June 14, 2016 Alejandro Plastina Assistant Professor, Extension Economist & Steven D. Johnson Farm & Ag Business Management Specialist Using Farm Financial Case Studies

35 meetings sponsored by Farm Credit Services of America and Frontier Farm Credit Winter 2015/16 – 6,872 in attendance – 2,860 customers, 3,243 prospects and 769 employees – Attendance increases more than 10% from 2015 Since 2010, over 7,500 attendees subscribe to ISU Ag Decision Maker monthly e-newsletter.

Learning Objectives: Provide Strategies & Tools for Solutions Farm Finances Risk Management Crop Marketing

Why Use Case Studies? Create relevancy to actual farm financial conditions as of December 1, 2015 –Row crop operations –Scale of around 2,000 acres –Both owned and rented land Focus primarily on the farm’s equity and liquidity Provide Status Quo versus Solutions for easy comparison.

Case Study 1: Larry Landholder 1,500 owned acres; 500 rented Solvent operation: Net Worth $4.5 million Real estate equity: $2.5 million Profitable: Net farm income: $64,000 Problem: Liquidity Working capital -$77,000 Annual payments: – 2 Machinery loans $138,000 – 1 Real Estate loan $95, New 10-year loan for $130,000 on Real Estate equity to pay off a machinery loan (annual payments  by $7,000) 2. New 20-year loan for $800,000 on real estate equity. (annual payments  by $48,000) a)Pay off the other machinery loan b)Pay down operating loan c)Strengthen cash position Source: Farm Credit Services of America, December 2015 STATUS QUOSOLUTION

Case Study 1: Financial Changes (as of December 1, 2015) Financial CategoriesStatus QuoSolution Working Capital -$77,000$414,000 Working Capital per Acre -$34/A$180/A Machinery & Equipment Payments (P & I) $138,000$0 Machinery Payment per Acre $69/A$0/A Real Estate Payments (P & I) $95,000$180,000 Real Estate Payments per Acre $63/A$120/A Source: Farm Credit Services of America, December 2015

Case Study 2: Roy Renter 200 owned acres; 2,000 rented Solvent operation: Net Worth $4.0 million Machinery equity: $2.0 million Not Profitable in 2015: Net farm income: -$450,000 Problem: Liquidity Working capital $71,000 Annual payments: – Machinery loans $290,000 – Real Estate loans $112, Cash Rent reduced $20/acre. 2. Sell equipment for $300,000. Pay off related loans and restore working capital. 3. Negotiates with bank to pay Interest Only on real estate loans, shifting $40,000 to non-current liabilities 4. Take new 5-year loan on machinery equity for $300,000. STATUS QUOSOLUTION Source: Farm Credit Services of America, December 2015

Case Study 2: Financial Changes (as of December 1, 2015) Financial CategoriesStatus QuoSolution Working Capital $71,000$260,000 Working Capital per Acre $32/A$118/A Machinery & Equipment Payments (P & I) $290,000$125,000 Machinery Payment per Acre $132/A$57/A Real Estate Payments (P & I) $112,000$74,000 Real Estate Payments per Acre $560/A$370/A Source: Farm Credit Services of America, December 2015

Frontier Farm Credit Financial Guidelines Source: Farm Credit Services of America, December 2015

Plans for FCSA Case Studies Expand on Larry Landholder –Improved record keeping –Reduced family living and crop input costs –Developed a crop marketing plan that included pre-harvest marketing using a variety of marketing tools New Case Studies: –Transitioning Farmer (retirement) –Young Farmer with limited equity.

Other Potential Case Study Ag Credit School: Joe & Jill Farmer 1,200 acre row crop operation, 1,000 acres rented, expanded machinery, poor marketing, financial stress Work through topics related to: Analyzing Financial Performance & 2016 New Crop Market Simulation Marketing Clubs & Women Marketing Grain –Crop Market Simulation Farmland Leasing Meetings –Determining a 2017 fair cash rent on 200 acres Use of FinPack and FairRent

Calculating Crop Breakeven Costs Cost/Bu Expense/Acre $750 Cost/Bu Expense/Acre $525 Yield Soybeans Corn Yield