualified, trusted tax professional to assist with your return. And if you have any legal questions regarding past or current taxes, or the IRS has contacted you about payments still owed, call Ag & Business
Attorney Joe Peiffer Featured in National Ag Media
Founding Attorney Joseph Peiffer continues to expand his media presence, sharing crucial insights to help farmers and agricultural businesses prepare for the financial challenges ahead. As noted in our previous update, Ag & Business Legal Strategies (ABLS) has been actively featured in agricultural news outlets, offering guidance on debt restructuring, bankruptcy concerns, and long-term financial planning for producers across Iowa, Illinois, and Missouri. Interview with American Farmland Owner’s David Price Joe recently joined American Farmland Owner’s host David Price for a timely conversation about the difficult financial decisions many farmers may face in the coming year. The interview explores rising operational costs, tightening credit, and strategies producers can use to stay ahead of potential financial strain. Watch the full interview and read the complete article here. Joe Peiffer Featured on RFD-TV News Joe was also featured on RFD-TV News, where he discussed key considerations surrounding 2026 operating lines of credit. During the segment, he highlighted the initial steps farmers should take now to strengthen their financial position for next year—along with practical tips to improve approval odds with their lenders. View Joe’s full RFD-TV appearance and article at RFDTV.com. More Media Coverage Coming Soon Stay tuned for additional news features and interviews from Joe Peiffer and the ABLS team. We remain committed to advocating for farmers, empowering them with the knowledge and strategies they need to navigate uncertain financial seasons. If you or someone you know is facing financial pressures—or simply wants to build a proactive plan—contact Ag & Business Legal Strategies today. Our team can help you understand your options and create a clear path forward. (319) 363-1641
Our Strategies in the Headlines
By Joseph Peiffer, Founding Attorney Nearly 10 years ago, after 30 years of rural-focused practice with other firms, I founded Ag & Business Legal Strategies as a practice focused on advocating for the legal and financial interests of Iowa, Illinois, and now Missouri farmers and other small business owners facing debt restructuring or bankruptcy. This year, in the wake of more mainstream news focus on the farm economy, we at ABLS have seen a sharp increase in our efforts to provide news media with information and analysis about farm bankruptcy, financial planning, and more. Associate Attorney Austin Peiffer and I have provided multiple interviews over the past several months both to agricultural media—geared to a farmer and agribusiness audience—and to general news media that are trying to help the non-farming public understand more about agriculture. Here is a sampling of the 2025 news coverage featuring ABLS insights: We have more notable interviews to come, all with an eye toward keeping the public, as well as the farming and agribusiness communities, informed of financial and related legal factors affecting agriculture’s bottom line and future plans. If you are dealing with worry or uncertainty about debt, your financial health, or legal issues related to these, don’t wait to act—reach out for a discussion and plan of action NOW. Help yourself with the holiday gift of peace of mind! (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow, when it may be too late.
10 Common Mistakes Made by the Financially Desperate — and Why They’re Bad
Earlier this month, we spoke with Brownfield Ag News¹ to encourage farmers to confirm their records are all in order when reaching out to their banks for 2026 operating lines of credit as well as to make informed financial choices for their operations. Although a farmer should keep their balance sheet and cash-flow records updated throughout the year, people do get distracted and busy. If you have not updated these records in a while, don’t put it off longer — pick a time in the next week to sit down and, in the words of Nike, just do it. Our attorneys assist a lot of farmers, so over many years we tend to see a number of the same errors in judgment from new clients. If you are deep in debt or otherwise feeling financially desperate, it is easy to fall into a trap of “surely I can get around the problem by doing this” or “I’ll just do this temporarily, and then I’ll fix it” without realizing your shortcut or “fix” may, in fact, not be legal. These are among the issues we see time and again, not in order of frequency: Of course, the main problem our attorneys see—the one behind all these mistakes—is a farmer not seeking assistance early enough to avoid these or other problems. We’ve said it before, but it bears repeating: While Ag & Business Legal Strategies is certainly qualified and willing to help farmers in legal trouble, we’d rather prevent it in the first place. We have farm experience; we are related to and friends with farmers; and we want every farmer to succeed. The best way for you, the farmer, to keep doing that is to call us for advice as soon as you realize you have a problem, rather than waiting until it has reached (or passed!) a critical tipping point. (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow, when it may be too late. ¹Brownfield Ag News, “Farmers Should Review Farm Financials Ahead of 2026 Loan Renewal Season.” Nov. 11, 2025.
Bankruptcy Can Be A Vital Tool
Last week, in an article by Joe Mahon of the Federal Reserve Bank of Minneapolis, attorney Joe Peiffer shared valuable insight into the financial state of Iowa farmers. He also highlighted some potentially troubling issues on the horizon. The main concern Joe raised involves farmers’ borrowing habits. He explained, “…so what they’re doing is that they’re borrowing money on the land,” and as a result, “…increase the amount of payments we’re going to have to make next year.” Refinancing like this does kick the can down the road, but only pushes off addressing the underlying issues farmers face. Pressure is building for these farmers, and the situation may eventually reach a breaking point. Fortunately for them, farmers can currently restructure their debt thanks to the value of their land. Land is a finite resource and will likely retain its value. However, other factors—like declining soil quality—could put that lifeline at risk. It’s wise to have a backup plan. This “ace up your sleeve” could help farmers avoid disaster and start climbing out of debt. While some may shy away from it due to societal stigma, bankruptcy—especially Chapter 12—can be a powerful tool when used properly. For more details on Chapter 12 bankruptcy, check out our previous blog posts: Chapter 12: The Farmer’s Ally in Debt Recovery and Chapter 12 Bankruptcy: Is it Right for Me? or call us to discuss your situation at (319) 363-1641.
