Sharing Gems From Farm Futures Business Summit

Beefs and Beliefs

Finance gurus from farm and firm share ideas on money management and on planning for probable changes ahead in the ag economy.

Published on: January 9, 2014
 

I’ve spent the last two days at our company’s Farm Futures Business Summit in St. Louis and my head is spinning.

I like finance and money, and I consider good financial management imperative to long-term, therefore sustainable profit, but there has been so much material and so many twists of concept.

There’s been some good information passed between top-notch producers and financial consultants and it’s too much to summarize in this small blog.

I plan to use this material in Beef Producer and on the website over the coming year but I’ll give you some of the finer crumbles I’ve snagged. I’ll just go through some of these gems by the speaker and not by any particular order or thought process.

Alan Grafton, Mississippi, of Kennedy & Coe, LLC., a “top 100” accounting and management firm. Grafton studied finance and has an MBA and now consults on management accounting with clients.

  • In recent years there have been huge swings in crop prices/revenues and also in costs. These have sometimes been $300 to $500.
  • In those huge revenues many operations have likely lost sight of some hidden inefficiencies.
  • Keep historical prices, yours and the board’s, in front of you to help with marketing decisions.
  • Change your view to “inches matter.” We’ve become accustomed to thinking about home runs and gains by the yard in these fat few years. Times aren’t looking so fat, now.
  • Every purchase of every input is an opportunity to improve your margins.
  • Remember you have three years of income and expenses overlapping any given year – last year, this year and next year.
  • Grafton says he and clients have used real cost-return data to negotiate better rental prices with landowners/lessors.

David Kohl, management finance guru and professor emeritus from Virginia Tech.

  • FINBIN data shows the top 20% of farmers, by profitability ranking, made 10% profits year in and year out, even in tough times. They are very disciplined with their working capital.
  • When your commodity is on the upswing you watch it every minute. It’s just as important to watch it on the downswing, looking for pricing opportunities.
  • Machinery dealers are the canary in the coal mine of the ag economy. Watch for excess inventory and slow sales to tell you more trouble is ahead.
  • Watch the Federal Reserve Board’s attention to M3, the velocity of money. This will tell you inflation could begin picking up and therefore interest rates could pick up.
  • Cash is king. Keep plenty of operating capital on hand in the event leveraged capital gets hard to come by.
  • Midwest land prices are a bubble but not a credit bubble.
  • Watch the RFA blending mandate variations from the EPA. Lower blend mandate would mean less pressure on corn.

Michael Swanson, Minneapolis, an agricultural economist and consultant for Wells Fargo, the largest commercial agricultural lender in the United States. Swanson was once a grain buyer for ConAgra. He specifically addressed ag policy

  • The biggest underlying problem with all the economy, including ag, is the most powerful force in the economy is the combination of fiscal policy and monetary policy. In turn, these policies operate in a realm of belief systems which are often untrue.
  • An example of this how much emphasis the Federal Reserve puts on GDP, payroll reports, jobs reports and inflation rankings. All these reports can be a little bit wrong or quite a bit.
  • China may be a major food importer but it is also the largest food producer in the world. Moreover, 80% of its Foreign Direct Investment deals since 2006 were in the realms of energy, metals and finance. Only 4% was in agriculture.
  • Forecasting is useless, even though it’s required by bankers and others. The real thing you must know and plan for, borrowing from football vernacular, is “what are you going to do if you get blitzed?”
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