growth, transition and succession strategies for multi-generational farms
DESCRIPTION
Moe Russell presented on Growth, Transition & Succession Strategies for Multi-Generational Farms at the 2011 FCS Financial Commercial Farmer Symposium held in Kansas City, Mo.TRANSCRIPT
Welcome
Multi-Generational Growth Strategies
Tremendous Opportunities in the years ahead
• Increasing demand
• More middle class consumers
• Ingenuity, Innovation and Appetite
• New Fortunes made in Heartland
• Entrepreneurs will emerge world wide
Increased demand
World grain inventories are tight
Your greatest asset
•Your entrepreneurial Skills•The Empires of the Future are the
Empires of the Mind•Multigenerational opportunities•Mapping the DNA of successful farmers•Commitment•More money to be made farming than any other industry
Profitability Not a Function of Size, Type of Operation, or Location
Operation ROA ROE
860 acres & custom feeds2,206 head pig space, 12 yr aver
9% 14.0%
3160 acre corn & soybeans 10 year average
14.0% 21.1%
12,000 acres corn and soybeans33 year average
15% 21%
650 sow farrow to finish 10 year average
10.5% 14.5%
900 acres & 4,800 pigs spaces6 year average 297M – 1,571M
16% 28.8 %
ROA (Return on Assets) ROE (Return on equity)
Growth in Net Worth
• $500,000 NW• Grow 7% for 10 years• $983,000
• $500,000• Grow at 17% for 10• $2,403,000
A Look at History
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10
20
30
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50
60
70
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1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
NFI
$ (B
illion
s)
Year
Historical Net Farm Income
NFI (Current Dollars) Average Adjusted NFI (1915-2004)
Hog Industry Returns
Bullet Proof your balance sheet
• Working Capital
• 50% of revenue
• Overall equity > 60%
• Keep fixed costs low
• Take a profit
Land Value Trends• 1850 to 1900
– Land values rose from $6.09/acre to $43.31
– 4% Average annual increase
– Four depression periods of low prices and foreclosures
– 1858-60, 1871-72, 1876-79, 1894-98
1900-1950
– Land Values rose from $43.31 to $218
– 3.29% average annual increase
– Two depression periods of low prices and foreclosures
– 1921-25,1931-35
Land Value Trends• 1950 to 2000
– Land values rose from $218/acre to $1,857
– 4.38% Average annual increase
– One depression period of low prices and foreclosures
– 1982-87
2000-09
Land values rose from $1,857 to $4,371
10% average annual appreciation 2010 15.9%
1850-2010
4.20% average annual appreciation
Risk Management Trends• The attitude, skills, knowledge, and profit gap
among producers is getting farther apart, by the day.
• We are entering a whole new wave of consolidation in production agriculture.
– No Safety Net
– Volatility
– Technology
– Demographics
– 40% of production from 2% producers
Risk Management Observations
• Good times do not last long (cycles occur)
• Increased volatility and risk
• Very wide profit gap
$33 to $220 acre
U of I $100
• Everyone is down loading risk to the farmer
Risk ManagementRecommendations
• Contingency Plan w/o Government Payments
• Partnering With Input Suppliers
• Seek, Hire, Train, & Retain Top People DITH, SITG
• Get Green, Stay Green, Grow Green
• Have a PR Plan
• Bullet Proof Your Balance Sheet
Have a Plan
• Determine the gross dollars per acre you need for:– Term Debt payments– Operating Expenses– Living – Depreciation– ProfitThe problem is tracking
www.russellconsultinggroup.net GrainBridge
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
New Breed in Production AgOld New
• People are a cost• Do everything yourself
so its done right• Own equipment• Valuations based on asset
values• Overhead a necessary evil• Limited working capital• Get things done• Source Scott Hazlett Machinery Link, Inc.