The Urgency for Risk Management
Earlier this week, attorney Austin J. Peiffer spoke with Erin Anderson from Brownfield Ag News. Their conversation focused on the urgency of risk management, especially as farm bankruptcies continue to rise. As we noted in our blog When it Comes to Farm Debt – Fish or Cut Bait, the data is clear. The Administrative Office of U.S. Courts reported 181 Chapter 12 bankruptcies filed in the first six months of this year. That’s a 57% increase compared to the same period last year. In all of last year, only 216 cases were filed. The trend is climbing—and experts expect even more filings in the year ahead. These numbers matter. They’re a warning sign. As a farmer or business owner, you can’t control the market. But you can control your own financial preparedness. That starts with being organized, covering all your bases, and doing more than just the basics. In the interview, Austin put it plainly: “If all you’re doing is updating your balance sheet at the end of the year, you’re operating in the dark for the year. If you’re funding your farm by rolling debt onto land or equipment, you might not see year after year your farm is losing money.” The message is simple: be prepared. You might be asking yourself: If so, you’re not alone. Many of our clients come to us with the same concerns. And that’s where Ag & Business Legal Strategies comes in. We’ve helped farmers and business owners manage risk, reorganize debt, and plan ahead—so they can keep farming and running their operations. Don’t wait. Reach out today. We’re here to help.
When it Comes to Farm Debt – Fish or Cut Bait
Of all the services we provide for farmers here at Ag & Business Legal Strategies, maybe the most important comes first: Helping you honestly assess your situation. Earlier this month several articles and editorials came out of a meeting Arkansas farmers had with their Congressional delegation, requesting federal assistance to save their farms. This is far from the first news of the year indicating rising financial troubles for farmers stemming from several contributing factors: continuing low commodity prices, tariffs and other trade challenges impacting global demand for U.S. agricultural goods, higher input costs, and weather events. Farm bankruptcies (Chapter 12) are up sharply in 2025: There is no shame in filing a bankruptcy if debt reorganization or other measures are no longer sufficient to address your farm’s issues. If fear is holding you back, keep in mind that bankruptcy doesn’t necessarily mean giving up your land or livelihood. Bankruptcy provides an opportunity to force a restructuring of farm debts if the farmer can satisfy the requirements of the bankruptcy code. And the sooner you act, the better your chances are of reorganizing instead of liquidating, or even avoiding bankruptcy altogether. If you are not to the point of considering bankruptcy, but still have worries about your farm’s financial situation, it is better to face difficult decisions and take action now—not later. Indecision is a decision to allow others to make decisions for you. Waiting too long means your bank, your landlord, your vendors, and other people’s attorneys will be calling the shots for you. We want to help you determine your own path as much as possible. How farm history matters Even if your farm or ag business is thriving, it’s worth examining if this is a solid streak or simply a good year. For that reason, every farmer and their bookkeeper should set aside time to review the farm’s finances several times a year. Since harvest is underway and the end of the year will be here before we know it, this is as great a time as any! While quick cash seems an attractive option for desperate times because it’s immediately available and the creditor doesn’t require collateral, the tradeoff is immediate fees and, if not paid back within a short time, compounding interest beyond a normal person’s ability to repay. You can read more of our advice on MCA pitfalls, and better alternatives, here. If you need help assessing your farm’s financial situation, Ag & Business Legal Strategies offers enterprise analysis. This examines the individual parts making up your farm or ag business to show you how each is contributing to profit and loss. Find out more about how this planning tool can save you lots of future time and trouble here. (319) 363-1641 Cash isn’t necessarily financial health Even if you have a positive bank balance, that should not be your only metric for financial stability. Cash on hand doesn’t always indicate profitability, which is tied to management decisions you’ve made that generate income, such as the return on new investment for crops or livestock production. If your positive balance is largely from non-production activities—say, the sale of capital assets (land or equipment, for instance), borrowing funds, or an inheritance payout—you didn’t generate profit. This is important because profit has the possibility of being sustainable, or repeatable. Unless you’ve won a tremendous lottery or your last name is Buffett or Gates, you probably can’t rely on capital gains or a one-time payment as future income. This also applies to cash from refinancing or selling a capital asset, such as taking out a second mortgage. Borrowing and pledging intermediate or long-term assets to make your current situation positive only increases loan payments in future years, further decreasing your ability to cash-flow your operations. We’ve written about profitability versus cash-on-hand in the blog before, which you can find here. The only failure is avoidance This has been a tough year on many farmers, not just in the upper Midwest. With lower commodity prices and higher costs, even if the past few years have been boom, you could be facing difficulties this year in paying all your creditors on time. Whether it’s rent, a bank loan repayment, or what you owe vendors, you need to know who has first security interest in your crops and other farm products so you can structure payments to creditors. In many instances, there will be more claims against the crops and other farm products than the cash from selling those assets. This is another topic we tackled previously, about this time last year. You can read more about collateral, liens, the danger of selling collateral without authorization to pay debts, and how our attorneys can help with negotiations here. If the above is the situation you believe you’ll find yourself in post-harvest, it is time to evaluate your options NOW so you can be proactive in addressing deficits. Ag & Business Legal Strategies has been helping farmers with this problem for many years. One of the reasons we started this blog was to help farmers and small business owners better understand not only the options available to address their financial and legal problems, but how imperative it is to seek assistance as soon as they realize they have a problem. You may have heard that failure to prepare is preparing to fail. We say that failure to make a decision IS a decision—to let others decide for you. Farm debt not dealt with in a timely manner leads to consequences that can range from bad to catastrophic, including added default interest, legal action, seizure of property, and possibly imprisonment for farmers who sell collateral without authorization and do not pay the secured creditor. The earlier you act, the better chance you have to maintain control of decisions over your own future. (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute
