Minnesota State Agricultural Centers of

ExcellenceAcademic Best Practices in Agriculture

Minnesota Farm Business ManagementApril, 2018 Lender Support Workshops

12:30-1:30

Centers of Agriculture Excellence

Staples

Mankato

Keith OlanderAgCentric Director1830 Airport RdStaples, MN 56479218-894-5163kolander@clcmn.edu

Brad SchloesserSouthern Center of Ag Director1920 Lee BoulevardNorth Mankato, MN 56507-389-7263Brad.Schloesser@southcentral.edu

Minnesota Farm Business Management

• What is FBM?– College Program– Participants are

students– Eight Colleges in MN

offer program• 66 faculty• Nearly 2700

farms/students

• Program components:– Initiate/Improve

Recordkeeping program– Annual Cash

Flow/Business Plan– Personal/Business goals– Financial Analysis/w

benchmarking– Trend analysis– Benchmark to peer groups– Business strategy

modification

FBM Program Components• Program components

– Changing of behaviors/habits

• Management

– Integrate enterprises/goals/families

• Farm Succession planning

• Tax planning• Support for credit

applications• Mitigate risk

– Insurances– Guidance/advice

What does a “class” look like?

• Scheduled mutually for meeting times.

• Usually from 1-3 hours per session

• Session frequency can be 6-8 weeks– Flexible

• Session agenda is based around student (farmer) needs/plans/goals.

• Faculty come/go to place of business or student goes to office– 1:1 ratio– Family members involved in

management decisions attend• Student is expected to:

– Attend– Have records current– Supply needed information

about operation• i.e. Inventory

What does the program cost?• Each college varies slightly –

about $1900 per year for full program.

• Each farm can talk with faculty to design appropriate level of involvement.

• Student support for tuition:– Financial aid

• Can be up to 50% of cost

– MDA Beginning farm scholarships

• Can cover up to 50% of remaining cost (after FA)

• Current pool of funds ($450,000 is depleted)

Beginning Farmer Scholarship

• MDA Offers $450,000 for about 500 students (farmers) annually – Less than 10 years of farming– Less than 4 years in FBM– Average scholarship $906.00– Key catalyst for enrollment, especially during

these economic times

Dairy Initiatives

• Specifically designed to support dairy farms with management challenges

• Orchestrated by MDA/State MN Dairy Initiatives Coordinators

• Team meetings to discuss issues/options• Up to $800 to support FBM tuition or farm

expenses as approved by team

2017 Financial Year in Review

Analysis Financial Trend DataCompiled by

Aaron BrudelieMinnesota West Community and Technical College Farm

Business Management InstructorMarch 2018

Farm Management Education in Southern Minnesota

• Data from 1420 farms were included in the South East, South Central, South West & West Central regional report

• 14 Minnesota West Instructors• 8 Ridgewater Instructors • 12 Riverland Instructors• 14 South Central Instructors

2017 in Review

• Gross farm income was, $774,349 in 2017, down from $791,868 in 2016. Down 2.2%

• Cash operating expenses was, $680,554 in 2017, down from $683,984 in 2016. Down 0.5%

• Net cash income was $93,795 in 2017, down from $107,885 in 2016. Down 13%

• Net farm income was $54,241 in 2017, up from $46,742 in 2016. Up 16%

2017 in Review• Corn production was up 5.1% to a yield of 215.3 bu.

in 2017 from 204.8 bu. in 2016 • This is the highest yield ever in the database. The

lowest was 54 bu. in 1965.• Soybean production was down 9.8% to a yield of

55.3 in 2017 from 61.3 bu. in 2016.• The lowest yield was 18 bu. in 1996. The highest

yield was 61.3 bu. in 2016.

