Start saving: Farm manager offers financial tips for 2021

WABASH, Ind. — Pat Karst is not going crazy this Christmas. To clarify, Karst thinks it isn’t the time to splurge on “toys” and extras to enhance the COVID-19 staycation.

Instead, Karst, the vice president of Halderman Farm Management, is advising his clients and others to start saving.

Apart from “the usual” tax planning, like prepaying input (or not) and delaying income (or not), Karst provided tips to prepare for whatever 2021 might bring for farm and home finances.

Let’s talk about government funds. What can we do to prepare in case Market Facilitation Program and Coronavirus Food Assistance Program don’t happen again?

“I think those will go away. I think that farmers need to mind their cash flow and just need to be aware that income is good for this year, but it may not — and probably will not — continue into 2021. The ARC and PLC, the normal farm payments, they are going to continue. But the coronavirus stuff is probably not going to continue.”

Looking ahead into next year, there’s some uncertainty over what could happen with the current tax rates, like capital gains. How do we prepare for that?

“If you need to increase your working capital, I would sell land sooner rather than later, if that is something you need to do. Capital gains taxes may change with the next administration. They may not, but they may. Right now, with better crops and better prices than most people anticipated, we are seeing some pretty good demand in farmland, so this may be a good time to do that.”

With COVID-19 affecting a lot of jobs, including the off-farm jobs that many farmers and their spouses have to supplement the farm income and provide health insurance, how can farm families prepare in case those hours get cut or those jobs are eliminated?

“I’ll advise them just like I have my three daughters — the first thing you save money for is rainy day fund. You just set it aside, whether it’s $5,000 or $50,000. That’s up to the individual, but you save money for that and then that’s all that you use that for. If something happens, if someone loses a job, loss of income, loss of insurance, then it starts raining.”

What about farmers who are thinking about diversifying or starting a new venture, whether that’s on farm or off farm?

“One of the perfect examples of that is hemp. All the meetings this past spring and last winter were about hemp and how everybody needs to get into hemp. You need to have a customer. I think a lot of guys who tried to grow hemp, at least around here, put a lot of money into it and then when it came time to harvest, there is no market. The guy they had their contract with was gone, so there was no place to sell it.

“If you are going to get into the tiling business or if you are going to get into hemp or if you are going to get into production for locally-grown produce or locally-grown meat, you need to have a customer. Know your customer. Know your customer base. And farmers should have their team on board. I am thinking primarily family, their team needs to be on board, including your loan officer, your insurance agent, your risk manager. I would talk to as many people as I can about what pitfalls or what unseen things might I face that I don’t know.”

Lastly, we’re all home. We’ve been home. It’s tough to go anywhere on vacation. So, people are looking at buying things to make quarantine and all that time at home more fun, from side-by-sides to swimming pools, the demand for at-home entertainment is huge. How can we budget for the fun stuff?

“You are probably talking to the wrong person because I am a very conservative person. There is no great time, for me, to go crazy on that stuff. But that’s just me. It goes against my years on this earth to just go crazy and not set that money aside because I know that next year or the next year is not going to be as good as this year.”