Never a Bad Time to Put the Farm’s Cash Flow in Order
These are volatile financial and regulatory times for agriculture. You can’t control the world, but you can assess the financial health and future of your own farm to inform operational decisions with more confidence. It will be harvest time soon, not to mention you’re reviewing any 2026 Iowa farm leases for renegotiation or termination notices before September 1. We understand there’s already quite a lot on your plate, and here we are advocating for adding “just one more.” But it’s an important one! Know your cash flow Common wisdom is that a farmer should keep his or her balance sheet updated throughout the year so they know what standing assets and liabilities they have at any given time. It’s equally a good idea to keep your cash flow numbers updated. The cash flow isn’t just a flat look at revenue and expenses. It’s like a mini-movie of how healthy your farm business is, and if all parts are in balance. Ideally you can check your cash flow upon demand to answer questions like: “How much does it cost me to produce an acre of corn on this property?” or “What am I paying to feed each sow for a year in that barn?” Right now you may be deciding whether to continue with a farm lease, but you face other big decisions throughout the year where it would be valuable to consult your active cash flow at a glance. For now, let’s focus on the lease. Last month’s blog post noted Iowa cash rent rates are down for the first time in several years. It’s only 2.9%, but that margin could mean the difference between severing a lease that’s just a little too pricey or keeping it another year if the landlord agrees to a reduction—depending on your expenses. Deciding for the lease If you haven’t already looked ahead to your operations plan for 2026—even if you have no lease—it is a good idea to start penciling in a draft cash flow. How many acres will you plant? What kind of yield could you conservatively count on next fall? What kind of prices do you think you can get, and what are late 2026 futures? What inputs and labor will you need? Are you planning to buy or lease equipment, or stick with repairs? And what will those cost? If you raise livestock, you have some different questions to answer. How could these considerations impact a lease termination decision? Will you make money next year if you keep it, taking into account all those other factors—or would it be more profitable to terminate, eliminating that ground’s production but also its rent and input costs? This would dovetail well with an overall examination of your cash flow and operations for 2026: Is one part of your farm doing well and “carrying” shortfalls for any part of the rest of it? If so, do you have a good reason for maintaining the loss operation? (For example, you might raise crops and cattle, and now you’re getting great returns on the cattle but not so much for your grain. However, if some of the crop goes into feed, maybe it’s cheaper overall to keep planting than to buy that input off the farm.) As an aside about your lease decision: If you send a termination notice this month, it does not necessarily mean you cannot rent that ground again, depending on your (good) relationship with the landlord. If you need to terminate the lease as it’s currently set to renew next March, go ahead and send the notice even if your landlord has agreed to renegotiate terms. You can draw up a new lease before March. In this scenario, you do run the risk the landlord will rent to another farmer while negotiating with you. But if you have decided to terminate in absence of a renegotiated lease, sending the notice before September 1 is not truly a risk, since it legally protects you from being on the hook for another year’s rate of rent you did not want. Deciding for other reasons If you are on top of your cash flow and know how your farm is operating on any given day, great! If you’re out of practice or need to review everything to get to that point, though, Ag & Business Legal Strategies can help with an enterprise analysis at any time. This is auditing the individual parts of your farm that are supposed to make money, then isolating the factors contributing to its profit or loss. The point of this is to return to you the informed power to make choices about your operations—especially now. Bankers we’ve talked with lately have explained they’re seeing farmers draining the savings they’ve built up over years into just keeping their farms afloat, especially growers who are struggling with lower prices, yet still-high input costs. Farmers make decisions; there’s no shortage of responsibility in their DNA. The problem can be the action itself. Do you maintain a losing proposition as-is by, say, rolling debt into refinancing your mortgage or opening a long-term line of credit—in the hopes income will begin moving back up soon? Or do you decrease your acres or take some other action that means you’re not growing as much, but also spending less? In addition to enterprise analysis, we offer a lease termination service if you do want to send that notice, to make certain you’re following specific state law to the letter and protecting yourself. We can also assist in reviewing your obligations to help you decide if debt restructuring or even bankruptcy is a responsible choice. If you’re not satisfied with your financial situation, do something sooner than later. It’s tempting to say, “I’m going to keep doing the same thing”—but making no change is actively deciding to do nothing. This has created regret for some farmers we’ve helped, who waited until the last minute to call us and learned they would have had more options if they
September 1: Deadline to Terminate Renewal of 2026 Farm Leases
If you rent or lease out farm ground, you may already be aware of September 1 as a critical time for notifications in Iowa—but if not, here’s a brief explanation of what you should know. Farmland leases typically renew on March 1 each year, unless the lessor or lessee has expressly notified the other party in writing to terminate the contract, and this must be done no later than September 1 the previous year. If you intend to try to renegotiate lease terms, this is also the time to do that—so you can make an informed decision about whether to terminate and provide your notification by September 1. Earlier this spring, Iowa State University Extension reported that average Iowa cash rental rates are down for the first time since 2019, by about 2.9% this year. This can of course affect your lease negotiations, along with your 2025 harvest and crop revenue prospects and any government payouts if you are the farmer; or land value if you are the landlord. Ag & Business Legal Strategies provides assistance with lease termination notices. For more valuable details about this process, and to contact us for a consultation and a FREE “Farm Lease Negotiation Checklist,” follow the link below!
