Sikes Ranch FinancialYear End Options From William Davis

Current Loan: $373,907 | 7.3% interest

I spoke with Anna Fricke, our representative at Ag West/Farm Credit West, about our loan repayment. Currently the variable interest rate is at 7.3%, subject to change with the market rates. It is tied to some national or international rate, but so far has matched the Federal reserve rate, rising or falling by ¼ percent as the feds raise or lower the rate by the same amount. We do get a “patronage” rebate in February which was 1.25% this past February. this lowers or “effective interest rate to 6.05%

We are currently scheduled to start repaying the orchard loan this December 2026. It is set up by default to remain as a variable interest with a 15 year repayment schedule. Currently, If interest rates remain the same 7.3% we would will owe $41,834.30 this December. We will have the funds to pay this. We will get the 1.25% patronage rebate in February 2027.

After the first of the year we will have the option of converting the loan to a fixed rate or keep it as a variable rate. The fixed rate will depend on our choice of the term of the remaining loan. We have an option of fixing the rate for 15 years or as little as 5 years. The shorter fixed rate term will have a lower fixed interest rate than a longer term. Anna implied that the fixed rates may be a little higher than the variable rate, but could not easily give me specifics.

If we keep a variable rate loan we will have the option of prepaying part of the loan at any time. If we pay about $53,000 (or $12,000 more) each year we will pay this off in 10 years rather than 15 years. Of course, if interest rates rise or fall our annual payment will rise or fall. Each 1% change in interest rates will change our annual payment by about $3500 initially

If we convert to a fixed rate, some of the options have prepayment penalties, but not all. It appeared to be complicated to get details. We would have to be specific about how we want to structure the loan. I fear that interest rates will rise due to inflation worries, but only slightly. The Federal Reserve will have the full wrath of Trump if they raise interest rates to fight inflation, so it won’t be much. I feel it is best to let this year play out, pay the $41,834 ($27295.20 interest and $14539.40 principle) and address the long term loan in January.

Each of us will have some GA Sikes Ranch income to report on our taxes. I hope to have enough money to consider distributing enough to cover any unplanned additional tax that the Sikes Ranch income will incur. Instead of distributing the money we could use is to pay down the principle on the loan to shorten the pay off time.

These decisions depend heavily on our actual income. At this point we have received $100,145 from the 2025 almond crop, which is more that we predicted.There may be an additional payment in September (uncertain). I expect $100,000 from Tommy Bottoms for the row crops by the end of the year, but that is a rough estimate. I am awaiting Dustin Timothy’s six month bill for the orchard maintenance which I estimate at $65,000 - $70,000. We have a potential back property tax bill of $10,000. Solano County has yet to bill us for half the Ranch for tax years 2024 and 2025. We currently have $100,000 in the savings account, more than enough to pay Dustin Timothy later this month for his January - June orchard expenses. We will have to hold back some funds at the end of the year to pay Dustin in January 2027 for his July-December expenses.

In summary, I suggest we pay the planned loan payment in December. Once we have clearer numbers of our income and personal tax liability, we could meet in January to decide how to distribute funds to cover tax burdens or pay down the principle. We can get more information as to our options for converting the loan to a fixed rate verses letting it ride as a variable loan.