7 step strategic outlook plan for 2022

Shay: Welcome back everyone to another episode of the Ag View Pitch. And whether you're joining us, uh, via the podcast or through the video today, thank you all for taking the time. And Chris, you and I are kind of just going to have a conversation here on the 7-step strategic outlook plan as we move into 2022. And it sounds like a, uh, a weight loss program, right? Just 7 easy steps and we'll, we'll have it all figured out. But the idea behind this is not that you have to do every single one of these things exactly how we lay it out, but more so that it's kind of an iterative process. And if we do these things we're probably going to see success in 2022.

Chris: Yeah, that's exactly right. I mean, it, it's one of those things where if, if you have a roadmap, at least you have something to follow and kind of a checklist and things that you can stay focused on throughout the, what I call the planning season. You have the planting season and the harvest season, but you also have the planning season where you need to get, you know, need to get things lined up so you know what your priorities are and stay focused on them.

Shay: And there's a lot going on in the world right now. You know, we're looking at pretty steep input prices, a lot of changes as far as global supply issues, a lot going on in the markets, not that there isn't always, but particularly right now, we're seeing a period of higher profitability mapping. And we should preface that by saying, you know, we're still looking at a pretty profitable year for 2022, pending outside factors, right? And that's kind of the first thing we're going to dive into is inside factors versus outside factors. But I think the key here, and what we want to focus on for our audience today is, you know, what can we control? And sometimes we get confused, or we get things disoriented a little bit in our operation, maybe spending more time worrying about things that we can't control. So we're looking to lay out a roadmap.

So some of these inside factors, Chris, I'm going to let you talk through this. But These are things that, like we said at the beginning here, if you sat down in your operation and I sat down in my operation and we had these as a checklist and we went through each one of these categories and said, okay, what is our plan for each of these ideas, we're probably going to have a successful year. So Chris, you want to talk about some of the inside factors we can control in our operations?

Chris: Yeah, sure. There's, there's really 7 of them. And we'll kind of do an introduction on them. And if you're listening on the podcast, you know, pause here and grab a sheet of paper maybe and jot these things down. You know, these are all things that we all in our operations need to pay attention to. But, you know, if you first look at— and like Shay said, this is an iter— say the word for me, Shay.

Shay: Iterative.

Chris: Iterative. Iterative list. In other words, it's not an exact specific order. However, the first one is very important, and I probably would put it at the top, and it's debt management and working capital. And we'll dive into that in a bit. So that's a real critical one. And then number 2 is capital expenditures, land rent, and equipment cost management. We're going to be talking about the 2 largest line item expenses there that are important to manage that capital. And then number 3 is, you know, that, that final market value balance sheet. So what I mean by that is that at the end of the year is putting together a balance sheet that is market value, not just a a cash-based one that, you know, goes to the tax return. But, you know, really looking at where's your earned equity at.

Number 4 is the '22 cash flow, you know, making sure that you've got that cash flow done, but that you also have those expenses that you're making payments on. So you know that you're back to that number 1, that you're taking care of the debt load and able to cash flow like you think you need to. Number 5 is the 22 specific goals. You know, set a profit margin, not just a price target, but, you know, what, what kind of profit margin is reasonable for your business? And then couple that with risk management and then just a capital growth plan. You know, what do you want? What does growth mean to you? What's that look like? You know, and by that, what I mean is yield. Which is number 1. Markets is number 2, and managing that cost of production is number 3, and we'll dial, dial into that. Number 6 is communication, and number 7 is, uh, and there's a lot on the communications.

I don't want to just breeze over that one, but we'll hit that one. And then stress test your, your plan. In other words, what could go wrong? What could screw things up when you put all this together? You know, what things do you need to manage? So that's That's kind of an intro, Shay, to the kind of the inside factors.

Shay: You know, looking at some of these outside factors, you read the headlines, right? And we might not be realizing some of these things right now in the farming operations, but they're on the horizon and they're on people's mindsets, from market analysts to consultants like you and I, Chris, and more importantly, probably the farmers that we're working with and that are dealing with this every single day. One of the top ones is inflation, huge concern with the amount of money that's being printed globally and domestically here. There's already talk of increase in interest rates as we move forward. And it's probably not a question of if, but when and how much. Supply chain issues, big surprise there. Everybody's been realizing that, not just in the world of agriculture, but I don't think that's a quick fix. So how do you plan for that in 2022?

