How To Be A Successful Farmer

Transcription

1 Welcome Tomorrow s Top Producers "Best Financial Practices for Young Top Producers" June 16, 2016.

2 GDP 1970 US GDP 1 Trillion rest of the world 3 T= $4 T GDP 2014 US GDP 18 Trillion $72 T GDP World Growth 18X US Growth 18 X China Growth 19 X Canada Growth 21 X GDP= C+ G+ I+ (X-I) Demographics will determine growth US, Canada, Australia, New Zealand

3 WHAT DOES THE FUTURE HOLD China will add 300 million people in their middle class in the next 8 years. The wealthiest 10% of the China s population represents more people than the total population of Japan Farmers will need to produce more food in the next 50 years than has been produced over the last 7,000 years. Global Diet Shift to meat up 33% Global Income growth up 33% $7,000- $9,300 USD Crop demand up 25%

4 GUARANTEE Find a peer with similar circumstances Age Assets Net Worth Follow Best Financial Practices In 10 years (June 16, 2026) your net worth will be 2X theirs If not I owe you $100, requires documentation.

5 GROWTH IN NET WORTH $500,000 NW Grow 9.67% for 10 years $1,258,000 $500,000 Grow at 17.77% for 10 years $2,566,000

6 BEST PRACTICES-MANAGERIAL ACCOUNTING Develop an annual year year-end market value balance sheet Value land at 75% of current value Footnote potential taxes as a contingent liability Develop an annual accrual income statement Cash income and expenses with beginning and ending inventory

7 BEST PRACTICES Construct a projected income statement

8 Have a Determine the gross dollars per acre you need for: Term Debt payments Operating Expenses Living Depreciation Profit

9 HAVING A PLAN Makes farming easier and more fun Reduces stress Worry less about competition John Wooden- won 10 NCAA championships Never had opposing team scouted

10 BEST PRACTICES Construct a projected income statement Monitor the income statement periodically

11 BEST PRACTICES Analyze major capital expenses. NPV Analysis Can I afford do it? Is it the best place to put my money?

12 BEST PRACTICES Net Present Value This is the discounted cash flow of the project at the discount rate minus the down payment. A negative NPV means the project did not return enough cash flow to repay the down payment and pay all costs. A positive NPV means the project is feasible based on the assumptions. A positive value also means your wealth is increased in today s dollars by this amount over the life of the project.

13 BEST PRACTICES Internal Rate of Return This is the discount rate which equates the present value of the project s expected cash flow to the present value of its expected costs. (Same formula as NPV but forces NPV to zero). IRR is the most widely used project analysis figure. Oversimplified it is the compounded rate of return on the down payment of cash invested.

14 BEST PRACTICES Modified Internal Rate of Return This method assumes cash flows from the project are reinvested at the firm s cost of capital or discount rate. IRR assumes cash flows are reinvested in at the projects own IRR. This is a better indicator.

15 BEST PRACTICES- PLANNING Do You: Have a Strategic plan? Have a Will, Succession Plan or Exit Strategy? Have a written Marketing Plan?

16 BEST PRACTICES ASSET PROTECTION Do you have an Agronomic Plan Including VRT NPK and seed

17 INDUSTRY HAS SOME CHALLENGES $50 per acre Nitrogen Inefficiencies per year. 1/3 of corn acres have best management practices. $420 million Nutrients lost to Gulf annually. Source WinField US, LLC ( United Suppliers)

18 SOLUTIONS Drainage Water Management 30 million acres suitable in Great Lakes and Gulf watershed Tile on 30 to 40 foot centers Water Level Control Structures Sub- Irrigation NRCS cost share Up to 50% yield increase 78 to 85% reduction in Nitrate and Phosphorus in Drainage Water

19 SOLUTIONS Causes of Crop Loss in Iowa for corn Drought 40% of the time Excess moisture 31% of the time Soybeans from Drought 28% of the time Excess moisture 31% of the time Source Dr. Chad Hart, Iowa State University

20 DEMOCRACY OF FOOD Changing PR environment Activists Look for opportunities to develop strategies to differentiate your farm in: Animal comfort Water Nutrient Management Soil Quality

21 BEST PRACTICES ASSET PROTECTION Do you have an inventory control system? Do you use a variety of marketing tools? Are your assets protected? Insurance products- Crop, liability, health, life, disability, identity protection

22 BEST PRACTICES ASSET PROTECTION Are you doing all you can to mitigate third party risk. Delayed payments Pre-paid expenses Agreements

23 DIVERSIFICATION $100,000 7% for 10 years = $196,968

24 DIVERSIFICATION 20% for 10 years = $123,834 15% for 10 years = $80,914 7% for 10 years = $39,343 0% for 10 years = $20,000 $20,000 lose it all = $0 Total = $264,091 34% more than $196,968

25 LOOK AT DIVERSIFICATION Livestock Buildings Alternative Crops Non GMO Organic Natural Meat

26 LOW GRAIN PRICES Farming is a cyclical business, like most others. Bulletproofed your balance sheets. Those who did will have opportunities abound in the next two years. In equilibrium, the top third are making money, middle third are hanging in there, bottom third are losing money and exiting the industry. Dr. Danny Klinefelter Be thankful you live in a free enterprise society. Keep your priorities in line.

27 THANK YOU