Growth, Transition and Succession Strategies for Multi-generational Farms
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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.

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.

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Growth, Transition and Succession Strategies for Multi-generational Farms Presentation Transcript

  • 1. Multi-Generational Growth Strategies Welcome
  • 2. Tremendous Opportunities in the years ahead• Increasing demand• More middle class consumers• Ingenuity, Innovati on and Appetite• New Fortunes made in Heartland• Entrepreneurs will emerge world wide
  • 3. Increased demand
  • 4. World grain inventories are tight
  • 5. Your greatest asset•Your entrepreneurial Skills•The Empires of the Future are the Empires of the Mind•Multigenerational opportunities•Mapping the DNA of successfulfarmers•Commitment•More money to be made farmingthan any other industry
  • 6. Profitability Not a Function of Size, Type of Operation, or LocationOperation ROA ROE860 acres & custom feeds 9% 14.0%2,206 head pig space, 12 yr aver3160 acre corn & soybeans 10 year 14.0% 21.1%average12,000 acres corn and soybeans 15% 21%33 year average650 sow farrow to finish 10.5% 14.5%10 year average900 acres & 4,800 pigs spaces 16% 28.8 %6 year average 297M – 1,571M ROA (Return on Assets) ROE (Return on equity)
  • 7. Growth in Net Worth• $500,000 NW • $500,000• Grow 7% for 10 years • Grow at 17% for 10• $983,000 • $2,403,000
  • 8. A Look at History Historical Net Farm Income90807060 NFI $ (Billions)50403020100 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Year NFI (Current Dollars) Average Adjusted NFI (1915-2004)
  • 9. Hog Industry Returns
  • 10. Bullet Proof your balance sheet • Working Capital • 50% of revenue • Overall equity > 60% • Keep fixed costs low • Take a profit
  • 11. 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
  • 12. 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
  • 13. 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
  • 14. 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
  • 15. Risk Management Recommendations• 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
  • 16. Have a Plan• Determine the gross dollars per acre you need for: – Term Debt payments – Operating Expenses – Living – Depreciation – Profit The problem is tracking www.russellconsultinggroup.net GrainBridge
  • 17. 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
  • 18. New Breed in Production Ag Old New• People are a cost • People are assets• Do everything yourself • Know what you don’t know and so its done right hire it done.• Own equipment • Lease equipment• Valuations based on asset • Business value based on values multiples of net earnings.• Overhead a necessary evil • Overhead reduction as a• Limited working capital source of capital• Get things done • Working capital > 50% of• Source Scott Hazlett Machinery Link, Inc. revenue • Manage relationships
  • 19. 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
  • 20. 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
  • 21. Multi- Generational Model for GrowthLandlord 1Landlord 2 LL A T.JLL 3 1000 acres MatthiesenLL 4 KS 2010 LL B Crop Share Rick Acres Matthiesen Carson & Barron Farms Inc. LL Z Jason Chris Franck Barron LL X LL Y
  • 22. 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
  • 23. Benefit Values on 1000 Acre FarmRevenue enhancement Expense savings• $.25 / Bu. Market Corn • Seed $ 70,000• $.05 / Bu. Trucking • Chem. $ 45,000• $ .30 / Bu. Corn Total • Fert. $ 40,000• 160 bu./ac * .30 = $48 • NH3 $ $37,500• 500 ac. = $24,000 • Equip. $ 30,000• $.60 / Bu. Market Soy. • Total $ 222,500• $ .05 / Bu. Trucking • Save 4% = $8,900• $ .65 / Bu. Soy Total • Plus $35/ ac Agronomic• 50 bu./ac. *.65= $32.50 • Overall Value Enhancement• 500 ac. = $16,250 • $84 per acre• Total Gain = $40,250
  • 24. Win/WinKS Advantages CB Farms Advantages• Less Stress • Captive Growth• More Free Time • Controlled Growth• Better Job Farming • Less Risk• Peace of Mind. • Quality Labor• More Profits • Leverage Current System
  • 25. Attitude is Key “The world gives to those who giveThe world takes from those who take It has a perfect accounting system”Trust, shared goals and common vision
  • 26. Production Ag in North America is a Great Business A Look at the rest of the world
  • 27. 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
  • 28. 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
  • 29. The Bell Curve141210 8 6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
  • 30. Examples Airline industry Southwest Airlines is included in the top ten most respected companies in America. Most others in the industry are strugglingLesson-do not benchmark your business with the average.
  • 31. Part IV• Leverage Points for maximizing profit• Benchmarking your operation with the best
  • 32. What Should Top Producers Focus On? What are the most important leverage points to reaching income targets?
  • 33. Leverage Points of High Profit FarmsMarketing $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
  • 34. 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%