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financials

Make a Wet Harvest Productive with Updates to Your Financials

By Bob Campbell, senior vice president

With grain harvest temporarily on hold due to rain in many parts of our territory, now is a great time to update your 2018 cost of production calculations and potential break-even prices based on anticipated yields.

Why is this important? We anticipate that most grain producers will store their 2018 grain and look for marketing opportunities in 2019. Understanding your cost of production on those bushels will give you an informed marketing target.

If you borrowed against your 2018 bushels, you will want to share with your lender both your updated cost of production and marketing plan, including the timing and amount of your planned sales. This conversation will allow your lender to help you identify the appropriate debt structure for your marketing plan and your 2019 production year.

Use your office time to also consider the cumulative impact the past few years has had on your operation. Ask yourself these key questions:

  • Do I have adequate liquidity? This is the working capital you have available to meet short-term financial obligations. While always an important indicator of your risk-bearing ability, working capital is especially critical in times of volatility. Frontier Farm Credit recommends, in general, that grain producers have working capital of at least $200 per acre farmed.
  • Has my overall debt load increased due to losses? If so, it is important to understand how this increased debt is impacting your fixed costs.
  • Do I need to adjust my operation to be cost competitive?

Armed with these answers, you can start putting together your business plan for the coming year. Based on anticipated markets, what are your initial thoughts about your crop rotation?  What would your initial cashflow projection look like based on your planting intentions?  How does the projected cost of production align with the markets?

I invite you to contact your local Frontier Farm Credit financial officer to discuss these and any other questions you might have as you assess your financial position.

Successful producer word cloud

What Successful Producers are Doing Today

by Bob Campbell, Senior Vice President

Producers are operating in a complex and volatile business environment. Unprecedented technology developments have increased the pace of change. Global markets, trade issues, politics and weather seem to introduce new risks at every turn.

I recently was asked to speak about what we, at Frontier Farm Credit, see producers doing to succeed in this challenging environment. The insights I collected from teammates and others as I prepared for my talk are worth sharing because they set top producers apart in every economic cycle, good and bad.

We often define success in agriculture in terms of an operation’s size, the experience level (or age) of the operator or some other outward measurement. But success really is about accomplishing what you set out to do, whether that is growing your operation to make room for the next generation or staying small and focused on producing a quality product with your own labor.

Successful producers have many things in common, and they tend to be behavioral, all of which can be learned and honed. My list of behaviors is fairly long and the descriptors aren’t necessarily the same that you would use. But no matter the words, they all point to a strategic mindset – the ability to think about where your operation is going and how it will get there.

Agricultural operations are complicated enterprises. And even when they are run by just one or two people, successful operations incorporate the thinking of a CEO (the visionary and final decision maker), a chief financial officer (the numbers person who knows where the operation stands financially at any given time) and a chief operations officer (the person with day-to-day responsibility for getting an operation from Point A to B). I also would argue that today’s world increasingly requires the mindset of a chief technology officer who identifies emerging technologies that make an operation better and more efficient.

This is a lot of hats to wear and too much expertise for one person to possess. Which brings me to another key characteristic of successful producers: They know what they are good at (which often is what they most enjoy doing) and rely on the expertise of others to fill the gaps in their knowledge and ability. I have worked with large operations in which everyone is good at production but nobody has the mindset of a CFO, and they have not filled that gap. These are not financially viable operations long term because the operators don’t understand their cost of production and how that fits in today’s economic conditions. On the flip side, I have worked with husband-and-wife teams in which one focuses solely on production and the other on finances. These often are among the most successful operations because each partner has a delineated duty. Just as importantly, they own responsibility for executing on their individual duties.

We all know that a strategy is only as good as its execution. And today, successful producers are focused on executing in those areas that they control – their costs of production, the marketing of their grain or livestock, the performance of their operation on key financial indicators.

I challenge each of you to think about the behaviors you see in the successful producers you know. Then ask yourself: Do I have the behaviors and mindset of a successful producer?

Apply Marketing Tools to Capture Profits

Corn and soybeans futures reached two-year highs in recent weeks as part of a broader surge in commodity prices. July 2016 corn futures, for example, climbed to $4.07 and currently are at $3.96. Soybean futures are bouncing between $10.60 and $10.90. Not accounting for basis, this is well ahead USDA’s cash price forecasts of $3.60 for corn and $8.85 for beans for the 2015/16 crop year.

Market rallies in today’s low-price environment are critical windows of opportunity for producers positioned to take advantage of them. While many will speculate on the how long and how high a rally will last, good marketers understand that locking in a profit requires applying some tried-and-true rules to their marketing:

  • Know your breakevens. The closer to the penny, the better. Otherwise, you are throwing darts at an unknown target.
  • Identify your desired profit per acre or profit per bushel to establish your profit target. This takes away the emotion that often enters marketing decisions.
  • Remember that marketing isn’t a one-time decision. By selling your crop in increments — up to your crop insurance guarantee – you reduce some of the emotion of marketing.

Price changes offer good opportunities to review your farm’s profit potential. Once the crop is in the ground, update costs as well. We offer Manage Profits to help you understand and identify market opportunities. Manage Profits, which is free to customers through AgriPoint®, has all of the basic components to manage risk in production agriculture.

This easy-to-use tool allows you to manage crop and livestock production, track marketing progress, crop insurance, generate profitability reports and stress test the business with what-if scenarios. The what-if analyses involve plugging several variables into an operation’s current plan to see how one or multiple changes, including futures prices, affect profitability.

To learn more about Manage Profits, log into or enroll in AgriPoint. Click on Manage Profits. There, you will find an informational video to get you started. Click on “Help” in the upper left hand corner for a user guide with step-by-step instructions. Contact your local Frontier Farm Credit office for further assistance.