Management Time

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Partners,

Into the new year! The last few weeks, work-wise, have not been too intense due to holidays and personal time. We have most of our crop inputs ordered for the 2017 crop year: seed, fertilizer, and herbicide. For the most part seed prices and herbicide are steady from last year and fertilizer is down 20-25%. We tried some different herbicide products in 2016 to reduce costs and are looking at more generic products this year. We're also considering ordering some products direct from distributors to cut out middlemen. We have evaluated our equipment situation and are planning very little tweaking to our current lineup. We are replacing a few worn out items—auger and backhoe—but will inspect and repair all other items and put a few more dollars in the repair and maintenance budget. We have come up with a list of some surplus items, mostly livestock stuff, that we are marketing on several sites. We are also planning on raising our bean acreage; due to the increasing prices in the bean market, soy is getting more competitive with corn, especially if we can keep increasing yields. Our labor force is remaining stable although we feel for Marcus being the only employee under 60 on the full-time payroll. 

As for the ag economy, it is interesting that the president elect is waiting to choose a candidate for Secretary of Agriculture till the end of his nomination process. With a new farm bill on the list of legislation in the next two years, the background of the pick will probably play huge into the favored crop legislation process. But with the tighter budget constraints expected, the hope for larger ag subsidies are bleak. We keep in mind that over 60% of the agriculture budget is for the SNAP food assistance program.

On the home front we celebrated a great holiday season. Our whole family was together the day after Christmas. I had a new right knee put in on December 13—recovery going as expected. Marcus and Shanna celebrated a 10 year anniversary with a trip to a warmer climate for a week. The Lord has truly blessed us! 

Hope everyone is having a great 2017—we hope this year is your best ever! 

Steve   

Something for Everyone at the Ag Summit

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Phyllis and I recently returned from the DTN Summit in Chicago - here are the quick takes from the presenters and their topics.

DTN 2016

China and World markets
U.S. Will lead the way in global macro economy
Global demographics that drive food demand are still in place
For global markets there is a supply issue-not a demand problem

Farm Safety Nets & Farm Bill
2012 farm bill not passed till 2014-expect next bill passed quicker as economy worsens
For next cycle a late farm bill will be almost as bad as no farm bill
Farm Policy battle lines- payment limits, crop ins, regulations, snap vs farm programs

Tax Habits - Built to Last
Possible revisions to tax law and estate taxes
Dealing with the IRS-don't go it alone
Lessons on tax planning-need to do every year

Using Precision Ag
Food production must increase by 70% by 2050
We are competing with lower cost producers around the world

Weather
Ocean warming back up now-trending toward normal growing season-trend line yields

Teamwork fundamentals - astronaut Mike Mullane
1. Guard against normalization of Deviance
--Challenging but attainable goals
2. Responsibility & Accountability
--See something-Say something-Do something
3. Courageous self-leadership
--We are better than we think & so is our team!

Checking Ag's Vital Signs - Farm Credit & Rabobank
These financial times are not 80s ag economy repeated
Continued corn & soybean losses in 17 & 18
Producers will exit - just shifts acres to better producers
Need 6-8 mil acres to come out of production-CRP?
The greatest danger in times of turbulence is not turbulence ; but to act with yesterday's logic

Market Outlook-Darrin Newsom
Bean outlook not bullish technically or fundamentally
Ditto corn-stocks to use over 17%-ending stocks 2.4 billion bushels
Wheat is a very ill sister--record stocks globally
Challenges are gifts from Heaven
To achieve without risk is to win without glory
Problems are only opportunities in work clothes
Corn is strong cash price against record stocks
SB weak cash against record demand
Futures & cash will only decouple for so long
Don't look for soybean basis rally throughout this year
Action-buy Dec 3.80 puts .25-.30
Action-HTA 2017 bean production at 10.30

Lots of bullets here - if you have any questions or comments please contact us - very easy through the website!

Have a great holiday season!

Steve

Giving Thanks

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Partners,

We took advantage of the great mild November weather to work on many projects. Last week we completed NH3 fall application--in the fall we apply a half rate of nitrogen along with a nitrogen stabilizer to reduce the chance of leaching. We are also completing a rather large waterway renewal and upgrade project which included two new dry dams. There are pics of the earthwork and seeding above. With the rolling, more fragile type of ground we farm (we do have some nice flat fields as well) we have taken the charge to keep erosion control a priority. This includes regularly maintaining waterways, cleaning and maintaining the over eighty dry dams we have on the property we farm, and maintaining fences and field edges. Even without livestock, on a crop farm of this size there are always projects to keep us busy in the non-crop season.

The Thanksgiving season has given us time to pause and reflect on our blessings. Last week was filled with family, friends, and too much great food! There was plenty of political discussion around the table about what to expect in the next few years--how many campaign promises can be turned into real action? We appreciate the freedoms we enjoy in these United States, and recognize the processes which have led to many of the systems that we have in place--i.e. electoral college, health care, drawing of representative districts. The strength of the dollar since November 8th is one of the indicators we are watching. That affects our competitiveness globally and our commodity prices locally. We are in the process of putting together our crop budgets for this next year, and marketing will again be a very challenging part of our process!

Families are doing well and we look forward to having everyone together during the Christmas season. I will be having knee surgery in a couple of weeks. Marcus and Shanna are going to be celebrating their tenth anniversary this month. 

Fall 2017 prices:

Corn 3.47

Soybeans 9.93  

Let us know what you want to hear about--please leave comments and "Likes" below!