Trust Breached: A Hidden Estate Planning Risk
It’s important to consider all factors when making out an estate plan. Trusts are a common estate planning tool, and can provide significant value when used properly; however, trusts also lack certain important legal rights that people and corporate entities have, including the right to file bankruptcy. In 2024, Judge Thad Collins, the chief bankruptcy judge for the Northern District of Iowa, decided a case called In re: Vera Welte Testamentary Trust. When Vera Welte died, she left farmland to a trust with her will, naming her son as the beneficiary. The son needed to borrow money and had the trust pledge a mortgage on its land to secure those debts. When the son couldn’t pay those debts, the creditor sued to foreclose the mortgage. In response, the trust filed bankruptcy. Judge Collins was asked to decide whether the trust was eligible to file bankruptcy. The Bankruptcy Code says that, in general, a “person” can file bankruptcy, but then broadly defines “person” to include individuals, partnerships, and corporations. “Corporation,” in turn, is broadly defined to include entities people would generally think of as corporations, but also a “business trust.” Unfortunately, the Bankruptcy Code does not define “business trust.” To fill this void, courts have developed a six-factor test, with the most weight being given to whether the trust was created and maintained for a business purpose. It’s not sufficient for a trust to merely conduct business operations—business operations must be its primary purpose, not a side effect. The problem becomes apparent: A testamentary trust isn’t created or maintained for business purposes. It is created to facilitate the grantor’s estate planning wishes by protecting and preserving the property in the trust for the beneficiary’s benefit. That’s why Judge Collins dismissed the case—since the trust was not created for a business purpose, it was not a business trust and therefore was not eligible to become a bankruptcy debtor. Make Your Wishes Clear After the dismissal, the creditor foreclosed its mortgage and sold the trust’s land at a sheriff’s sale. Vera Welte could have prevented this outcome by prohibiting the trustee from mortgaging the trust’s land to secure other debts, even though most trusts give the trustee broad powers to pledge the trust property to secure debts. The trustee, too, could have prevented this by refusing to sign the mortgage—but perhaps she thought that the son, as the trust’s beneficiary, was only pledging land that was ultimately his, so it was his business if he wanted to do that. If the son had owned the land himself instead of being the trust’s beneficiary, then he could have filed bankruptcy himself and stopped the foreclosure. While there were several opportunities to prevent this outcome, they share a common thread: The testamentary trust. Moreover, while the business purpose test was determinative in Vera Welte, other typical features of estate planning trusts made it difficult for this trust to satisfy some of the other factors in the six-factor business trust test. Trusts are powerful tools. They can reduce taxes, avoid probate, facilitate distribution of complex assets, allow for assets to be distributed to heirs over time or based on conditions, maintain privacy, protect assets from creditors, and avoid will contests. They can serve many functions in an estate plan. But it is essential to also recognize their limits. Nobody plans to experience financial distress, become unable to pay their creditors, and file bankruptcy—but it can happen. In addition to concerns about cost and losing a step-up in basis, property owners and their estate planning attorneys who consider establishing trusts should carefully contemplate the likelihood that the trust will not be eligible to file for bankruptcy if the trust, or its property, becomes subject to debts that cannot be repaid. It may be appropriate to restrict the trustee’s powers to pledge trust assets to secure non-trust debts, set a date certain when the trust’s property will vest in the beneficiary, or use a different tool to accomplish the grantor’s goals. If your estate-planning attorney has recommended setting up a trust for your farm or business property, reach out to knowledgeable staff at Ag & Business Legal Strategies to discuss the bankruptcy implications of doing so. We can help you and your attorney account for this threat to carrying out your last wishes. or Call us at (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow. https://www.ablsonline.com/contact/
Keeping Up With the Times: Indexing Exemptions to Inflation
When the Bill of Rights amending the U.S. Constitution went into effect in late 1791, the Seventh Amendment stated in part that “the right of trial by jury shall be preserved” for “the value of controversy” over $20. This meant that anyone could demand a civil jury trial for a dispute involving something exceeding that value. That $20 in 1791 is worth about $700 today. But since the Seventh Amendment isn’t indexed for inflation, anyone can still demand a jury trial for a dispute of over $20. Indexing just means adjusting for inflation over time. One place most of us see this in action is when completing our federal tax returns each year. You may notice the “standard deduction” that applies if you do not itemize your deductions throughout the year (as most individuals don’t). This, coupled with shifts in income brackets from year to year, aims to fairly adjust the taxes you owe so you’re not penalized with a higher tax rate if your income only rises at the same rate as the cost of goods and services. Your buying power isn’t increasing — so your tax rate shouldn’t, either. So how does indexing apply to bankruptcy and debt collection? Personal property exemptions By and large, the legislators who write bankruptcy and debt collection laws recognize that while it’s important for filers to repay debts, it’s also vital that they not be left destitute with no belongings. Federal and state bankruptcy laws contain exemptions from debt collection for things like homes, vehicles, clothing, household goods and furnishings, some cash, retirement accounts, and more. There are several reasons for this. Stripping someone of all assets to satisfy debts, including tools of their trade, a means of travel, a place to live, everyday supplies, and all cash could make it difficult for them to reasonably support themselves, which in turn costs society in public assistance and reduced economic productivity. It’s in our collective interest for debtors to be able to live their lives even after creditors have collected their debts. The law also recognizes the dignity of keeping certain possessions, with exemptions for valuables such as wedding rings, books, and similar things with a sentimental value greatly exceeding their typically marginal market value. This article will focus on personal property exemptions, or everything that’s not real estate. Iowa generally offers robust personal exemptions — in addition to the categories above, the state allows debtors to protect their interest in disability income, veterans’ benefits, alimony, firearms, 529 college savings accounts, structured personal injury settlements, federal pensions, medical aids (why take someone’s CPAP or walker?), and internment spaces from creditors. In many cases, however, Iowa has not kept up with the times, and decades of inflation have eroded the value of the exemptions the state legislature granted to debtors. Inflation indexing: Not new, but not common The federal Bankruptcy Code and at least eight states index personal property exemption values for inflation, but