Farm Finanancial Mangement Arkansas (AR)

• Introduction
• Understanding Farm Financial Statements
• Budgeting & Financial Planning
• Risk Management for Farmers
• Tax Planning for Arkansas Farmers 
• Cybersecurity for Farmers
• FAQs Farm Financial Management 
• Resources and Support
• Contact Us

INTRODUCTION

Farm financial management is important for agricultural success in Arkansas, a state with diverse farming operations. Effective financial planning helps farmers manage economic uncertainties, input costs and maintain profitability amid fluctuating commodity prices, weather changes and rising production expenses. Sound budgeting, risk management and investment strategies are essential for securing loans, optimizing taxes and planning farm succession. Strong financial practices boost efficiency, stabilize cash flow and ensure farms thrive for future generations.

Challenges Faced by Arkansas Farmers

Arkansas farmers face a range of unique challenges shaped by economic conditions, environmental factors, policy changes and shifting market trends. One of the biggest concerns is the volatility of commodity prices, which often leaves farmers with tight profit margins despite high yields. The cost of inputs such as seed, fertilizer and equipment continue to rise, making it difficult for many operations to remain financially sustainable. Additionally, unpredictable weather patterns, including heavy rainfall, floods and droughts, create uncertainty for crop production and livestock management. Water management is a growing issue, as many farms rely on irrigation from declining groundwater sources, leading to efforts to shift toward more sustainable water use. Pest and disease pressures also pose ongoing risks to crops, increasing the need for costly management solutions. Furthermore, uncertainty in federal farm policies, trade disputes and labor shortages add to the complexity of managing a farm in the state.

Despite these challenges, Arkansas farmers also have several opportunities to strengthen and diversify their operations. Advances in precision agriculture and automation are helping farmers optimize yields and reduce costs through more efficient use of inputs. Sustainable farming practices, such as no-till agriculture and improved irrigation methods, are becoming more widespread, helping to conserve resources and maintain long-term soil health. There is also growing consumer demand for locally grown and specialty food products, which presents opportunities for farmers to explore niche markets and direct-to-consumer sales. The state has invested in irrigation infrastructure and research programs that support innovation in agriculture, providing pathways for farmers to adopt new techniques and improve productivity. Additionally, global demand for food and agricultural products continues to rise and Arkansas farmers can benefit from expanded export markets if trade policies remain favorable. By adapting to changing conditions, utilizing new technologies and exploring value-added opportunities, Arkansas farmers can build resilience and secure a stronger future for the state’s agricultural industry.

Purpose of this Resource

This resource was developed to provide essential information to farmers on financial management to keep their agribusiness financially fit. Specific information about financial planning, budgeting, accounting, best practices, tax strategies, risk management and financial resources will be presented. It is our hope this content will guide Arkansas farmers to make informed decisions that help to enhance profitability and long-term economic growth. 

UNDERSTANDING FARM FINANCIAL STATEMENTS

A thorough understanding of financial statements is essential for farmers to manage operations effectively. These statements provide critical insights into the financial health of a farm, guiding decision-making on investments, debt management and overall business sustainability. There are three sections to a financial statement which provide different types of information. This includes the balance sheet, income statement and the statement of cash flow. 

Balance Sheet

A farm balance sheet provides a comprehensive overview of the operation’s financial standing by detailing its assets, liabilities and owner’s equity. Assets represent everything the farm owns that has financial value, including both current and non-current assets. Current assets are those expected to be converted into cash within a year, such as cash on hand, accounts receivable and farm inventory like crops and livestock intended for sale. Non-current assets consist of long-term holdings that contribute to the farm’s ongoing operations, such as farmland, equipment, breeding livestock and farm buildings.

Liabilities, on the other hand, reflect financial obligations or debts owed by the farm. These are categorized into current and non-current liabilities based on their repayment timelines. Current liabilities include short-term debts due within the year, such as operating loans, accounts payable and accrued expenses. Non-current liabilities represent long-term financial commitments, such as mortgages, machinery loans and other structured debt obligations. The difference between total assets and total liabilities determines the farm’s equity, also referred to as net worth. Owner’s equity represents the farmer’s financial stake in the operation, indicating the portion of assets that are not encumbered by debt. An increasing equity position over time signifies business growth and financial stability.

Analyzing a farm balance sheet involves assessing trends in asset accumulation, liability levels and net worth over multiple reporting periods. A farmer should review whether the operation is increasing its asset base while maintaining a manageable level of debt. Liquidity, or the ability to cover short-term obligations, is another critical factor. If current liabilities exceed current assets, the farm may struggle with cash flow issues, which can jeopardize its ability to meet financial commitments. Reviewing the balance sheet over several years helps identify whether the farm’s financial position is improving or if corrective action is necessary.

Balance Sheet Ratios

Several key financial ratios derived from the balance sheet provide deeper insights into the farm’s financial health. 

• Debt to Asset Ratio – This ratio provides insight into the amount of operations that are financed by debt. It is one of the three main ratios used to determine a farm’s debt amount.  The ratio is calculated by dividing total liabilities into assets.  A good score for agribusiness is 40% or less whereas 70% or higher is considered risky. Factors that impact the score include farm size (often have more debt), farm type and land ownership type. 
• Current Ratio -This ratio provides insight into a farm’s liquidity. It is calculated by dividing current assets into current liabilities. A current ratio of 2.0 is considered healthy but a ratio of 3.0 or higher is ideal for many farmers. Factors that impact the score include type of farm, season (usually higher liabilities during planting times) and the amount of available working capital. 
• Equity to Asset Ratio – This ratio provides insight into the amount of the operations assets which are directly owned by the farmer. It is calculated by dividing the farm’s net worth into its total assets. A high score indicates a strong farm business, whereas a low score shows the farm is more leverage and exposed to higher levels of risk. Factors that impact the score include the farm size, type and ownership structure. 

