Alberta's agricultural community manages the distinctive financial challenges arising from a livelihood impacted by weather patterns, market fluctuations, and seasonal cycles. For farmers and agribusinesses, the calendar rarely aligns with steady monthly income. Spring brings significant seed, fertilizer, and equipment maintenance expenses, while revenue might not arrive until the harvest months later. Still, there are useful methods farmers and agribusinesses can use to navigate our unpredictable agricultural landscape.
A practical approach is implementing a flexible budget throughout the yearly cycle. Setting aside reserves during profitable years creates essential buffers for equipment replacements, land improvements, and the inevitable poor harvest.
Working with financial institutions that understand agriculture is beneficial for farmers. An operating line of credit structured around planting and harvest timeframes provides vital flexibility. Similarly, establishing pre-approved borrowing limits based on your financial history can facilitate quick access to capital when needs arise. For example, cattle operations can consider a flexible $250,000 operating line with seasonal repayment terms, which can allow them to purchase feed during winter and repay after spring cattle sale. This approach can prevent premature stock sales at unfavorable prices.
Cash flow management
Few industries present the cash flow challenges that farming does. Here are some accounting practices to help:
- Create detailed monthly cash flow projections to cover expenses and income timing.
- Track inventory like grain or cattle as a cash flow component.
- Consider partial sales strategies in which you sell a portion of a crop.
- Negotiate extended payment terms with trusted suppliers.
- Structure equipment loan payouts to align with harvest or sale revenue periods.
- Maintain a separate operating account for farm expenses for budgeting accuracy.
- Review cash flow projections quarterly and adjust accordingly.
Practical financial practices
Beyond seasonal planning, several foundational financial practices can strengthen Canadian farm operations. For example, carefully tracking GST on eligible farm purchases is essential to claim input tax credits. Rather than just having a dedicated operating account, maintain a complete separation between personal and farm accounts to simplify accounting and provide clearer financial visibility.
Consider income-splitting opportunities within family farm corporations to distribute income among family members who work on the farm. Additionally, consult your accountant about strategically claiming capital cost allowance deductions on equipment and buildings.
Despite fluctuations in farm income, consistently contributing to RRSPs and TFSAs can provide tax benefits and enhance future security. Finally, early planning for farm succession can also present substantial tax advantages for the farming family.
Risk management
Alberta farming involves managing risks from multiple directions - from unexpected weather events to unpredictable market swings. Consider these tested approaches:
- Utilize insurance programs which stabilize income by minimizing the effect of production losses caused by weather.
- Explore forward contracting when prices are favorable.
- Implement strategic hedging to protect against severe market downturns.
- Diversify production where your land and expertise allow.
Agribusiness relies on farming
Equipment dealers, input suppliers, and processing facilities connected to agriculture face their own challenges as they must also align business operations with the farming cycle. Developing relationships with diverse farm suppliers and exploring multiple market channels creates stability when individual sectors experience difficulties.
For equipment dealers and suppliers, inventory management becomes crucial during seasonal demand fluctuations. Customer financing programs that coordinate with farm revenue patterns can strengthen relationships while supporting cash flow for both parties.
Similarly, working with lenders to establish pre-approved borrowing limits based on your financial history can provide quick access to capital for opportunities such as equipment purchases or land expansion.
Available support programs
Alberta's agricultural sector has access to valuable support programs worth exploring:
- Sustainable Canadian Agricultural Partnership (Sustainable CAP) provides risk management tools, including AgriInsurance against production losses, AgriStability for significant income declines, and AgriInvest for savings investment support.
Value-added business support programs include:
- Agri-Processing Investment Tax Credit (APITC), which offers substantial benefits for investments in processing equipment;
- The Alberta Agri-Food Investment and Growth Strategy for additional funding opportunities to expand operations.
The bottom line
Farm families and agribusinesses can navigate difficult years and capitalize on favourable ones by implementing strategies that account for seasonal realities, leveraging available support programs, and building operational resilience.
ATB offers farm financing built for you, including flexible term length, payment options, and security, and leasing and financing support for farming and ranching equipment.
Talk to an ATB Business Advisor today to learn more.
Additional resources
- Calculate the best equipment lease or loan payment scenario with our Ag Equipment Finance Calculator.
- Explore various loan scenarios using our Business & Ag Loan Calculator.
- Explore Alberta Government resources on Agriculture and Irrigation.