as in most states, Iowa has not done this. When they have been updated, Iowa lawmakers have generally set fixed dollar amounts that remain unchanged until the next legislative update. The most recent update to any Iowa personal property exemption values was nearly 20 years ago, and others go back even further. One exemption, for a bankruptcy debtor’s interest in accrued wages and tax refunds, has not been updated since 1981 — the Iowa legislature set that exemption at $1,000 and it remains the same today. Had it been indexed for inflation according to the U.S. Department of Labor’s Consumer Price Index (CPI), that exemption would now be more than $3,600! For a more concrete example, consider Iowa’s motor vehicle exemption. In 2006, lawmakers updated the exemption for a motor vehicle to $7,000; with a CPI-indexed update, that amount would be close to $11,150 today. Inflation’s effects on this exemption are real — in researching Iowa’s exemption history, I found a Cedar Rapids Gazette classified ad from 2006 that listed a 2001 Grand Caravan with 103,000 miles for $7,000. Right now, Kelley Blue Book states a 2020 Grand Caravan with 103,000 is worth around $11,230 — not far off from an inflation-indexed exemption of $11,150. Because of inflation and the fixed value of Iowa’s motor vehicle exemption, the vehicle a debtor could exempt today is likely to be in significantly worse shape than the vehicle they could have exempted when the law was passed, since $7,000 doesn’t buy the same used car it did in 2006. Inflation devalues other exemptions too Other categories last updated in 2006 were post-marriage wedding/engagement rings, $7,000 (which would index in 2025 to $11,150); jewelry other than wedding/engagement rings, $2,000 ($3,175); household goods and furnishings, $7,000 ($11,150); and “wildcard” or otherwise uncategorized items often used for cash, $1,000 ($1,600). The residential rental or utility deposits or prepaid rent exemption of $500 was last updated in 1996 — this allows a debtor to keep up to $500 of cash deposits or paid-ahead rent on an unexpired lease. This is the amount they do not have to turn over to a bankruptcy trustee or a creditor’s garnishment. However, if the law had included CPI indexing, that exemption would now be $1,025. Other Iowa exemptions include: The last two are particularly relevant to farmers. The farming tools exemption is obviously a benefit to them, but many also work on the side in construction, trucking, manure hauling, or another job. Farmers with a side business can use the non-farming tools of the trade exemption in addition to the farming tools of the trade exemption. I recently had a bankruptcy client who was both a farmer and did construction, so he was able to take advantage of the $10,000 for what he used in each category. If Iowa law indexed exemptions for inflation, my client could today exempt up to $28,800 each for farming tools of the trade, and non-farming tools. See what a difference indexing makes? Indexing for inflation makes sense While nobody likes to think about it,
New Duties: What Tariffs Could Mean for U.S. Farmers and Other Small-Biz Owners
Author’s Note: This is a developing story; as such, some details may have changed from the time this post was written. Consult trusted, reputable news sources for real-time reporting. Last weekend, the United States imposed tariffs on imported goods from major trading partners, including China, Mexico, and Canada. In response, Canada has already imposed retaliatory tariffs and China and Mexico promised similar responses—though as of this writing, tariffs on Mexico are reportedly delayed a month pending a deal with the U.S. What does this mean for farmers and other small businesses? Let’s explore how these tariffs could potentially affect the agricultural and other business sectors. How tariffs work Tariffs are a “protectionist” tax on imports, meaning they seek to protect domestic production and manufacturing industries. By increasing the cost of foreign goods, they are intended to support the purchase of domestic goods. For example, if Canadian lumber costs $600 per thousand board feet but comparable American lumber costs $700, the Canadian lumber would likely be the more attractive purchase. A 25% tariff on Canadian lumber, however, would increase its cost to $750, making the American product cheaper. While this benefits U.S. lumber producers, it also raises the price on U.S. consumers who would have previously paid $600 instead of $700 or more. For decades the trend in global trade—often led by the U.S.—has been toward free trade, with countries agreeing to more bilateral or multilateral treaties to reduce or eliminate tariffs, with the U.S. generally reserving tariffs to address bad trade behavior such as dumping (selling goods below cost to drive competing producers out of business) or intellectual property violations. The U.S. has generally moved away from protectionist tariffs on the condition that other countries do the same. Now it has drastically changed positions with some of its largest trading partners, and those partners are responding in kind. Retaliatory tariffs As of this writing, Canada had announced retaliatory tariffs on U.S. goods it imports, including: Just as U.S. tariffs tend to reduce sales of exports to the U.S., retaliatory tariffs from those countries will likely reduce our sales to them. Moreover, while Canada’s tariffs are (currently) only on specified goods, U.S. tariffs seemingly apply to all Canadian, Mexican, and Chinese imports. These tariffs were imposed under the International Emergency Economic Powers Act, a law typically used to address national security threats through sanctions rather than trade issues. In fact, this is the first time it has been used to impose tariffs. This novel approach will almost certainly result in legal challenges, and while those may take months or years to work through the courts, it’s possible a judge might impose a more immediate injunction preventing U.S. tariffs from going into effect either on a limited basis or more broadly. Finally, the executive orders imposing these tariffs discussed the possibility of increased tariffs in response to retaliatory tariffs. This could be just the first battle in a longer trade war. The economics for farmers, small biz While the tariffs’ most direct impact will fall on businesses that produce, import, or export listed goods, the entire economy will feel their effects. Here are some basic likely outcomes: The economic theory behind free trade is that everyone, overall, does better when countries compete on price without protectionist trade measures. This is tough on domestic producers when foreign producers can out-compete them on cost, and can inspire calls for protectionist policies. In short, free trade does promote wider economic growth, but its benefits are often widely distributed, while its negative effects—such as job losses in some industries—are concentrated. This makes trade policy a contentious issue. For most farmers and other small business owners, the current tariff situation presents challenges. Perhaps U.S. duties will benefit some operations, but many farmers are likely to see increased costs and potentially reduced sales of goods. This economic situation might also reveal underlying fiscal problems in your business. If you are struggling with managing debt, or financial planning, the attorneys and financial strategist at Ag & Business Legal Strategies can help you figure out a plan. Give us a call sooner than later—let’s find out together how we may best assist. (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow. https://www.ablsonline.com/contact/