By regularly reviewing the balance sheet and monitoring financial ratios, farmers can make informed decisions regarding capital investments, debt management and operational efficiencies. This disciplined approach to financial management strengthens the farm’s ability to navigate economic fluctuations, secure financing when needed and ensure long-term profitability and resilience.

Income Statement

The income statement is a fundamental financial report that allows farmers to assess the profitability of their operations over a defined period. It provides critical insights into revenue generation, cost management and overall financial performance, enabling informed decision-making and long-term planning.

Revenue and Expenses in a Farm Income Statement

Revenue represents the total income earned from farming activities, including crop and livestock sales, government subsidies, custom work and other farm-related income sources. It serves as a key indicator of the farm’s ability to generate earnings.

Expenses are categorized into operating costs and fixed costs. Operating expenses include inputs such as seeds, fertilizers, feed, fuel, labor and repair costs directly tied to production. Fixed costs, such as equipment depreciation, land leases, property taxes and loan interest, are incurred regardless of output levels. The net farm income, calculated as total revenue minus total expenses, reflects the farm’s profitability.

Analyzing a Farm Income Statement

Farmers and financial analysts assess the income statement by comparing revenue and expense trends over multiple periods. Identifying variations in income streams, cost fluctuations and external factors (e.g., market prices, weather conditions) helps with strategic planning and cost control. A detailed analysis includes reviewing gross profit (revenue minus direct costs), net income trends and identifying areas where expenses can be optimized. Additionally, segmenting income sources can help. 

Income Statement Ratios

• Gross Margin Ratio – This ratio provides insight into the profitability of individual crops, livestock and other farm products. It is calculated by subtracting revenue from direct production costs. A good score is generally considered to be around 20% or higher with top performing farms closer to 25%. The gross margin for a farm will depend on various factors including the type of crops grown, production and market costs. 

• Operating Profit Margin – This ratio provides insight into how efficiently the farm converts production into profit. It is calculated by dividing net income by value of production (after adjusting interest expense and unpaid labor). A score of 20% or higher is good and indicates a low financial risk, whereas below 10% indicates high risk. 
• Operating Expense Ratio – This ratio provides insight into amount of farm income used to pay operating expenses. It is calculated by subtracting operating expenses from depreciation and then dividing it by gross income. A good score for most farmers is between 60% to 80%. A result above 80% is a bad sign because it means the farm does not have enough income to cover expenses. 

Cash Flow Statement

Farming is more than just planting and harvesting crops. It’s a business and like any business, understanding your finances is crucial. Two key financial concepts every farmer should know are break-even and cash flow. They’re practical tools that can help keep your farm profitable and sustainable. 

Direct Costs vs. Overhead Expenses 

The two main types of expenses you’ll encounter are direct costs and overhead expenses. 

• Direct Costs: These are the expenses directly tied to producing your crops. Think of things like fertilizer, chemicals, seeds and water. These costs fluctuate based on how much you produce. 
• Overhead Expenses: These are the costs of keeping your farm running, no matter what you produce. This includes payroll, insurance, equipment repairs and utility bills. These expenses are not directly tied to the production of an individual crop. 

A lot of traditional farm software focuses only on direct costs when calculating break-even points. But to get the full picture, you need to include overhead expenses too. Let’s say you make $100,000 from your crop. If your direct costs are $60,000, it might look like you have $40,000 left over. But if your overhead expenses are $30,000, your actual profit is only $10,000. Understanding this difference is key to knowing your real financial situation. 

What is Cash Flow? 

Cash flow is a record of all the money coming in and going out of your farm. It includes everything from crop sales and government subsidies to the cost of seeds and fuel. Keeping track of your cash flow helps you see where your money is going and ensures you have enough to cover your expenses during the busy months of farming. 

What is Break-even? 

Your break-even point is the point where your revenue from a crop equals your total costs (both direct and overhead). Any money you make above this point is profit. Knowing your break-even helps you set realistic sales targets and pricing strategies. 

Understanding Cash Flow & Break-even: 

• Make Smarter Decisions: When you know your cash flow and break-even points, you can make better financial decisions in real-time. For example, you’ll know if you can afford to buy new equipment or if you need to cut back on certain expenses. 
• Yearly Comparisons: Tracking your cash flow over several years helps you see patterns and trends. You can identify good years and bad years and plan accordingly. 
• Better Planning: With a clear understanding of your finances, you can create accurate budgets and forecasts. This helps you manage your working capital and ensures you have enough money during peak seasons. 
• Increased Profitability: Understanding these financial concepts can lead to higher revenue, better relationships with lenders and more sound financial decisions. 