Crop acres

678 697 683 693699 730

977930

888

985

1156

957

10941137

1072

200300400500600700800900

100011001200

Average Low 20 % High 20 %

2013 2014 2015 2016 2017

Farm SizeActual Number of Farms by Size

050005000500050

<-100 K $100-250K

$250-500K

$500K-1M

Over $1M

2013 - 1151 2014 - 1347 2015 - 12872016 - 1380 2017 - 1420

Age of OperatorActual Number of Farms by Operator Age Category

169268

222

390371

Under 31 31-40 41-50 51-60 Over 60

Total of 1420 Farms

Type of FarmActual Number of Farms by Farm Type

747, 53% 172, 12%

36, 3%21, 2%

46, 3%

34, 2%

63, 4%

296, 21%

Crop

Dairy

Hog

Beef

Crop & Dairy

Crop & Hog

Crop & Beef

Other

Total of 1420 Farms

Gross Cash Farm Income & Total Cash Expenses

709766

585494

680619

569836

708501

584669

842153

665873

900988

700646

941264

741773

925932

776714

840341

724501

791868

683984

774349

680554

200000300000400000500000600000700000800000900000

1000000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Gross Cash Farm Income Total Cash Expenses

Net Cash Income

124,272

110,738

123,831

176,279

200,342 199,492

149,218

115,840107,885

93795

30,00050,00070,00090,000

110,000130,000150,000170,000190,000210,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Southern Minnesota

Net Cash Farm Income

0

100,000

200,000

300,000

400,000

500,000

600,000

Average Low 20 % High 20 % High 10 %

2013 2014 2015 2016 2017

Net Farm Income (Ave)

139,986

61,350

183,808199,794

272,544

73,67896,337

35,915 46,742 54241

0

50,000

100,000

150,000

200,000

250,000

300,000

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Southern Minnesota Book

Net Farm Income

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

Average Low 20 % High 20 % High 10 %

2013 2014 2015 2016 2017

Net Worth Change (Cost)

-200,000

-100,000

0

100,000

200,000

300,000

400,000

500,000

Ave Low 20% High 20% High 10%

2013 2014 2015 2016 2017

Net Worth Change(Market)

-130-80-302070

120170220270320370420470520570620670

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Low 20% Average High 20%

Thou

sand

s

Year End Farm Assets

400600800

100012001400160018002000220024002600280030003200

Thousands

2008 2010 2012 2014 2016

Farm Assets (Market) Farm Assets (Cost)

Cash Flow AnalysisMoney Borrowed -vs- Debt Repaid

(Page 17)

0

100000

200000

300000

400000

500000

600000

Borrowed Repaid

Money Borrowed vs Principal Paid

0200000400000600000800000

10000001200000

Average Low 20%

High 20%

High 10%

Money Borrowed Money Paid Back

Rate of Return on Farm Assets (ROA) Cost

1.9

-3.8

6.3 6.8

-6-4-202468

Average Low 20 % High 20 % High 10 %

Rate of return cost

Profitability AnalysisRate of Return on Assets

0

2

4

6

8

10

12

14

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

10.8

3.7

11.5 11.5

13.7

2.63.7

0.8 1.4 1.9

Return on Assets

Cost

Non-farm Income

15

20

25

30

35

40

Thou

sand

s

Off Farm Income

Non-Farm Income & Family Living

• Family living has stabilized over the past few years

• In many cases, the employee benefits of off-farm employment adds significant value

• Non-farm income pays for more than half of household and personal spending

10

30

50

70

90

110

130

Thou

sand

s

Family Living Costs Non-Farm Income

Money Spent by the Average Farmer South of I 94 in Minnesota

770,591 755,975784,020

920,342

1,034,2661,057,105

1,024,388

930,399

844,795

785,728

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

Farm & Family Spending

Farm Financial Standards

• The American Bankers Association has endorsed the use of sixteen “standards” to rate business performance (see page 20).

• These standards are measures of:– Liquidity– Solvency– Profitability– Repayment Capacity– Financial Efficiency

Current Ratio (Liquidity)Current farm assets / current farm liabilities

1.45

1.171.27

1.371.48

1.6

1.23 1.23 1.19 1.12

1.98

1.74

2.04

2.26

2.50

2.03

1.791.64 1.62

1.57

2.41

2.182.32

2.66

2.90

2.42.24 2.21 2.21

2.11

0.5

1

1.5

2

2.5

3

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Low 20% Average High 20%

Working Capital (Liquidity)Current farm assets minus current farm liabilities

0200000400000600000800000

100000012000001400000

'08 '09 '10 '11 '12 '13 '14 '15 '16 17

Low 20 % Average High 20 %

•Green 50% of CashOperating exp.

•Yellow 20 to50 % of CashOperating exp.