Future Financial Prep ‘Tis the Reason for Enterprise Analysis
Santa Claus is a kindly old soul who makes young and old happy with gifts this time of year—but I’ve never heard of him excusing a farmer from having to prepare their taxes or submit an updated balance sheet to the bank for a loan or operating line renewal. End-of-year preparedness is a gift that only you can provide yourself. For a farmer or other business owner, December is filled with more questions than usual. Here’s a sampling: This final type of question rarely appears on its own, usually accompanied by concerns about costs, farming or business practices, suppliers, rent or facilities expenses, and much more. Not only is conducting an enterprise analysis of your farm or other business a great way to answer immediate questions, it is a necessity to provide an overall snapshot of the operation’s financial and legal health. The Enterprise Analysis You already know what “analysis” is; an “enterprise” is just a line of business or profit source. Your farm may be made up of multiple enterprises. Let’s say you grow corn and soybeans for an elevator, but you also sort, package, and market some seed—these are likely to be two different enterprises. If you also raise cattle or hogs, there’s another. Common farm enterprises include, but are not limited to: The enterprise analysis simply means examining the individual enterprises within your operation to determine the profitability of each, then isolating the factors contributing to that profit or loss so you can make informed choices going forward. Suppose you grow crops and run a farrow-to-finish hog barn. Are each of these income streams profitable? Or are the crops profitable, but the swine is experiencing losses? If this is the case, you would carefully analyze why the farrowing operation is losing money. It could be disease problems—if so, consider whether you can control the disease or should discontinue farrowing. If it is a management problem, you could consider hiring a qualified manager to oversee the operation, increasing efficiency and profitability. If the losses are in the crop operation, maybe the rent is too high on some or all leased farms. Do you lease more than one farm, but one or more property’s rent is disproportionately high, such that the lack of profitability is pulling down the profit earned on the other farms? Maybe you shouldn’t be farming that ground, and should cancel the lease when you are able. Or, if your owned land cannot support the debt load, should you consider selling some land to decrease the debt and improve the operational cash flow? This is always a controversial question, since the farmers I know would rather sell almost anything they own than a piece of ground—it’s like asking them to part with a family member. Crop enterprise analysis questions are admittedly more suited to a mid-year evaluation, since in Iowa, September 1 is the deadline to give notice of lease non-renewal. They do, however, serve to illustrate the importance of one type of analysis; and late in the year is timely for analyzing other streams of farm and business income such as livestock, meatpacking, on-farm stores, and other enterprises. Parts of the Picture Some underlying tools for enterprise analysis should be consistently updated, not just once or twice a year, which is our recommended frequency for performing full analysis. One important tool is the farm balance sheet, which you should always keep updated but is especially vital this time of year, since your bank will require it to consider your application for any loan or renewal of an operating line of credit (as Chief Financial Strategist Keith Starr covered in last month’s blog entry). As the shareholder of Ag & Business Legal Strategies, I get an updated balance sheet and P&L (profits and losses) sheet and a productivity report by an employee every week from bookkeeping. These help me gauge productivity and provide early clues about any potential problems that could impact the firm so I can course-correct production problems, spending, and collection of receivables. I highly recommend having the farm’s bookkeeping done on at least a monthly basis. This will allow you to make changes and course corrections quickly. It will also allow you to take advantage of opportunities that arise throughout the year. Keeping the books up-to-date and analyzing them regularly will help you know where you’re at and avoid guessing when you make critical decisions. It can assist you to decide whether to change spending, renegotiate debt with creditors, or change marketing plans for your farm commodities. It also makes it easier to obtain loans from creditors, when you come prepared with a solid business plan. As I mentioned earlier, December is your last chance to take action to determine the bulk of your tax strategy for this year. Now is the time to determine if you will order and prepay seed, fertilizer, and chemicals for 2025 production and deduct those expenses from this year’s income. Too, are you planning to buy or lease new equipment for 2025? Purchasing equipment can also decrease taxes. (IMPORTANT: Do NOT purchase equipment just to reduce taxes. Borrowing money to buy equipment that is not necessary can jeopardize your farm’s cash flow and long-term viability. Equipment purchases should be prudent business decisions—not reactionary decisions to minimize tax liability.) Do Regular Analyses Here’s one practical way a recent enterprise analysis can inform tax strategy. Back in the summer an analysis revealed your crop enterprise is not as profitable as you would like and you have been looking for ways to trim expenses other than rent, since the review determined that was not a major factor that can be changed this year. Knowing this and seeing that fertilizer inputs have been high for some time, you reviewed the soil test results that showed you have high levels of nitrogen and phosphorus. You decide to decrease their application rates for a year or two, knowing you can save money without harming yield or adversely affecting overall soil fertility. A
A Gift That Keeps On Giving: Operating Line Commitment in December
This holiday, the best gift for a farmer is one they can seek themselves: Securing an early commitment from their lending institution for a 2025 operating, or input, line of credit. Depending on a farm’s financial strength, an operating loan is used for different things, most often for bulk purchases necessary to yearly operations: fertilizer, chemicals, seed, cash rent paid upfront, and other vital inputs. If your farm is doing well and not under much stress, you may dip into it to help pay for family living expenses, utilities, and the like as needed until payoff. The more stress your farm is under, the more control the bank may assert over the loan. This might include only advancing funds if an invoice is presented, for example, or a strict limit that does not allow for unforeseen expenses—such as for major engine repair, or underestimating your cost of inputs. Secure Your Loan Early November is the time to assemble your materials and make an appointment with your banker, as soon as you have a good handle on your 2024 harvest volume. There are several reasons to secure a commitment before the end of the year, including the availability of immediate cash to take advantage of input specials. Seed, fertilizer, and equipment dealers want to make cash sales this time of year and are often willing to extend discounts, rewards, and lower interest rates to coax farmers into buying inputs or putting a down payment on equipment in the fourth quarter. (It is not advisable to use an operating loan to purchase equipment or vehicles in