Forecasting Break-even & Cash Flows 

• Sticking to a Plan: When you forecast your break-even and cash flow, you create a financial plan for the year. This helps you understand the minimum price you need to market your crops at to cover your costs and make a profit. It’s important for setting your marketing and sales strategies. 
• Projecting Working Capital Needs: Accurate cash flow projections help you anticipate your financial needs during busy times. Whether it’s buying seeds for the next planting season or covering unexpected repairs, knowing your cash flow needs helps you avoid running out of money. 
• Analyzing Actuals vs. Forecast: By comparing your actual financial results to your forecasts, you can see where you overspent or underspent. This helps you identify problem areas and make necessary adjustments. 
• Long-Term Planning: Farming is a long-term game. Understanding your cash flow and break-even points over multiple years is essential. For example, a crop cycle might span several years—from purchasing inputs in the first year to selling the harvest in the third year. Traditional accounting software may not handle this complexity well, but specialized farm management tools, such as AgriBuilder, can provide the insights you need. 

These tools help you make informed decisions, plan and ensure your farm remains profitable.

BUDGETING & FINANCIAL PLANNING

Farm budgeting is the cornerstone of sound financial management, directly impacting profitability. By meticulously planning income and expenses, farmers gain a clear understanding of their financial position, allowing for informed decision-making. Budgeting illuminates potential profit margins, identifies areas for cost reduction and helps anticipate cash flow needs. This proactive approach minimizes financial surprises, optimizes resource allocation and ultimately enhances the farm’s bottom line. A well-crafted budget serves as a roadmap, guiding farmers toward achieving their financial goals and ensuring long-term sustainability.

Types of Budgets:

• • Whole-Farm Budget: This comprehensive budget encompasses all aspects of the farm’s operations, providing an overall financial picture. It includes projected income, expenses and cash flows for the entire farm, aiding in strategic planning and performance evaluation. It can help farmers decide whether to take on new business, add more land, new crop types and new partners. 
  • Enterprise Budget: Focusing on individual enterprises (e.g., a specific crop or livestock), this budget analyzes the profitability of each segment. It calculates the income and expenses associated with a single enterprise, enabling farmers to identify the most profitable activities and make informed decisions about resource allocation.
  • Cash Flow Budget: This budget tracks the timing of cash inflows and outflows, ensuring the farm has sufficient funds to meet its obligations. It projects cash availability over a specific period, helping farmers manage liquidity and avoid cash shortages.
  • Capital Budget: This budget focuses on long-term investments, such as land, equipment and infrastructure. Typically, comprehensive information about cost of investments, funding source and depreciation schedules are used to manage expenses during a specific period. This is an important financial planning tool because it allows farmers to plan long-term investments in large assets like new requirements, building and land improvement. 

Building a Farm Budget

Creating a comprehensive farm budget is a fundamental step in ensuring the financial health, efficiency and long-term sustainability of a farming operation. A well-structured budget serves as a financial roadmap, allowing farmers to anticipate income, control expenses and make strategic decisions that improve profitability and resilience. The process begins by identifying and forecasting all sources of income, which may include sales from crops and livestock, government subsidies, rental income from land or equipment and any additional revenue streams that contribute to the farm’s financial standing. This step requires a detailed understanding of market conditions, seasonal trends and historical data to create realistic projections that accurately reflect potential earnings.

Once income sources are established, the next step involves categorizing expenses into fixed and variable costs. Fixed costs are the financial obligations that remain relatively constant, regardless of production levels. These include mortgage or lease payments on farmland, property taxes, insurance premiums, equipment depreciation and other long-term expenses that must be paid even when farm output fluctuates. Because these costs do not change with seasonal variations or market conditions, they must be planned for well in advance to ensure financial stability throughout the year.

Variable costs, on the other hand, fluctuate based on the scale of production and external factors such as weather patterns, commodity prices and market demand. Expenses such as seeds, fertilizers, pesticides, livestock feed, fuel, labor wages, water usage and equipment maintenance are considered variable costs because they change depending on the farm’s activities. For example, during planting and harvest seasons, a farm’s fuel and labor costs may increase significantly, whereas in off-peak seasons, these expenses may be minimal. Understanding the difference between fixed and variable costs is critical because it enables farmers to adjust spending based on revenue cycles and market conditions. Managing variable costs effectively can help farmers improve their profit margins by optimizing resource allocation and reducing unnecessary expenditures.

Accurate record-keeping plays a central role in creating and maintaining an effective farm budget. Without precise financial records, farmers may struggle to track their cash flow, evaluate their financial performance, or identify areas where cost reductions or efficiency improvements can be made. Meticulous documentation of all income and expenses allows farmers to analyze financial trends, compare current performance with past years and make informed decisions about future investments. Moreover, maintaining clear and organized records is essential for tax compliance, securing financing from banks or agricultural lenders and applying for government assistance programs. Lenders and financial institutions often require detailed financial statements before approving loans and a well-documented budget demonstrates responsible financial management, increasing the likelihood of obtaining credit.

Beyond financial planning, a well-maintained farm budget enhances the ability to respond to unexpected challenges such as economic downturns, natural disasters or fluctuations in commodity prices. By continuously monitoring financial data and adjusting the budget as needed, farmers can build financial resilience, ensuring that they have the necessary resources to sustain operations even in difficult circumstances. A comprehensive budget also helps in long-term strategic planning, allowing farmers to evaluate whether to expand operations, invest in new equipment, diversify revenue streams or implement cost-saving measures.

The value of a budget is that it provides important insights that help drive decision making based on the financial position of the farm. It is important to maintain accurate accounting records to gain a detailed understanding of expected and unexpected costs. Using this information, farmers cannot only optimize operations but maintain financial stability and even uncover increased profitability. 

