1. Farm and Ranch Business Success Factors Steven L. Klose Dean A. McCorkle Greg H. Kaase Joe L. Outlaw David P. Anderson George M. Knapek Texas Cooperative Extension Texas A&M University System National Extension Risk Management Education Conference March 26 – 27, 2003

2. Texas Risk Management Education Program Risk Management Education Master Marketer, Marketing clubs Curriculum Guide FARM Assistance Decision Support System Financial analysis of alternative operating strategies Database of Base Farm Analyses

3. What is FARM Assistance? A strategic planning tool designed to provide farmers and ranchers the flexibility to pro forma analyze their operation under risk for the purpose of choosing among risk management tools and/or business strategies.

4. What is FARM Assistance? Information All Enterprises Non-farm Activities Projection Ten year pro-forma Incorporating risk in production and prices Reports distribution of key financial performance measures Comparative Analysis

5. Logistical & Personnel Aspect of FARM Assistance Directly with individual producers 7 district-based extension specialists 4 campus-based extension specialists Steps in FARM Assistance process: Initial visit (data gathering/setup) Base verification (prelim. results) Report visit (deliver analysis report)

6. Report Contents Graphical, Tabular, Written Summaries Profitability,Liquidity, Equity Growth Cash flow risk With risk, and deterministic (no risk) Supporting information

7. Base vs. Alternative Base ScenarioAlternativ e 1

8. Cash Flow Risk Probability of Cash Deficit Cash Reserves

9. FARM Assistance Data Base Data Base of Farms 400+ Completed Reports Actual Individual Operations The FARM Assistance Subscriber Full time farm or ranch Mix of Successful and Financially Stressed

10. FARM Assistance Data Base Data Base of Financial Information Actual and Near Term Projections Where is the operation today What is the structure of the operation Projected Data 10-year Projection Including Risk

11. Identifying Success Objective: Defining Future Success Classifications of Operations Correlation of Current Measures to Future Success Subjective: Empirical Experience of Extension Specialists

12. Definition of Success Success Index is Function of: 10-year average Return on Assets 10-year average Annual Percentage Change in Real Net Worth Average Probability of Cash Shortage (Refinancing Operating Note) SI = ROA + %∆RNW - 0.25*P(C<0)

13. Classification of Farms

14. Composition of Performance Groups

15. Financial Indicators by Group

19. Indicator Rankings for all Farms and Ranches

20. Indicator Rankings for all Crop Farms

21. Indicator Rankings for Livestock Operations

22. Indicator Rankings for Diversified Operations

23. Subjective Indicators of Success Specialists/Producer Contact Interviewing and Collecting Data Conducting Analysis of Alternatives Two Key Characteristics Imply Success In-Depth Knowledge of Operation Details Forward Thinking Approach

24. Conclusions Quantitative Results Follow Expectations, Critical Factors Suggesting Future Success Expense/Receipts Ratio NCFI/acre Debt/Asset Ratio Management Style Influences Success

25. Farm and Ranch Business Success Factors Greg H. Kaase Dean A. McCorkle Steven L. Klose Joe L. Outlaw David P. Anderson George M. Knapek Texas A&M University National Extension Risk Management Education Conference March 25-26, 2003