COVID, obviously, with the news here this last week is still a major issue. And I don't think that's going to go away anytime soon. As far as the global market is concerned. Market volatility in the cash crops and also how some of these other things tie into it, strength of the dollar, etc. Weather, always a factor that we can't control but that we need to plan for as much as we can in that stress testing that Chris was talking about. And finally, government policy. So there's fair amount on the docket there as well. We're just going to frame this up though. Those are some of the outside factors. So we want to make a clear differentiation there. We're going to focus on the things that we can control, talk a little bit about some of these outside factors, and continue on. So, you know, Chris, that first inside factor you talked about was debt management and working capital.

So myself as a farmer, when I'm thinking about these two things, they're separate, but they're related, if you want to dive into that.

Chris: Yeah, so this one's kind of what I look at is maybe the most important one. When you look at that loan repayment strategy, in other words, you know, what— coming off of 2021, a lot of operations had a really good year. There's likely extra cash there that, you know, maybe some years we don't have. I know there are some operations that did have a bad year this year, but the majority had a good year. How do you manage that? How are you paying down debt? And is that a strategy that you have, you know, or are you going to hold on to the cash so you can use it for operating. And so those are some things you need to be thinking about. And, you know, you see the word structure there. That's a key thing as well, because in— it's all— in all likelihood, we're going to see some interest rates. I mean, we've been saying that for how many years now?

You know, interest rates are going to go up. We've been saying that for about 10 years now and they haven't changed. Eventually we're going to be right. And if you look at what is literally going on in the world now with inflation and what's happening to the economy, If you do not have some of your long-term and your intermediate debt structured the way you want it, you still have a short window here yet to get that done. And so there's no better time than when you're doing your loan renewals with the banker, have that conversation, you know, look at those intermediate long-term things and say, you know, is this the way I want to have it if interest rates go up, you know, half a percent or maybe even a full percent in the course of the next year? You know, we probably have maybe the first quarter of next year, maybe, but maybe we'll see a half a percentage point increase.

We just don't know. But it doesn't hurt to have that, have that structured and be ready to go. And, and just having that conversation with your lender, I think, is real critical.

Shay: So, you know, this year I haven't gone through the renewal process with my lender yet. Just wrapped up harvest here this last week, actually. But, but from the lender standpoint, do you think they're still willing to make those changes or to have that conversation with them knowing just as well as you and I what's on the horizon here? Do you think there's going to be some reluctance there? Are they going to try and work with you? What do you think?

Chris: I think most banks are going to work with people, for now anyway, because there's capital around yet. Access to capital might become an issue later on. So that's another reason why I think we got to watch that working capital position. Make sure we manage that. I mean, we've been talking at the podcast last week with Joe Vaklovic where we were looking at, you know, '21 versus '22 expenses, and we're seeing, you know, in corn maybe needing another $150 an acre of cash just to operate. And on soybeans, we're seeing about $65 to $70 an acre just to operate. Well, if you get 1,000 acres of corn, there's another $150,000 required just to just to run your operating.

And so I think having these conversations with your banker and letting the banker know that you understand your working capital position, you have a plan, and maybe it's a joint plan, maybe, you know, bounce those things off with your lender, you know, talk to whoever it is you work with, your partners and your family, and, you know, give us a call and, and we talk through some of that stuff because now's the time to be working on that stuff.

Shay: Yeah, thanks for answering that. You know, second thing we're going to look at here is, is that capital expenses, you know, so we were talking about working capital and these capital expenses go hand in hand. So we're in a time of profitability and everybody has wants, needs and wishes. And I think prioritization is, is one of the keys when it comes to that capital expenditure. Chris, how do you think about capital expenses in your operation and how do you kind of work through that?

Chris: Yeah, well, I have a partner that's done a really good job of educating me over the years on your wants, needs, and wishes. And, you know, when you have, you know, when things are going good and you have good times, sometimes bad decisions are made because there's extra cash there. So, you buy stuff that maybe you otherwise wouldn't. And, you know, and when things are really tight, you make good decisions because you have to, right? And so, When you look at capital, what we like to do with our clients, and Shay, and you know this as well too, is, you know, how many— how much capital do you have available? You know, so if you need to replace 2 pieces of equipment, and those 2 pieces of equipment are going to be $400,000, but you have $300,000 or $200,000 of available capital that you have the capacity to spend, you got to start prioritizing things.

You know, so you got to step back and say, okay, maybe we push this item off to next year and we'll trade this other smaller thing a year quicker. But you're managing that capital, you're staying current, you know, you're updating things, but you're managing that capital with a prioritization plan. So I think that's real critical. And then, you know, just communicating with landowners right now on the land side of things. I mean, that, that's an example of equipment, which is the second largest line item expense. But when you look at land,— you know, the land side of things, you know, are we having conversations? Just because the, the rent's done, or maybe we paid a bonus, maybe we didn't this year if you had a good year, continue the conversation, you know, because this next year could get really tough.