RISK MANAGEMENT

Types of Farm Risks

Farmers must navigate multiple risks that can affect profitability and sustainability. These risks can be broadly classified as follows:

• • • Market Risk: Fluctuations in commodity prices, changes in supply and demand and variations in input costs can significantly impact farm income. Price volatility in grains, livestock and other agricultural products can create uncertainty in revenue.
    • Production Risk: Factors such as pests, diseases and unpredictable weather conditions directly influence yields and farm output. The reliance on natural resources and biological processes makes agricultural production inherently risky.
    • Financial Risk: Debt management, interest rate changes and access to capital play a crucial role in farm operations. A farmer’s ability to secure loans and manage cash flow directly affects profitability and long-term sustainability.
    • Legal Risk: Compliance with environmental regulations, contract obligations, land use laws and labor policies can introduce legal challenges. Additionally, issues related to farm succession, liability and government programs create legal considerations for farm owners.

Impact of Weather and Climate on Arkansas Farms

Arkansas farmers experience a range of climate-related risks that impact their operations. Weather patterns, including temperature fluctuations, rainfall variability and extreme weather events, significantly affect crop and livestock production.

• • • • • Flooding and Excess Rainfall: The Mississippi River and other waterways can lead to excessive moisture levels, affecting soil conditions and crop planting schedules. Flooding poses a significant challenge for rice and soybean growers in low-lying areas.
        • Drought Conditions: Periods of drought can reduce soil moisture levels, leading to lower yields for key crops such as cotton, corn and soybeans. Livestock producers also face difficulties when pasture conditions deteriorate due to insufficient rainfall.
        • Severe Storms and Tornadoes: Arkansas experiences frequent thunderstorms, tornadoes and hailstorms, which can damage infrastructure, destroy crops and increase farm losses.
        • Temperature Extremes: Unusually high or low temperatures impact plant growth cycles, reduce productivity and increase livestock stress. Extreme heat can also raise irrigation costs, while unexpected frosts may damage fruit and vegetable crops.

      

Arkansas farmers must employ risk management strategies such as crop insurance, diversification, conservation practices and advanced weather monitoring tools to mitigate the impact of these risks. Understanding these factors allows for better planning and resilience in the face of agricultural challenges.

Managing Farm Risks

Farming, with its dependence on unpredictable factors such as weather, market conditions and biological processes, is inherently risky. Managing these risks effectively is not just about protecting your livelihood; it’s about ensuring the sustainability and growth of your farming business.

Strategies for Managing Farm Risks

The structure of farm operations plays a key role in risk management. Important considerations include:

• Engagement with Landlords: Effective communication and documented leases are essential. Maintaining strong, transparent relationships helps secure long-term land leases.
• Formalizing Lease Agreements: Written contracts clarify terms and conditions, providing legal protection and preventing misunderstandings. Whenever possible, negotiate longer-term leases for greater operational stability.
• Equipment Management and Succession Planning: Planning for the future by managing equipment life cycles and preparing for leadership transitions ensures continuity and reduces operational risks.

Strategic Marketing & Pricing

A plan should encompass an understanding of available marketing tools, including cash tools for immediate sales, futures contracts for setting sale prices and options contracts to provide flexibility and protect against price drops. Integration of these tools with broader financial analysis—combining insights from market fundamentals, technical analysis and regular profit and loss assessment ensures decisions are made with a comprehensive view of their potential impact. This should include how various types of agricultural insurance can buffer financial losses from poor yields or market downturns.

To mitigate risks effectively, farmers should engage in regular market analysis to stay informed about trends and be prepared to adjust strategies quickly.

It is important to know your cost of production and understand your breakeven points. This knowledge allows for more grounded decision-making, focusing on securing profit rather than chasing the highest possible price. Selling a portion of your product at a profit, when market conditions are favorable, can ensure financial stability and reduce risk exposure.

Diversification of Crops & Income

Diversifying both crop types and income sources can significantly reduce the risk of failure. Planting a variety of crops protects against the total loss of production due to disease or adverse weather. Additionally, exploring alternative income streams such as agritourism or organic production can provide financial stability when traditional crops underperform.

Utilization of Advanced Agricultural Technologies

The use of drought-resistant varieties, advanced irrigation systems and precision agriculture techniques like soil moisture sensors enhances crop resilience and operational efficiency. Tools like AgriBuilder from Adams Brown amplify these benefits by integrating elements of farm management, such as financial monitoring and resource management. This not only optimizes resource use but also improves decision-making, making farms more efficient and less prone to risks.

Risk Management Tools

Effective risk management and proper business structuring are vital for the sustainability and success of agricultural operations. Key strategies include crop insurance, diversification, forward contracting, participation in USDA risk management programs and the legal formation of business entities such as Limited Liability Companies (LLCs).​

Crop Insurance, Diversification and Forward Contracting

Farmers face various risks, including adverse weather conditions, market volatility and pest infestations. To mitigate these risks, several strategies can be employed:​

• Crop Insurance: This provides financial protection against crop losses due to natural disasters or significant price declines. The Federal Crop Insurance Program (FCIP), managed by the USDA’s Risk Management Agency (RMA), offers policies covering various crops and livestock. 
• Diversification: By cultivating a variety of crops or integrating livestock operations, farmers can reduce dependency on a single source of income. This approach helps stabilize revenue, as poor performance in one area may be offset by better outcomes in another. 
• Forward Contracting: This involves locking in prices for crops or livestock before they are ready for the market. By agreeing to sell at predetermined prices, farmers can shield themselves from market fluctuations, ensuring more predictable income. 