Steve

Winter Activities

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Partners,

 

One of the most important times of the year is now upon us, keeping busy in the office with paperwork. Beginning in late December, we have been plugging away, finishing up the 2015 calendar year, and making plans for 2016. Final rent checks have been sent, W-2's have been filed, 1099's are in process and we are working on financial statements in preparation for tax season.  Budgets for the 2016 crop year are being fine tuned, and we are negotiating with input suppliers for fertilizer, seed, and chemicals.  Our budget for equipment shopping is simple this next year, little to nothing.  We are not planning to replace any equipment, knowing that it will result in modestly higher repair bills and some minor delays.  The good news is that our line of machinery gets a thorough inspection for safety and all preventative maintenance will be completed prior to going to the field.

 

Phyllis continues to work diligently with our management accounting system, Centerpoint by Red Wing, and I (Marcus) recently traveled to Austin, Texas to attend an intensive management workshop known as TEPAP (The Executive Program for Agricultural Producers).  I was able to network with the best and brightest in Agriculture from all over the nation as well as a handful of foreign countries, while gaining insights on how to best position our farm to thrive in all environments.

 

Lindsay and Keith are now only three weeks away from the birth of their second son!

 

We had planned to finish January deliveries of corn last week, but due to high river levels on the Illinois river, it was necessary to wait until this week.  It is important to be able to haul grain out while the ground is frozen, as we have a few remote storage bins that are not accessible by gravel driveways.  We always look forward to having those facilities emptied out so we can fully enjoy the more modern facilities the remainder of the delivery season.

 

Agriculture is still in the process of "resetting" after the rise of the Ethanol Era, which was followed by erratic weather throughout the world, both of which led to a longer than normal period of high grain prices.  The primary question on everyone's mind is "How far through the reset period are we?"  These cycles have always been a constant in this industry, and the goal is to be able to not only survive tough times, but to be able to grow strategically as opportunities could arise.  

 

As I was reminded last week in Austin, it is critical that we all take a moment to be thankful to operate a business in this country, and for the good fortune to be able to farm on soils that could only be dreamed about in the vast majority of the world

 

Fall Grain Prices:

Corn:          3.55

Soybeans:  8.57

 

We have enjoyed seeing a lot of you in recent weeks, and look forward to seeing more of you soon.

 

Best regards,

Marcus

Winter = Meetings

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Partners,

We continually strive to stay abreast of the ever evolving agricultural landscape.  Phyllis and I just returned from the annual DTN/Progressive Farmer AG Summit in Chicago.  The theme for this year’s meeting was "Mastering Your Margins: Strategies for Ag’s High-Risk Cycles.” This provided us with three intense days of speakers, seminars, breakout sessions, and networking opportunities.  I really enjoy the DTN Ag Summit each year because it helps me with the effort to keep a finger on the pulse of the global agricultural industry.  It also helps me to stay focused, gain fresh insights, and be a better manager.

I thought I would share with you a brief overview of some of the topics that were discussed:

 

Risky Business:  Ag’s Climate Change Challenges (Greg Page, Executive Director, Cargill Inc. Board of Directors)

  • More effort should be focused on possible solutions, rather than debating (the highly debatable) cause
  • Long term planning of land usage needs to factor in the changing crop growing degree days
  • Fish are very poor feed conversion creatures so aquaculture is not as promising as some had hoped
  • Ruminant animals (by nature) have lighter environmental footprint

 

Weather Meets the Technology Frontier (Jim Block, chief meteorologist, Schneider Electric) & After El Nino: 2016 Crop Weather (Bryce Anderson, ag meteorologist, DTN/The Progressive Farmer)

  • There is an astonishing amount of weather data being collected around the globe
  • Weather data is being recorded and analyzed by increasingly sophisticated computer programs
  • Weather forecasting will continue to improve
  • The frequency of extreme weather events will increase

 

A Lender’s View of the Farm Economy (Mary McBride, president, CoBank)

  • US economy is moving into a "not so bad" zone, and arguably the best economy going globally
  • A strong U.S. dollar is a negative factor on agricultural exports
  • There are now record world stocks of Soybeans and Wheat

 

Mastering MarginsPost-Crash (Chris Barron, president, Ag View Solutions)

  • It is absolutely necessary to accurately measure all aspects of our business
  • Economic survival depends on focus on higher yields and lower cost per unit

 

Brazil’s Soy Fronteir at Middle Age (Renato Rasmussen, Brazil economic analyst, Rabobank  Guilherme Scheffer, financial risk management director, Grupo Sheffer)

  • Brazil has doubled SB production the last 15 years and now exports more than the US
  • They have the potential for 3 crops per acre per year—(e.g.:  Soybeans, corn, cattle)
  • Their average cost of SB production now is 7.10

 

Bottom-line on 2016 Market Outlook (Darin Newsom, senior analyst/DTN/The Progressive Farmer)

  • The 4 C's (cattle, corn, crude, cotton) have all entered a new paradigm this past year
  • The markets we are in now will not change till there is some sort of weather disaster somewhere in the world

 

Leadership the West Point Way (John Sterling, Lt. General, U.S. Army (Ret.)

  • Be-Know-Do
  • 3 kinds of leadership--Direct, Organizational, Strategic

 

Wrap-up/Take-Home Strategies

  • Cash burn rate on corn acres next 3 years could be over $400/ACRE
  • Get financials in order
  • Be a problem solver

 

Overall, the experience was a bit sobering compared to last few years. Phyllis and I are old enough to remember the 1980s; we feel like this is the next generation learning experience for “Mastering Your Margins” when the going gets tough.

 

Current prices:

Corn 3.65

Soybeans 8.81


Steve