•Red <20 % of CashOperating exp.

Working Capital to Gross Income All Farms

32.928.3

36 36.842.2

35.529.9 27.4 27.5 25.6

15.8

6.910.3

15.3 16.824.3

14.8 11.8 10.57.3

42.5 42.8 45.6 43.1

51.4

42.6

32.1

39.943.3

35.7

0

10

20

30

40

50

60

Average Low 20% High 20%

Working Capital to Gross IncomeCrop Farms

40.4 38

48.6 49.1 52.7 50.845.5

38.6 38.333.7

20.511.7

18.923.3 24.9

38.1

17 16.612.2 8.3

50.4 50.756.6 59.5 60.2 61.9

68

57.2 61.151.3

01020304050607080

Average Low 20% High 20%

Working Capital to Gross IncomeDairy

12.4

9.4

14.316.7

18.3

13

16.7

13.4 12.8 12

-1.50.4

6.4 5.5

9.8

14.2 15.3

8.55.9 5.6

15.6 1618.7

17.3

21.4

1517.8 18.6 18.8

13.5

-5

0

5

10

15

20

25 Average Low 20% High 20%

Working Capital to Gross IncomeHog Farms

9.8

1.7

16.4

26.6

16.3 17.219.8

17.2

10.5

16.8

2.3

-6.6

1.3

26.6

13.8

4.9

-1.2

11.79.8

-0.7

15.4

21.6

28.1 26.6

21.5 21.1 20.5

15.817.7

23.7

-10-505

101520253035 Average Low 20% High 20%

Debt to Asset Ratio (Solvency)Total farm liabilities / total farm assets

20

25

30

35

40

45

50

55

60

65

70

'08 '09 '10 '11 '12 '13 '14 '15 '16 17

Low Average High

•Green <30 % Debt

Yellow 30 to 70 % Debt

•Red >70 % in Debt

Debt to Equity Ratio (Solvency)Total farm liabilities / total farm equity

0

0.2

0.4

0.6

0.8

1

1.2

1.4

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Low 20 % Average High 20 %

Green

<42 % Liabilities

Yellow

<42—230 % Liabilities

Red

>230 % Liabilities

Rate of Return on Farm Assets (Profitability)[Net farm income from operations + farm interest expense minus value of

unpaid labor & mgmt] / avg. farm assets

-10

-5

0

5

10

15

20

'08 '09 '10 '11 '12 '13 '14 '15 '16 17

Low 20 % Average High 20 %

Mostly owned>5 % Green1 % to 5 % Yellow<1 % Red

Mostly Rented/Leased>12 % Green3 % to 12 % Yellow<3 % Red

Rate of Return on Farm Equity (Profitability)[Net farm income from operations minus value of unpaid labor & mgmt] /

average farm equity

-30

-20

-10

0

10

20

30

'08 '09 '10 '11 '12 '13 '14 '15 '16 17

Low 20 % Average High 20 %

Watch your trendinformation to be sure you are headingin the desired direction.

Operating Profit Margin Ratio (Profitability)[Net farm income from operations + farm interest expense minus value of

unpaid labor & mgmt] / gross revenue

-30

-20

-10

0

10

20

30

40

'08 '09 '10 ;11 '12 '13 '14 '15 '16 17

Low Average High

>25 % Green

10 % to 25 % Yellow

<10 % Red

49

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FARM FINANCIAL COUNSELING –REP IN THE ROOM/FLYER IN FOLDER

Farmers meet one-on-one with Extension farm financial analysts (retired lenders, farm business management educators, etc.)

Receive help understanding financial situation, exploring options, and identifying alternatives

Services available statewide Free and confidential To enroll, call:

FARM INFORMATION LINE1-800-232-9077

Farmer Lender Mediation1:30-1:45 Representative in Room

Focus Group Discussion(2:00 – 3:00)

Goal:• Break into groups that are

blended.• Review cash flow

contents• Offer how each would

approach the situation• How can you work with

others in the group?

Questions to ponder:1. What are the customer/student expectations of us?

2. What do we do/done that irritates the "heck" out of them?

3. How can we improve to meet their expectations?

4. What are "benchmarks" that they need to achieve? Do we have a list (production and financial)? Do we (lending and FBM) share it with them?