USDA Risk Management Programs

The USDA offers various programs to support farmers in managing risks:​

• Agriculture Risk Management Education Partnerships Program: This initiative educates producers on risk management strategies, including futures, options, crop insurance and diversification. It operates through regional Extension Risk Management Education Centers, providing resources and training tailored to specific needs. ​
• Outreach and Education: The RMA funds projects with nonprofits, universities and industry groups to deliver risk management education nationwide, ensuring farmers have access to the latest tools and information. 

Legal Formation of LLCs and Other Business Entities

Choosing the appropriate legal structure is crucial for liability protection, tax considerations and operational flexibility:​

• Limited Liability Company (LLC): An LLC offers liability protection, separating personal assets from business liabilities. It provides flexibility in management and tax options, allowing members to choose how they are taxed. Forming an LLC typically involves filing Articles of Organization with the state and paying the requisite fees. ​ 
• Other Entities: Farmers may also consider sole proprietorships, partnerships or corporations. Each structure has distinct implications for liability, taxation and management. For instance, corporations offer limited liability but require more formalities, while sole proprietorships are simpler but don’t provide personal liability protection. ​

Selecting the right business entity depends on individual circumstances, including the size of the operation, risk tolerance and long-term goals. Consulting with legal and financial advisors can aid in making an informed decision.​

Implementing these risk management strategies and choosing the appropriate business structure can significantly enhance the resilience and profitability of farming operations.

Financing Farm Operations

Owning and managing a farm is demanding and financially volatile even in good years and many farmers credit trusting relationships with their bankers for the success they’ve achieved in building and operating their farms for decades. And that’s as it should be. 

But even farmers who have been skilled and lucky enough to build farming operations with a minimum of debt and by relying on private lending through their bankers, should not overlook the value of various government loan programs administered by the USDA’s Farm Service Agency (FSA). 

Many of these loan programs are structured to support important goals for individual farmers and for the agriculture industry. They help young people acquire land to start their own farming operations; they support farmers who are women and members of minority groups build and strengthen their farms and for established farms they help support operating costs.

Most importantly, perhaps, participating in one FSA loan program can help a farmer accelerate the process of applying for and receiving loans from other programs. And many of these loan programs guarantee lower interest rates – often significantly lower – than those available through private lending. 

These loan programs are particularly important now, as many farmers of the baby-boom generation are looking to succeed their land and operations to younger family members or new owners. Federal farm loan programs help farmers mentor their younger family members and farm managers who are looking for ways to acquire and build farming operations of their own. 

Beginning Farmer & Rancher Loans 

The FSA places a special focus on the credit needs of farmers and ranchers who are in their first 10 years of operation and there are several loans that fall under this category to help young people buy and operate land. 

For example, the Direct Farm Ownership Down Payment Loan may be used to partially finance the purchase of a family farm. Loan applicants must contribute a minimum down payment of 5% of the purchase price and the FSA will finance 45% to a maximum loan amount of $300,150. The balance of the purchase price may be financed by a bank, private lender, a cooperative or the seller.

This program can help a veteran farmer accelerate succession planning by opening a path for a younger family member or a key member of their farm management to buy their first piece of land. Some farmers have coached their farm managers or younger family members through buying land, allowing them to use the established farm’s equipment and participate in its group discount programs. This benefits the veteran farmer and enables the young farmer to build wealth. 

For the purposes of the FSA Beginning Farmer or Rancher Loan programs, a beginning farmer is defined as one who: 

• Has not operated a farm or ranch for longer than 10 years. 
• Does not own a farm or ranch greater than 30% of the average size farm in the county in which the land is located. 
• Meets eligibility requirements for the loan program to which they are applying. 
• Substantially participates in the operation of the farm or ranch. 

Loans for Women & Minority Group Farm Owners 

The FSA targets a portion of all guaranteed loan funds, direct operation and direct farm ownership loan funds, as well as microloan funding and youth loans, to historically underserved farmers and ranchers, including: 

• Women
• African Americans 
• Alaskan Natives 
• American Indians  
• Hispanics 
• Asians 
• Native Hawaiians and Pacific Islanders 

In many cases, a farmer need not be a full-blooded member of a minority group to benefit from these loan programs. 

You don’t need to choose between identifying yourself as a member of a minority group or as a woman to qualify. Rather, being a member of an underserved group may add benefits to other loan programs you apply for. For example, if you apply for a Direct Farm Ownership Down Payment Loan and you are a woman or member of a minority group, the limitation on acreage size does not apply. 

Family farms are uniquely positioned to benefit from these programs, particularly the benefits offered to women farm owners. Some farm families create a legal entity structure for their farms that places 51% ownership in the hands of the wife, thereby qualifying the farm for the added benefits of being a woman-owned farm. 

Farm Operating Loans 

A variety of farm operating loans can be accessed through the FSA and are available for costs associated with improving profitability, purchase of livestock and equipment, expenses including feed, fertilizer, seed, pesticide, cash rent, family living expenses and refinancing of farm-related debt (excluding land).

There is no down payment required and the maximum loan amount is $400,000.

Whether you’re a veteran farmer, a young person looking to buy some land to farm, a woman farmer or a member of a minority group in farming, it’s worthwhile to take advantage of these federal lending programs to help build and strengthen your farm operation. 

People get comfortable with their banking relationships and the convenience of them and that’s a good thing. But federal farm lending programs cannot only help support your operations, but they can also help you control your debt and manage your cash flow because they come with lower interest rates – in some cases significantly lower – than you’ll find from a private bank. 