• People are assets• Know what you don’t know and
hire it done.• Lease equipment• Business value based on
multiples of net earnings.• Overhead reduction as a
source of capital• Working capital > 50% of
revenue• Manage relationships
Management Traits of Growing Farms& What Landlords Want
• Trust• Honesty• Transparency/Communications• Financial Stability• Money• Look like you can farm it• Stewardship• Extra Effort• Agronomic management
Mapping the DNA of Successful Farmers
• Attitude• Interpersonal Skills• See the big picture
– urgent and important
• Planning• Thirst for Knowledge• Network with other top producers• View Problems and Challenges as
Opportunities
Crop ShareAcres
JasonFranck
ChrisBarron
RickMatthiesen
T.JMatthiesen
Carson & BarronFarms Inc.
Multi- Generational Model for Growth
LL A
LL B
LL Z
LL XLL Y
Landlord 2 LL 3 LL 4
1000 acresKS 2010
Landlord 1
Trust, Shared Goals and Common Vision
• 5 years or < KS will rent to CB • In 2009, traded equipment line for planter
and field cultivator.• Leased purchase agreement back to CB
Farms on equipment• CB Farms KS 1000 acres for fee with labor
offset • KS still owner operator
Benefit Values on 1000 Acre Farm
Revenue enhancement• $.25 / Bu. Market Corn• $.05 / Bu. Trucking• $ .30 / Bu. Corn Total• 160 bu./ac * .30 = $48• 500 ac. = $24,000• $.60 / Bu. Market Soy.• $ .05 / Bu. Trucking• $ .65 / Bu. Soy Total• 50 bu./ac. *.65= $32.50• 500 ac. = $16,250• Total Gain = $40,250
Expense savings• Seed $ 70,000• Chem. $ 45,000• Fert. $ 40,000 • NH3 $ $37,500 • Equip. $ 30,000• Total $ 222,500• Save 4% = $8,900• Plus $35/ ac Agronomic• Overall Value Enhancement• $84 per acre
Win/Win
KS Advantages• Less Stress• More Free Time• Better Job Farming • Peace of Mind.• More Profits
CB Farms Advantages• Captive Growth• Controlled Growth• Less Risk• Quality Labor• Leverage Current System
Attitude is Key“The world gives to those who give
The world takes from those who takeIt has a perfect accounting system”
Trust, shared goals and common vision
Production Ag in North Americais a Great Business
A Look at the rest of the world
ROE of Fortune 500 in 67 Industries
• Household & Personal 35%• Food Services 28%• Beverages 25%• Pharmaceuticals 21%• Chemicals 21%• Information Technology 21%• Food Consumer Products 21%• Healthcare & Pharmacy 20%• Medical Prod & Eq 20%• Aerospace & Defense 20%• Computers & office equip 19%• Healthcare & Medical Facilities 17%• Internet Services 17%
Source: May 3, 2010 Fortune Magazine
Fortune 500 Companies
• Median ROE in 2009 was 10.5% • Walmart, Kmart and Target
all started in 1962• Blockbuster and Netflix• Same economy and conditions, but• Different plans and strategies, produce• Different results
The Bell Curve
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1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Examples
Airline industrySouthwest Airlines is included in the top ten most respected companies in America. Most others in the industry are struggling
Lesson-do not benchmark your business with the average.
Part IV
• Leverage Points for maximizing profit• Benchmarking your operation with the best
What Should Top Producers Focus On?
What are the mostimportant leveragepoints to reachingincome targets?
Leverage Points of High Profit Farms
Marketing $0 to $315/acre RealisticEquipment Cost Mgmt $22 to $180/acreLabor Management $15 to $127/acreAgronomic Mgmt $0 to $165/acreInput cost Mgmt $0 to $85/acre
Total $/ acre $100
RCG Client Base
• Machinery cost/acre Range $17 to $180 Ave $61.26 $78.90• Labor cost per acre Range $10 to $127 Ave $33.66 $39.36• Combined average machinery & labor Ave $94.92 $118.26
• Return on Assets (2009, 2010) Ave 11.47% 8.62% • Return on Equity (2009, 2010) Ave 18.12% 14.54%