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Ratios Are A Waste Of Time

I need to vent on the uselessness of ratio analysis by financial experts of any farmers’ individual or corporate financial statements. (Grainews March 23, “Know your net worth,” page 32.) Our partnership of three brothers, JVM van Staveren Farms Inc., has farmed together for over 15 years. Some of us have been farming for 30 years. Land purchased over that time carries the same asset value as the day it was purchased, according to the bank institutions.

Generally we spend anywhere from $5,000 to over $100,000 per year on physical land improvements. These include rock pile burial, tree pushing and stick picking. That is generally directly expensed, reducing profitability on the income statement that year. Ultimately the land is more efficient to field operations, more productive on the virgin soil, and would inherently be worth more to any sound farm business manager evaluating a 160-acre cropped quarter verses a 135-to 145-acre quarter. Yet, financial institutions refuse to adjust land values for these countless hours of improvements and large dollars spent.

Even without improvements like these, the land values should be adjusted especially every five to seven years or so. Long-term zero tillage and continuous cropping that provide up to 60 pounds per acre of extra mineralizable nitrogen as well as increased phosphate producing power (research finding no response to P fertilizer on these fields) should justify an increased value to the land asset. In our region, the Bakken oil fields are expanding rapidly, planting four oil wells per section of land, now increasing it to eight wells per section (fortunately on the perimeters of all lands). Initial payouts of $10 000 per well and annual leases of $3,000, not to mention flow line activity, are all obvious asset-value improvements.

Other basic yet essential field operations, such as fall glyphosate applications or soil applied residual herbicide products or fall fertilizer, can’t be placed in the asset column, when clearly all are done for following-year crops. I’m sure most of us are not even allowed to put forthcoming Agri-Invest commitments from the government in our asset columns.

If I read or hear of any bankers that will assess interest rates and fees for their clients based heavily or solely on ratios, they won’t be doing business with us.

Ultimately I believe risk and profitability evaluation should come down to the quality of the land you have and management expertise in both agronomics and marketing. Your history of your farm’s ability to profit has to be the number one basis in credit worthiness.

Land quality is the foundation of all our grain farms. Every region of Western Canada has soils of varying texture (sand, silt and/or clay) or diverse soil structure, good and bad. Great soil with good structure can carry more debt than poor soils. Good farm managers will ultimately farm the better soils in their regions. We can build our soils and improve them via direct seeding and continuous cropping. And we can increase the fields’ efficiency by removing physical barriers such as sloughs and stone piles. Generally these virgin soil locations are highly fertile, increasing overall average yields, and with these barriers gone, field operations can be carried out at utmost efficiency with minimal overlap of inputs. This is what we do to improve our business. We don’t spend more than 10 minutes a year on such a worthless exercise as evaluating our corporate ratios.

Marcel van Staveren Creelman, Sask.

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