I mean, we don't even know what the availability of nitrogen is going to be in the spring. It sounds like a lot of crop protection issues. Communicate that stuff with the landowner so the landowner knows what struggles we have along the way, so it's not after the fact, well, this year really sucked because I didn't get this done and that done and this didn't show up. And here's why the results were the way they were. You know, land in most areas is the largest line item expense. So it's the one that we probably need to stay focused on the most.

Shay: And Chris, this wasn't, you know, on the outline that we're working through here, even on the slide deck. But I'd throw this at you. You know, land prices have seen a pretty dramatic increase over the last 2 years in particular, upwards of— you know, 30%, 40%, 50% in some areas. And there's a lot of big dollar amounts out there. So some of these landowners are looking at that and they're looking at opportunities of profitability, maybe making a change in the operation. So this communication is not just on land rent either. And so one thing that, you know, you and I have seen not only in the countryside but also in talking with clients is before it's too little too late, you might want to have that conversation with some of these landowners and say, you know, it's a delicate walk, right? But say, you know, do you have any plans on doing anything?

If you do, what are your considerations? Would you like to talk about this a little bit more in depth? And it's a case-by-case basis. There's no one solution. I wish there was. We'd give it away to everybody if there is a one-step solution on how to do it. But I do think that's an important consideration as you look at 2022. Not only are they understanding that there's higher market prices and maybe to some extent higher input prices, but they're seeing some pretty big dollar amounts too, not only across the Midwest but across the country, in increased land values because of some of the global volatility that's going on right now. How would you react to that, I guess?

Chris: That's a lot to chew on. I mean, The reality of it is, is I think it still comes down to communication. I mean, you have to ask the questions to the landowner. You know, what's your perspective? What are you seeing? What are your long-term plans? What are your short-term plans? Am I meeting your expectations? Is there anything I'm doing really well that you like or would like me to do more of? Is there anything that I've messed up on or anything that is of concern to you? That I'm not meeting an expectation. I think that stuff's probably as important as the economic side of it.

And then you couple that with the additional side of the conversation of what you just mentioned and say, you know, here's where land values are going and here's what the economy looks like and here's where my rent's at, you know, and with some landowners you can be pretty transparent and with some landowners, you you got to be real careful what you tell them. And you have some landowners that don't give a crap what's going on in your deal. They've, they've got a set dollar amount, that's their dollar amount. And if you don't want to pay it, the neighbor down the road might pay it, you know. So we all have to make those individual decisions. And I think we have to include that in that stress test that we'll talk about in a bit.

And I think we need to, to, to look at it on average with all of the the entities or all of the farms that we have and look at things on average and look at the contribution margin. What's that farm contribute back to us? And is it a good, is it a working relationship that's good both ways? And I think that conversation just revolves around a lot of that stuff.

Shay: Thanks for taking a little sidetrack on that. More importantly here is it's an inside factor. There are some things that we can control there and we are seeing it as something going on right now. Market Value Balance Sheet. So this term can be a little confusing sometimes. Talk through what a Market Value Balance Sheet actually is and how it can help farm operations.

Chris: Okay, so the, the way we define Market Value Balance Sheet is when we sit down with a client and work with them, you know, the first thing we want them to have available is their balance sheet and their cash flow. And when we look at balance sheet, what we want to do is we want to look at land from one year to the next being a constant number. So if you own 1,000 acres of land, that land value doesn't change even though land values have gone up. Okay, so we leave that number the same. However, our philosophy on the machinery and equipment, because it's the second largest line item, it's a volatile and, and a, a capital amount of value on your balance sheet that's a big chunk. And so we want to every single year do an appraisal on that machinery and equipment because a lot of our clients will have $1 million, $2 million, $5 million, $8 million worth of equipment.

Well, if you don't look at the— either the depreciation or the appreciation, because like this year probably you're going to see some balance sheets actually on the equipment values actually probably go up even if you have a you know, a heavy used equipment fleet, that used fleet might go up in value this year. So we need to track that and then enter that into the balance sheet. But we need to be consistent in how we do that every single year. We need to— the end of the year, we need to have a local equipment dealer come in, and we talk about this with all of our clients, possibly two of them if available, and then average those values and then just keep track of that at the same time every year so that you can see what your either depreciation, which is normal, or your appreciation, which we might see this year. And so I think that's important.

