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Transcript of Desk
Formalize the process
1. What is the timeline of the business?
2. What direction is the business going in?
80% of financial decisions based on emotion
How about video?
Source: Gateway Livestock
Alberta Agriculture and Rural Development
AgriProfit$ - Dale Kaliel, Jason Wood
Saskatchewan Ministry of Agriculture
Iowa State University
Ag Decision Maker
Importance of Knowing you "True" Costs
Cost of Storage
What to Monitor
Long Term Success
1. Your personal goals – more time with family, vacation
2. Business goals - Maximize profit, lower labor hours
3. External environment – Industry trends, policy, economy
4. Internal environment – Your competitive advantage
1. Growth - expanding the size of the business
2. Stability - maintaining the size of the business
3. Retrenchment - refocusing the business for improved performance
4. Succession - transferring the business to you younger generation
5. Exit - ending and leaving the business
Analyze, implement, and continuously evaluate!!
Wants to expand his flock of sheep
Financial market/ economy concerns
Volatility in the price of our input
Volatility in our output prices
Access to cash/capital/ labor / land – Alberta’s Economy
What I am good at?
Benchmark – myself / the industry
Cost of Production
Describe by each enterprise
Merle Bad Calls Back
Sells his sheep
Inherits 2000 acres
1000 acres Canola
1000 acres of Wheat
Expected Contribution Margin of $191 000
With a 10% chance of losing $14 000
Vs. and expected contribution margin of $385 000 based on last years prices
Is There a Tool for That?
Download from ARD website
You select yields, prices
Add up to 32 separate fields
Benchmark data for all of Alberta's major crops
Data is average Alberta data
Crop Returns Calculator
Quick What-if scenario
Managing with The Margins
Know break evens to evaluate
Crop insurance/ marketing plan
Prepare multiple scenario projections
Cost of Storage
Will market pay the carry
Examine Cash Rents
Evaluate fertilizer application
Soil needs and crop plan
Diligence on direct costs
Be timely / know returns
Higher seed cost
Efficiency levels with machinery
Revolving your operating loan
Cash Advance program
Identify you long term strategy
Focus on knowing your "true" costs and breakeven's
Keep the current position (cash available) segment of the farm business strong.
Use excess cash revenues to pay down short-term farm operating debt, rather than to make extra payments on term loans.
Use excess crop revenues from 2013 grain sales to prepay 2014 or 2015 crop expenses.
Be cautious of machinery and facility investments for the farm business.
Land purchases are financially sound for you farm business.
Compare to annual land rental rates to secure land.
take advantage to lock-in cash expenses and market prices when those margins exist.
Communicate with your ag lender.
Meet with your ag lender early to discuss your farm operating credit needs for 2014/ 15.
Discuss planned machinery and equipment purchases, and potential land purchases, and the projected cash flow impacts on the farm business.
Discuss any financial concerns early, either farm-related or non-farm, while there is still time to make adjustments.
Long Term Success
1. Operating loan < 50% value of unsold inventory
2. Expenses (not including P+I payments) < 65% gross revenue (averaged over past four years)
3. Machinery investment < 1.5x gross revenue per acre, with maximum 40% debt to book value, or leases < 10% of gross revenue
4. Equipment debt paid < 5 years if all net farm income directed towards payments