Disaster Relief Programs

Due to recent events, you may be looking for resources available to help you and your farm recover from a natural disaster. Did you know that the USDA offers many programs designed to assist farmers, ranchers, communities and other businesses that have been affected by events such as wildfires? Below is a list of Farm Service Agency (FSA) programs that are available. To find more information on this assistance, visit the FSA website today or contact your Adams Brown advisor.

Livestock Assistance

There are several programs available to help your business cope with the loss of livestock, including the Livestock Indemnity Program (LIP). If you have suffered excessive livestock death losses and grazing or feed losses due to the recent wildfires or other natural disasters, you may be eligible for this program. LIP offers payments for your livestock death losses that exceed normal mortality due to adverse weather. To participate in this program, you must provide documentation of death losses resulting from an adverse weather event or other natural disaster. Your claim must be submitted within 30 calendar days of the loss. days of when the loss is apparent.

Another program available is the Emergency Assistance for Livestock, Honeybees and Farm-Raised-Fish Program (ELAP), which provides emergency relief for losses due to feed or water shortages, disease, adverse weather, or other conditions, which are not adequately addressed by other disaster programs. To participate in this program, you must submit a notice of loss to your local FSA office within 30 calendar days of when the loss is apparent and maintain documentation and receipts.

For these programs, you should record all pertinent information regarding livestock losses due to the eligible adverse weather or loss condition, including:

• Documentation of the number, kind, type and weight range of livestock that have died, supplemented by photographs or video records of ownership and losses, if possible.
• Rendering truck receipts by kind, type and weight.
• Beginning inventory supported by birth recordings or purchase receipts.
• Documentation from Animal Plant Health Inspection Service, Department of Natural Resources, or other sources to substantiate eligible death losses due to an eligible loss condition.
• Documentation that livestock were removed from grazing pastures due to an eligible adverse weather or loss condition.
• Documentation of livestock feed that was purchased, self-produced (mechanically harvested forage), or feedstuffs intended for use as feed for the producer’s eligible livestock that was physically damaged or destroyed due to an eligible adverse weather or loss condition.
• Costs of transporting livestock feed to eligible livestock, such as receipts for equipment rental, fees for hay lifts and snow removal.
• Feed purchase receipts if feed supplies or grazing pastures are destroyed.
• Number of gallons of water transported to livestock due to water shortages.

Other Available Programs

The USDA offers other risk management and disaster assistance options to help producers recover after disasters like tornadoes and wildfires. Some of the available programs include:

• Non-Insured Crop Disaster Assistance Program (NAP) provides financial assistance to producers of non-insurable crops when low yields, loss of inventory, or prevented planting occur due to natural disasters including excessive wind and qualifying drought (includes native grass for grazing losses occurring during the grazing season).
• Tree Assistance Program (TAP) helps eligible orchardists and nursery tree growers for qualifying tree, shrub and vine losses due to natural disasters including excessive wind and qualifying drought.
• Emergency Loan Program is available to producers with agriculture operations located in a county under a primary or contiguous Presidential or Secretarial disaster designation. These low interest loans help producers recover from production and physical losses.
• Emergency Conservation Program (ECP) provides emergency funding for farmers and ranchers to rehabilitate land severely damaged by natural disasters; including fence loss.

TAX PLANNING FOR ARKANSAS FARMERS

Farmers in Arkansas must navigate a complex mix of federal and state tax rules that impact their operations in both the short and long term. At the federal level, farm income is subject to unique treatment under the Internal Revenue Code. For example, farmers often use cash accounting, which allows them to recognize income and expenses when they are received or paid rather than when they are incurred. This flexibility can provide significant advantages for managing taxable income, especially in years with fluctuating yields or commodity prices. Additionally, federal tax law offers options such as income averaging, which allows farmers to spread income over a three-year period, helping to reduce tax liabilities in high-income years by smoothing out the spikes that can occur due to market conditions or large asset sales.

At the state level, Arkansas conforms to many federal tax rules but also includes its own set of regulations and incentives for farmers. For instance, the state provides certain tax exemptions on agricultural inputs such as seeds, fertilizers and pesticides, which helps to reduce overall operational costs. Arkansas also has property tax exemptions and assessment programs that benefit agricultural landowners, helping to preserve farmland and make it more affordable for multigenerational operations to continue.

Depreciation plays a critical role in farm tax planning by allowing farmers to recover the cost of equipment, buildings and other capital investments over time. Under federal law, farmers may use methods such as the Modified Accelerated Cost Recovery System (MACRS) or elect to expense certain purchases under Section 179, which can provide immediate tax relief for the full cost of qualifying assets, up to specified limits. Bonus depreciation is another tool that has been especially valuable in recent years, allowing for full expense of qualified new and used property in the year it is placed in service. These strategies help farmers manage cash flow and reduce taxable income in years with substantial capital expenditures.

Deductions are another vital element of tax planning. Farmers can deduct a wide range of ordinary and necessary business expenses, including costs for feed, seed, fertilizer, fuel, maintenance and labor. In addition, self-employed farmers may deduct health insurance premiums and make contributions to retirement plans, which can further reduce taxable income. Effective recordkeeping and documentation are essential to ensure these deductions are properly substantiated and compliant with IRS guidelines.

Tax credits provide direct reductions in tax liability and can significantly enhance a farmer’s bottom line. At the federal level, credits such as the Fuel Tax Credit, Renewable Energy Credits and conservation-related incentives can benefit qualifying agricultural operations. Arkansas may also offer state-specific credits that reward investments in sustainable farming practices or improvements to farm infrastructure. By understanding and applying available credits, farmers can offset some of their investment costs and improve long-term profitability.

