Presented by:

Date:

Farm Management

Consulting

MNP FMC Group

Current Update

Focus

To help our clients make better use of their own information in

order to make better informed decisions leading to maximized

profit and realization of their business and personal goals.

To help clients manage change through effective planning.

To help farm businesses succeed.

Management by Priority

Why do producers have to Prioritize? Strong profitability in 6 of the last 7 years means that

many farms are starting 2014 financially strong:

• Record yields, but falling markets in 2013

• Difficult grain delivery

• New crop grain prices (2014) 20% to 30% down

• Strong liquidity, but potentially difficult cash flow issues

• Carryover grain and storage challenges

• Rising input costs…

Let’s look at some budgeted 2014 numbers

2014 crop plan:

Productive

Units Yield Price Gross Margin Per Unit

Crops

28.6% Red Lentils 2,000 32.0 10.80 545,200 272.60

7.1% Specialty Peas 500 32.0 8.00 89,000 178.00

14.3% Canola 1,000 30.0 10.00 176,000 176.00

28.6% Durum 2,000 42.0 6.00 296,000 148.00

21.4% HRSW 1,500 40.0 6.00 243,000 162.00

7,000 1,349,200 192.74

Results in Cost of Production of:

Crop Red Lentils

Specialty

Peas Canola Durum HRSW

Total acres 2,000 500 1,000 2,000 1,500

Revenue per acre

Primary

Estimated yield 32.00 32.00 30.00 42.00 40.00

Estimated price 10.80 8.00 10.00 6.00 6.00

Total revenue per acre 345.60 256.00 300.00 252.00 240.00

Production expenses 73.00 78.00 124.00 104.00 78.00

Gross margin 272.60 178.00 176.00 148.00 162.00

Total fixed costs 120.00 120.00 120.00 120.00 120.00

Net earnings from operations ($/Acre) 152.60 58.00 56.00 28.00 42.00

Unit cost of production 6.03 6.19 8.13 5.33 4.95

The financial profile looks like this: 2013 2014

Liquidity

Current ratio 25.58 31.04

Working capital ratio 126.2% 154.4%

Work ing capital 1,921,813 2,350,709

Work ing capital requirement 1,522,550 1,522,550

Financial structure

Debt structure ratio 7.5% 7.7%

Percent owner's equity 85.0% 86.3%

Debt to equity ratio 17.6% 15.8%

Profitability

Return on assets 0.0% 6.6%

Return on equity 0.0% 7.7%

Debt service ratio - 10.49

Revenue decline ratio 0.0% 23.2%

Asset turnover ratio 0.0% 27.5%

Contribution margin 0.0% 50.4%

What does this have to do with

priorities?

• Cash Flow vs. Profitability vs. Agronomy

vs. Marketing vs. Risk Management

– Discussion has changed significantly this

winter

– Prior winters, strong profitability led to ease of

marketing and strong cash flow

– Now, need to pay attention to all of these

areas and how they interact – need to be

good at all of them!

What does this have to do with

priorities? • Cash Flow

– Cash flow still strong for the better managers

right now

– Potentially difficult 12 months from now if

transportation issues continue

– Rising overhead costs demand cash

• Land prices/Rents

• Machinery costs

– Rising input costs require cash

• Fertilizer (price has fallen, but need more in 2014)

• Fungicides

What does this have to do with

priorities?

• Profitability

– Slimmer margins

– Many budgets are projecting a break-even

year (at best)

– Some budgets (like the previous example)

show strong profit

• Why?

• Most don’t!