full, as this could result in negative consequences for your debt load—you might run out of operating line early or be unable to repay it after harvest.) Another good reason to secure early commitment: More control over taxes. Having ready cash allows you to buy inputs at a time advantageous to your financial position. If it’s been a great year, you may decide to do more business spending before January 1 to lower your tax burden. Keep in mind, though, if you have not finalized your 2023 income taxes yet, doing this may make you look like a less qualified borrower. Peace of mind is not tangible like the first two benefits, but I’d argue it’s just as important. The earlier you step up to take control of your financial situation and request an operating line of credit, the more you can influence a positive decision. What if the bank you’ve been using for 20 years turns you down because the loan officer you’ve worked with retired and the new one doesn’t understand how farm income works? Knowing obstacles early allows time to apply at other institutions if necessary. I knew someone who couldn’t plant because the bank put off an operating line commitment even though everyone thought it would eventually approve the loan. The bank decided in late February—less than a week before the farmer’s rent payments were due—that it wouldn’t offer the loan. Because this farmer waited too long on the decision, he didn’t have time to find another bank. It’s always better to be overly prepared. How To Better Butter Up Your Bank A bank is a business. It is not your friend, although its employees are often friendly. Banks have regulations about how much risk they can take, so if a regulator views your operating loan as unsound for any reason, your banker is required to take action. This may mean not granting you a new operating loan. Or, if you have a loan and your bank requires its name to be on all checks made out to you, the bank may refuse to cash them unless the funds go first to a loan payment. If you budgeted that income for rent or a vendor, it may mean that creditor won’t be paid unless they filed a landlord’s lien or otherwise protected their interests in advance. If you don’t have an “inside man” with the bank to keep you apprised of how things are going behind the scenes—and most people don’t—you may not realize how likely or not it is to approve your loan. If each time you call you are told “I have to check with our main office” but never receive an answer, or you are put with a new loan officer you don’t know, it could be cause for concern. You can be aware of your balance sheet and debts in such a way to meet with the banker around December 1 armed with the best information to increase your chance at success: Know When To Seek Professional Advice It is important to recognize when you need assistance, and Ag & Business Legal Strategies is here to help. With combined decades of experience in not only law and banking but also agriculture, our attorneys and I have worked with ag operations in all types of situations, so we know what options are available depending on circumstances. We can help analyze your operation and financials, restructure debt as necessary, and advocate on your behalf with your lending institution. We have never assisted in a situation in which a farmer called us “too soon”—if you have a feeling something isn’t right, heed it sooner than later. Contact us when harvest is done, or sooner if you can see coming up short on bushels or projected income. The sooner you reach out, the earlier we can help you stabilize your financial position. The longer you wait, even if it’s just until January or February, the more likely you could be out of business come April. Call Us: (319) 363-1641 At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy. Don’t wait for the problems to become insurmountable. Connect with
Avoid Getting Crossways With Creditors when Income is Short
Harvest is here—the culmination of months of sweat, toil, worry, and investment. Hopefully your harvest is safe and smooth, your yields are excellent, and your marketing gets you excellent prices. If either your yields or prices are low, however, you might worry about coming up short. Nobody wants to shortchange their landlords or vendors, but you also have to pay the bank. Which creditors should you pay when funds are short—and what happens if you don’t? Collateral is Key When you borrow input financing you sign a security agreement with the bank. You might not remember that you signed it, or it may have been years ago, but it states that all your inputs, crops, and government program payments (and maybe other property as well) are collateral for your debts to the bank. “Collateral” has two important practical meanings. First, if you don’t pay your debts, the bank can seize and sell the collateral to pay the debt. And even if you’re current with your debts, the bank still has an interest in that collateral, and you can’t just do what you please with it or the proceeds you might get from selling it, you’ll need to use the proceeds to pay off the lien. When things are good and there’s enough money to go around, your bank might not worry much about this. If the bank is happy, it might not look too hard to see if you paid a landlord or a vendor with crop proceeds before paying off your input note. However, when there’s not enough money to go around, the bank might view this as taking money out of its pocket. Landlords and certain other vendors have statutory liens on your crop. Most of the time these don’t matter because those creditors don’t properly perfect (or enforce) them, but if they do, in many instances these statutory liens can jump ahead of the bank in the payment line and legally say, “Sorry bank, but I get paid before you do.” For more information, refer to our February 2024 blog post Landlord’s Liens: Cheap, Easy, but Time-Critical Insurance. Creditors’ Rights A creditor who has your crop or other farm products as collateral has the right to demand a list of potential buyers and send notices to them to get their name on your checks. As with statutory liens, this right affords secured creditors extra protection but isn’t frequently used; however, just because yours is the only name on the check doesn’t mean your secured creditors lost their security when you sold the collateral. The creditors who had your crop as collateral still have a right to its proceeds—whether or not their name is on the check! When faced with the question of who to pay first when selling your crop or other collateral, the law says the creditor with the senior lien on the collateral gets paid in full first, then down the line from there, any leftover proceeds only going to you once all the lienholders are paid in full. The law doesn’t care who you want to pay or who deserves to get paid—it is concerned only with who has a lien on the collateral and their place in line. Better Permission Than Forgiveness The law can put a farmer in a bind when there’s not enough money to go around. If your landlord isn’t paid, that would likely damage a longstanding relationship and they might even terminate your lease. Your vendor may also be your neighbor or relative. And you still need to put food on the table and support your family. Sometimes borrowers choose to pay the bills they want to pay first and then hope that somehow everything will work out or the bank will ignore this transgression even though the input loan isn’t paid off. This is a dangerous path to take, since it can damage your relationship with your banker and lead to civil and even criminal liability. It’s better to clear your plans with your banker before acting on them, then consult an experienced