National Farm & Ranch Conference June 13-17, 2010 Characteristics of top producers Presented by: Al Brudelie

FBM Database…At a Glance… Average age of farmer/student47.3 Years farming 24 Gross Farm Income 612,651 Total Cash Expense 508,273 Net Farm Income 53,704 Farm Assets (market) 1,761,595 Farm Liabilities (excl deferred) 684,253 Change in Net Worth 59,000 Number of operators 1.2 Spending in Greater Comm. 691,704

The State FBM Database includes: 2323 farms 50% Crop 20% Livestock 15% Livestock/Crop 15% Other/Diversified

What about the Top Producers?

Key Financial Factors and a look at the Top Producers…

Net Farm Income (Ave)

Current Ratio (Liquidity) Current farm assets / current farm 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 Mostly owned >5 % Green 1 % to 5 % Yellow <1 % Red Mostly Rented/Leased >12 % Green 3 % to 12 % Yellow <3 % Red

Debt to Asset Ratio (Solvency) Total farm liabilities / total farm assets Green <30 % Debt Yellow 30 to 70 % Debt Red >70 % in Debt

Working Capital to Gross Income All Farms

Working Capital to Gross Income Crops

Working Capital to Gross Income Dairy

Working Capital to Gross Income Hogs

Term Debt Coverage Ratio >150 % Green 110 to 150 yellow <110 % Red

Operating Expense Ratio (Financial Efficiency) [Total operating expenses minus depreciation] / gross revenue >85 % is Red 75 % to 85 % Yellow <65 % is Green

New Economic Realities- Financial Metrics Source Dr. Kohl MeasureCode Red Code Yellow Code Green Working Capital/Rev. <15%15-33%>33% Debt/Asset Ratio >60%40-60%<40% Credit Score < Op. Exp. Revenue (Excluding Depr. & Int.) >80%70-80%<70% Coverage Ratio <125% %>200%

What are the top producers doing? Conduct sensitivity analysis to cash flows Increases in interest rates Decreases in prices Annual Analysis for benchmarking Aspire to be a top half marketer by having a written marketing plan Form peer advisory groups Form strategic alliances Capture economics of scale, reducing costs, improving asset utilization Analyze the business to find out what to stop doing.

Conduct a variance analysis each year. (Planned vs Actual) Set a financial liquidity plan Working capital of 30% or greater Credit card debt under $2000 Conservative life style Developed Business Plan with many scenarios Five year plan on equipment purchases Quarterly communications with lenders What are the top producers doing?

Remember, Good managers do 100 tasks 1% better, not 1 task 100% better

Remember, the runway behind you is not useful!

Have a Great Year in 2010 !