Overall, tax planning for Arkansas farmers requires a strategic approach that integrates federal and state rules, leverages depreciation and deductions and takes advantage of available tax credits. Partnering with an agricultural tax advisor can help ensure compliance while maximizing opportunities for savings.

Tax Planning Strategies

Effective tax planning for Arkansas farmers relies heavily on proactive strategies that help manage income, control expenses and ensure compliance with both state and federal tax obligations. Among the most important strategies are maintaining accurate records, working with a qualified tax professional and understanding the requirements surrounding estimated tax payments.

Proper record-keeping is the foundation of sound farm tax planning. Farmers must track all income and expenses throughout the year, including sales of crops and livestock, government payments, input costs, equipment purchases and labor expenses. Good record-keeping not only ensures that all allowable deductions are captured but also provides documentation needed in the event of an audit. Using accounting software tailored for agricultural businesses or maintaining organized spreadsheets and physical receipts can help farmers stay on top of their financials. Additionally, detailed records allow for more accurate forecasting and decision-making related to future investments and budgeting.

Collaborating with a tax professional—especially one experienced in agricultural taxation such as those at Adams Brown CPAs—can offer significant advantages. A tax advisor can help farmers interpret complex tax laws, identify available credits and deductions and implement strategies that align with both short-term cash flow needs and long-term goals. For instance, a tax professional can assist in determining the best time to make capital purchases or defer income to manage tax brackets effectively. They can also guide farmers through more advanced issues such as estate planning, succession planning or navigating conservation easements. Given that tax laws are frequently updated, having a trusted advisor ensures that farmers remain compliant while taking full advantage of evolving tax-saving opportunities.

Understanding estimated tax payments is another critical element of farm tax planning. Because many farmers are self-employed and do not have taxes withheld from their income, they are required to make quarterly estimated tax payments to the IRS and, if applicable, to the Arkansas Department of Finance and Administration. However, there are special rules for farmers that may allow for a single estimated tax payment to be made by Jan. 15 if two-thirds of their income comes from farming. Failing to make proper estimated payments can result in underpayment penalties, even if a refund is due at the end of the year. By projecting income and expenses with the help of accurate records and professional guidance, farmers can calculate and time their estimated payments appropriately, avoiding surprises at tax time.

Incorporating these strategies into a year-round approach can help Arkansas farmers remain in control of their tax situation, reduce liabilities and position their operations for financial sustainability and growth.

Other Savings Opportunities – Section 179d

The agriculture industry is a competitive and ever-evolving sector. To remain competitive, many farmers are taking advantage of bonus depreciation and Section 179. These tax incentives allow farmers to purchase new equipment and machinery while receiving tax savings.

Bonus depreciation is a tax incentive that allows farmers to claim a deduction on their income tax returns for the full cost of certain eligible assets. This deduction is equal to 100% of the cost of the asset and can be claimed in the year the asset was purchased. This means that farmers can save a significant amount on their taxes and reinvest the funds into their business.

Example: If a farmer purchases a tractor for $80,000 and is placed in service in 2022, they would be able to deduct the entire $80,000 in 2022. Placed in service means the farmer would have the equipment in hand and it would be ready to use. However, most new equipment can take a while to be delivered, so if the farmer ordered a new combine and paid for it in 2022 but did not receive the combine until 2023, they would not be able to take the 100% bonus depreciation deduction on it in 2022.

Bonus depreciation for qualified property is automatically taken unless you elect out of it. When you elect out of bonus, it is for the entire class. For example, say you purchased a trailer, drill and tractor in 2022 and they are all seven-year assets. You cannot choose to elect out of bonus on one of the assets, such as the tractor. The election would be made for all three of the assets in the seven-year class.

Bonus Depreciation Decreases

In 2023, bonus depreciation is expected to begin decreasing and will no longer be 100%. The following shows the phase-down amounts:

• 80% for property that is placed in service in 2023
• 60% for property that is placed in service in 2024
• 40% for property that is placed in service in 2025
• 20% for property that is placed in service in 2026

In addition to bonus depreciation, Section 179 also provides tax incentives to farmers. This allows farmers to deduct the cost of certain assets from their taxes up to a certain dollar amount. This tax incentive allows farmers to purchase larger items such as tractors, combines and other large equipment without paying full price upfront. This can be especially beneficial for farmers looking to upgrade their equipment but don’t have the funds available.

Example: A farmer purchased a new farm pickup and a new trailer for $65,000 and $15,000, respectively. They are five-year assets, but the farmer can take section 179 on just the trailer and take regular depreciation on the farm pickup. He can take any amount of section 179 on the asset up to the full $15,000 cost.

The section 179 deduction is limited to taxpayers’ taxable income from all business activities. In other words, it cannot be utilized to create a loss. This differs from bonus depreciation because when taking bonus, it can create a loss on the business. The maximum deduction you can have for 2022 is $1,080,000. The limit is reduced by $1 for every $1 over the $2,700,000 investment limit. Section 179 can be used on farm machinery, breeding livestock and grain bins, but it is not allowed for multi-purpose farm buildings.

Overall, bonus depreciation and Section 179 provide important tax incentives to farmers. These incentives can be used to save money on taxes and reinvest the funds into the business.

FAQs About Farm Financial Management

What are the key components of farm financial management?

Farm financial management involves budgeting, cash flow planning, tax planning, debt management, record-keeping and analyzing profitability. These practices help ensure long-term sustainability and financial health of the operation.

