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Accurate cash flow statements are vitalBy Doug Rich
Rural community banks in Kansas are in good condition, said Tim Ohlde, president of the Elk State Bank in Clyde, Kan. Ohlde was the keynote speaker at the Kansas Commodity Classic held Dec. 9 in Salina, Kan. "A local bank operates with deposits from the community then turns around and loans that money in the community," Ohlde said. "The vast majority have no ties to what is happening on Wall Street. Kansas banks are community banks and they are very strong." Ohlde said Kansas was one of the last states in the nation to approve branch banking. In hindsight, this has been a real blessing, according to Ohlde, and one of the reasons our state banking system remains strong. This does not mean that farmers should not expect some changes. So far, the Midwest has been an oasis in a storm of bad financial news. Ohlde said agriculture has been one of the most profitable industries in the U.S. over the last two years and the most profitable segment has been grains. "We have been the good part of the economy," Ohlde said. However, the decline in the general economy is bringing commodity prices down in recent months. Ohlde explained that we are part of a flat economy that extends around the world. What happens in one part of that economy happens in another. The typical response to a disaster, from Congress, is to pass more regulations and Ohlde expects the current disaster will mean more regulation of the financial industry. Ohlde said he asked Sen. Sam Brownback to leave community banks alone and to concentrate any new regulation on the eight or nine large banks that really caused the problem. "Credit will be more scrutinized in agriculture," Ohlde said. "Liquidity and cash will become very important. Expect a little more paperwork and documentation." Ohlde has been in the banking business for 25 years. In the time period, the importance of doing a cash flow this fall rivals the mid-1980s. Producers need to be doing cash flows--and right now. When doing a cash flow this fall, Ohlde said to be conservative on income and liberal on expenses. "We have had a couple of very good years, but don't let that fool you," Ohlde said. "Work to preserve that cash." Ohlde said that the dollar is up and that is bad for exports. Wheat production is up in the European Union, Russia, and Australia. Plus the carryover for wheat could be double what it was last year. Things are lining up that could go negative for grains. "We have immense volatility," Ohlde said. The key to surviving this volatile situation is managing risk. Producers need to manage input and output. Ohlde said producers should know exactly what their profitability is and how they measure their profitability is very important. Ohlde suggested using an accrual income statement that recognizes income as it is generated and recognizes expenses as they occur. "Take steps now, to know where you are and protect your profitability," Ohlde said. "Know exactly what you are doing when you go to your lender." Ohlde said cash liquidity will be "king." Doug Rich can be reached by phone at 785-749-5304 or by e-mail at richhpj@aol.com. 12/22/08 Date: 12/18/08 Advertisement
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