ag attorney, such as those with Ag & Business Legal Strategies—especially if you can’t reach a deal. Conversion Selling collateral and using the proceeds, without authorization, for anything other than paying off lienholders in their proper order is conversion, which is the civil counterpart of theft. If a farmer wants to get a check without a secured creditor’s name on it and sells farm products to a buyer whom they haven’t disclosed to the secured creditor who requested disclosure, that’s conversion as well, and doing this makes using those proceeds for something other than paying off lienholders in their proper order even more blatantly wrong. In some circumstances conversion might constitute theft. Conversion can also be grounds for a debt to be nondischargeable in a bankruptcy. Nondischargeability means the debt survives bankruptcy, even though bankruptcy is meant to provide a fresh start by discharging most debts. If you choose to ask for forgiveness rather than permission in these circumstances, you need to know the stakes. Far too often a farmer comes to us after they’ve converted collateral and failed to pay off the senior lienholders, leaving us struggling to salvage something from a bad situation. If these farmers had come to us before converting collateral, we might have been able to obtain a better outcome. When we have to try to pick up the pieces after collateral has already been converted, we often negotiate settlements with the creditor in which some or all of the debt will be nondischargeable in a bankruptcy—and it almost always costs the farmer a lot of time, energy, angst, and legal fees. Act Now to Avoid Creditor Problems If you think you might be short on income this year, contact Ag & Business Legal Strategies right away. We can help you analyze which creditors have your crop as collateral and try to negotiate a resolution that achieves your goals and helps you avoid trouble. Contact us now to discuss your situation, rather than
Putting the ‘Success’ Into an Effective Succession Plan
If you’re an older farmer with land and business assets, or even a younger one who owns property and you’ve started a family, chances are you’ve worried how those you leave behind will be taken care of after you’re gone, and how your farm’s legacy will live on. While I encourage anyone to write a basic last will and testament with an attorney’s advice, farmers and business owners generally need more than that, in the form of succession planning. Its aim is to establish the means by which you will transfer your farm or business to heirs or otherwise set up an exit strategy from the operation. Among business owners, farmers particularly feel a special tie to their property and especially want to see its purpose continue, within the family line if at all possible. A succession plan is the most effective way to achieve those goals. Why a Succession Plan? Several decades ago, Mother Nature often reminded farmers at a younger age it was time to pass the reins to a younger generation. Agriculture was more taxing on older generations who didn’t have the equipment and technology we do today, plus there seemed to be fewer roadblocks and expenses for the children of older farmers to work in and then take over the family operation. The Farm Crisis of the 1980s removed a lot of generational wealth from farm families and sent many would-be farmers and ranchers into off-farm careers. Partly because of this—and the tax consequences associated with transferring property while still alive—many farmers who were able to keep their land continued actively managing it for a longer time, until a child or grandchild showed ability to take over management. If this did not happen, they sold it or they bequeathed it to heirs upon death. According to Iowa State University figures, two-thirds of the state’s farms are now owned by people over the age of 65 and almost 40 percent are owned by those over 75. Of course, emotions also play into planning for the future of one’s land and operations. There’s an old saying that if you love what you do, you’ll never work a day in your life. While this may not strictly be true when it comes to the many demands of a farm, the fact is that farmers enjoy the work and the sense of purpose and accomplishment. For this reason, many find it difficult to imagine stepping back and giving up control even to a trusted heir. This is even harder if the farmer doesn’t feel confident in a clear heir to take over. Another major factor is the requirement to face one’s own mortality, since we are not a culture that comfortably discusses death. But careful planning is necessary to ensure the legacy of your work lives on, and that your heirs are well cared-for and face fewer financial consequences as recipients of your estate. Basics of the Succession Plan Your succession plan begins with a clear balance sheet that lists your assets and liabilities. You may want assistance with this from a local financial planner or certified public accountant (CPA), if you don’t already have one with whom you work. They can also provide you a written reviewof the tax consequences of your decisions—for example, if you wish to sell or transfer any assets while still living—and an evaluation of what your assets are realistically worth. Next, what is the intent of your succession plan for heirs? This depends not only on their desire to farm or manage the operation, but also on your comfort with their ability to do so. Is there one child who is clearly qualified to take over, but you worry you cannot divide assets enough to keep the farm intact for them and still provide your other children with an equitable inheritance? Situations like this require tough conversations. I advise speaking with each of your intended heirs to make your wishes clear and ask their opinions, and perhaps even holding a family meeting to discuss options and get feedback. This is not something you should leave unsettled at your passing. I’ve worked with farmers who say, “I don’t want to deal with who gets what; they can sort it out after I’m gone.” This has led to far too many siblings seeing their last civil conversation take place across the grave. As an example, one farmer I worked with arranged for his real estate holdings to be put into a trust when he died, to be accessed and managed equally by his children. He set it up so if one of them needed to withdraw from the assets, the other three siblings received equal payouts. This gave all incentive to participate in management of the farm and its revenue stream, as well as equal say on any loans to be taken out on the properties. He understood his children had the sort of relationship for which this worked best for them, but you may need to set up your plan differently—and that’s all right. Next, consider the urgency of your need for a succession plan, and realistic financial considerations. Are you in good health that gives you time to plan? Or are you ill? Is your spouse or a child ill? Has a child passed on and left a spouse or grandchild who may need immediate assistance? Do you need to plan for any gifting or transfer of assets in your lifetime, or will you leave it all until your passing? In this vein, it may be helpful to consider your assets in separate groups rather than a mass inheritance. For instance, farmland value tends to remain evergreen, while the state-of-the-art tractor you just purchased could be obsolete in 10 years thanks to technological upgrades. Perhaps you should transfer equipment sooner than later to a farming heir, while they can use it. Another consideration might be if you mandate that the farm continue to be operated as it is under your management and, if