Why is record-keeping so important for Arkansas farmers?

Accurate record-keeping is essential for tracking income and expenses, applying for loans, filing taxes and making informed business decisions. It also helps farmers comply with government programs and evaluate their financial performance year-over-year.

What financial statements should every farm keep?

Arkansas farmers should maintain a balance sheet, income statement (profit & loss) and cash flow statement. These documents provide insight into the farm’s financial position, operational efficiency and cash management.

Are there specific tax deductions available to Arkansas farmers?

Yes, farmers may deduct ordinary and necessary expenses such as seed, feed, fertilizer, fuel, repairs, insurance and depreciation. There are also specific state-level incentives and exemptions for certain agricultural inputs and equipment.

How should I plan for large capital purchases like tractors or barns?

Create a capital budget that projects future equipment needs, timelines and financing options. Consider Section 179 and bonus depreciation rules to determine the tax impact of your purchase and how it fits into your overall tax strategy.

What is income averaging and how can it benefit Arkansas farmers?

Income averaging allows farmers to spread their income over three years to potentially lower their overall tax liability in high-income years. This is especially helpful in dealing with volatile income due to market fluctuations or weather events.

Do I need to make estimated tax payments?

Yes, most self-employed farmers must make estimated payments, but if at least two-thirds of your gross income comes from farming, you may qualify to make a single payment by Jan. 15 each year to avoid penalties.

Should I hire a farm financial advisor or tax professional?

Yes, working with a professional who understands agricultural taxation and finance can help optimize your tax strategy, secure farm financing and support long-term financial planning, including succession and estate planning.

How can I manage debt effectively on my farm?

Regularly review loan terms, interest rates and repayment schedules. Work with your lender to restructure debt if needed and ensure you’re using loans strategically—investing in assets that generate returns and improve efficiency.

Are there Arkansas-specific grants or financial assistance programs for farmers?

Yes, Arkansas farmers may qualify for programs through the Arkansas Department of Agriculture, USDA NRCS and local conservation districts. These may include cost-share programs, conservation incentives and disaster assistance.

RESOURCES AND SUPPORT

Arkansas offers a variety of resources and support systems for farmers, ranchers and agricultural professionals. Here’s an overview of key organizations and programs:

Arkansas Cooperative Extension Service

The University of Arkansas System Division of Agriculture’s Cooperative Extension Service provides research-based educational programs and resources aimed at improving the lives of Arkansans. Their offerings include:

• Educational Programs and Resources: Covering topics such as agriculture, natural resources, family and consumer sciences and 4-H youth development
• Financial Management Workshops: Providing resources for financial educators, including presentations, handouts and webinars. 

USDA Resources

The United States Department of Agriculture (USDA) offers several agencies and programs to support agricultural operations:

• Farm Service Agency (FSA): Supports American farmers and ranchers through a variety of programs. It provides financial assistance in the form of loans for operating costs, farm ownership and emergencies, particularly for those who may not qualify for commercial loans. The FSA also administers disaster relief programs, offering aid to producers who have suffered losses due to natural disasters. Additionally, it implements commodity programs to provide price support and income stabilization for certain agricultural products and supports conservation efforts by providing financial and technical assistance for environmentally sound practices
• Natural Resources Conservation Service (NRCS): Offers technical and financial assistance to farmers, ranchers and private landowners to implement conservation practices that improve soil, water, air and other natural resources. NRCS works directly with landowners to develop customized conservation plans that address specific resource concerns on their land. These plans may include practices such as cover cropping, no-till farming, nutrient management and wildlife habitat enhancement. NRCS also provides assistance with watershed protection, flood prevention and rural development

Local and State Organizations

Several local and state organizations offer support and services tailored to Arkansas’s agricultural community:F

• Arkansas Farm Bureau: It is a grassroots organization that serves as the voice of Arkansas agriculture, advocating for farmers and ranchers at the local, state and national levels. It provides members with a range of services, including legislative representation, educational programs and access to insurance and other member benefits. The organization works to promote agricultural literacy, support rural communities and address issues that impact the economic viability of farming in Arkansas. The Arkansas Farm Bureau is dedicated to protecting the interests of its members and ensuring the future of agriculture in the state.
• Arkansas Department of Agriculture: A state agency dedicated to promoting and supporting the growth and sustainability of Arkansas agriculture. It works to ensure the safety and quality of food and agricultural products, while also protecting the state’s natural resources. The department administers various programs related to animal health, plant industries, forestry and agricultural marketing, providing resources and assistance to farmers, ranchers and agribusinesses across the state. They also focus on developing new markets for Arkansas agricultural products and supporting the economic viability of rural communities. The department serves as a regulatory body, enforcing state and federal laws related to agriculture and strives to foster a healthy and thriving agricultural sector. 
• Local Farm Credit Agencies: These cooperatives provide financial services tailored to the needs of farmers and rural communities. In Arkansas, key agencies include
  • Farm Credit of Western Arkansas: Offers loans and financial services to support agriculture and rural communities in western Arkansas. 
  • AgHeritage Farm Credit Services: Provides credit and related financial solutions to the rural and agricultural markets in 24 Arkansas counties. 
  • Farm Credit Mid-America: Serves parts of Arkansas, offering credit and financial services to farmers, rural residents and agribusiness owners. 

These organizations collectively work to enhance the agricultural landscape in Arkansas by providing education, financial assistance and advocacy for those involved in farming and related industries.