Base plan

Productive

Units Yield Price Gross Margin Per Unit

Crops

25.0% Canola 1,000 28.0 9.00 91,000 91.00

12.5% Flax 500 25.0 11.00 92,500 185.00

25.0% Red Lentils 1,000 25.0 10.80 174,000 174.00

6.3% HRSW 250 32.0 5.00 16,250 65.00

15.0% Durum 600 35.0 5.00 47,400 79.00

3.8% Soybeans 150 25.0 10.00 23,550 157.00

12.5% Fallow 500 - - (7,500) (15.00)

4,000 437,200 109.30

Change Crop Plan

Productive

Units Yield Price Gross Margin Per Unit

Crops

12.5% Canola 500 28.0 9.00 45,500 91.00

25.0% Flax 1,000 25.0 11.00 185,000 185.00

37.5% Red Lentils 1,500 25.0 10.80 261,000 174.00

3.8% Soybeans 150 25.0 10.00 23,550 157.00

21.3% Feed Wheat 850 50.0 4.00 93,500 110.00

4,000 608,550 152.14

Change Crop Plan and

Increase Yields 10%

Productive

Units Yield Price Gross Margin Per Unit

Crops

12.5% Canola 500 30.8 9.00 58,100 116.20

25.0% Flax 1,000 27.5 11.00 212,500 212.50

37.5% Red Lentils 1,500 27.5 10.80 301,500 201.00

3.8% Soybeans 150 27.5 10.00 27,300 182.00

21.3% Feed Wheat 850 55.0 4.00 110,500 130.00

4,000 709,900 177.48

What does this have to do with

priorities?

• Agronomy

– Smaller (breakeven) margins budgeted:

• Highlights the importance of agronomy

– Increase yields 10% = increased profit 100% or more

– Different mentality than previous years

» Don’t splash it on all over

» Need a ROI from each operation

» Timeliness and quality of work will be crucial

What does this have to do with

priorities?

• Marketing

– Grow what will be more saleable next fall

• High protein, #1 durum

• Red lentils

• Canola?

• Beware small market crops with unrealistically high

prices expectations?

– Will likely be overproduced

Risk Management

• Reduced margins means more importance

placed on having the right Risk

Management strategy in place:

– How much protection is needed?

– How much risk can the producer withstand?

– How do the programs work together?

– What about other considerations?

• Cash flow

• Reliance on one program

-

-

-

5.30

14.0

2

22.7

5

32.6

9

20.5

8

15.1

1

9.63

4.15

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

% Of Projected Margin

Crop Ins GARS AgriStability

Production Costs-$114.04 Fixed Costs-$126.54 Production-= $291 GARS-$129.90

CI-$77.53 AgriStability-$73.50 AgStab Disaster-$.0 Shortfall-$32.69

Risk Management

• In general, margin based programs

(AgriStability and GARS) become more

effective as grain markets decline

• One program by itself provides insufficient

protection

• Each business has a unique level of

coverage that is most effective for them

Conclusion

For many grain producers this is still a

time of opportunity, but also greater risk

Less optimism – not all of them see it

that way!

We want you to be able to make the

best choices in order to be able to

continue on the path to success

Presented by:

Date:

Farm Management

Consulting

MNP FMC Group

Cattle

Better trading environment

• Strong prices

• Cheaper grain

• Plentiful forage

• Optimism!

Same rules still apply

• Cow/calf yields the most consistent

profitability

• Backgrounding and finishing remains a

speculative venture

• Proceed with care

• Consider hedging if you cannot afford the

risk

Financial targets

• Gross margin $600/cow

• Overhead costs $400/cow

• Profit $200/cow

Financial targets

• Can you hit those targets?

• How many cows do you need to be

viable?

• What is your profit target?

• How much debt can you handle?

Financial targets

• Ranching remains a highly capital

intensive business with inherently low

profitability (ROI)

Critical success factors

• Set realistic targets

• Simplify the system to minimize overheads

and maximize operational efficiency

• Be a good stockman

• Recognize the importance of feed and

forage management

• Aim for a consistent high quality product

Critical success factors

• Know and understand your cost of

production for:

– Feed grains and forage

– Calves

– Backgrounders

– Finishers

Critical success factors

• Feed efficiently and aim to minimize waste

• Fully cost any alternative feeding systems:

– Access to capital

– Scale of operation

– Machinery

• These can all impact on what will work

best for you

Summary

• Looking in better shape than for some time

• Recognize the limitations

• Succession and Retirement:

– Now maybe a good time to address these

strategic issues?

Presented by:

Date:

Farm Management

Consulting

MNP FMC Group

Questions?