The other side of that is, is just understanding your whole farm picture because, you know, you might be farming with other family. You have a global— you have each have your own balance sheets. So let's say there's two brothers farming together with dad and they each have some of their own land. Well, okay, the bank is going to look at that as a global picture. If you're all three borrowing money from the bank, they're going to want to see a global picture. Well, go ahead and, and put a global market value balance sheet together of the three of you so you can see how you guys as a team are doing. Not just, I'm doing this and my brother's doing this and my dad's doing this. Well, that's great, but what's your system look like, you know? And, and are you thinking of it as one operation?

Because you can really benefit from that data and that information, and it really shows you, you know, where you're at and, and how things stand.

Shay: Yeah, that market value balance sheet is huge, and, and we do have a tool available on that if, if you're interested. You know, there's a few more questions that we would want to talk through before just sending that out, but I think it would be important. It is important for your operation. Go ahead and reach out to us if you have any questions on that further.

Chris: That's definitely something that we can get out to people.

Shay: Right. So, Chris, you know, 2022 cash flow, this is probably one of the things that's an obvious for people right now, particularly with the increased costs of maybe looking at this a little bit closer for 2022. But this year is, is just as important as every other year in making those projections and knowing what the numbers are. There's a certain amount of fear, uh, you know, sometimes bliss is ignorance. If you, uh, wait until it's time to write the check for the nitrogen, or, uh, you know, the herbicide shortages that are going on, we have to plan for this. And so when it comes to this 2022 cash flow, what are some key considerations that farm operations should be thinking about?

Chris: Yeah, well, and to me it's just a caution, right? It's the— it's real easy to take last year's cash flow and then just save it as the next year's cash flow or roll it over in your accounting system and say, okay, you know, let's adjust some of these things based on some of the costs that we know. But you really got to go through those individual line item categories and dial those things in close this year because, like I said, what What we're starting to see with Profit Manager is about $150 an acre increase, you know, so what's that do to your cash flow? The other thing that happens in your cash flow is you're going to buy some stuff probably, you know, and maybe you're not, but if you are, or you currently have principal and interest payments on some stuff, make sure that stuff's on the same page. This is another tool that we can send you that has everything on one page.

Where it shows your, your line item expenses in terms of, of, you know, what your chart of accounts are, that you can actually move your chart of accounts over from your, from your accounting system. And you might say, well, I don't think I want another spreadsheet. Well, if you, if you're actually touching those numbers and you physically move those, you slide your chart accounts over, plug those numbers in, it puts, it puts your finger on the pulse of your business. You can, it makes you look at the numbers when you're putting them in and you're thinking through each of those line items. Very critically important. I do that every year in my own operation. I spend about a week pulling my hair out and the rest of the year trying to grow it back because it, it's, it's so stressful to try to get that stuff in.

But after I spend that week of really looking at how did, how did '21 end, what does '22 look like, and what are these individual line items, numbers going to be without just rolling it over and making it easy. Because that's way simpler. But it's, it's crappy accuracy when you do that. And, you know, and I can get our, our cash flow in really close. You know, even, even with the marketing and the yield being as variable as it is, I can get those expense numbers dialed in really close. And so I would just challenge you and just tell you, you know, if that's a tool you want, reach out, and that's something that we can get to you as well. Because I think that Understanding that, that return to management and, you know, where, where are those dollars going and how much more working capital we're going to need in this, in this '22 year, I think something we gotta, gotta keep an eye on.

Shay: So two quick notes on that, Chris. A lot of, a lot of farm operations over the last 100 years have been very successful with the mindset of we're going to be conservative on our yields and we're going to overinflate our costs a little bit. And when we run our cash flow numbers and our costs are higher, you know, if we anticipate our cost to be a little higher and our yields to be a little less and it still cash flows, then, then hey, we're in the clear. And that's been fine. But as we start talking about more dollars, more depreciation in equipment values, bigger decisions that need to be made here, we, you know, we encourage people to step away from that mindset. Don't just, don't just overestimate your cost and underestimate what your yields are. Have a plan in place because that directly ties back to your marketing decisions that you make on a daily basis, you know.

So whether you're tying it back into an overall cash flow for the operation, or if you're bringing it down to a cost of production per bushel, those numbers have a huge impact on the marketing decisions, uh, as you move forward. So, you know, I, I, if you're, if you're that person, if you're the one that says, well, I've, I've been fine doing this for, for forever and it's worked for me, That's okay. And I'm not saying that's wrong. But I think as we work at better managing our businesses, it's important. And so Chris said, you know, we maybe I don't just need another spreadsheet. Well, that's not the point. The point is that you're going through the exercise, you're touching those numbers. And you do have a plan in place as we move through 2022. So I just wanted to hit on that real quick. All right, next, we're looking at specificity in our goals.

And I think everybody's pretty guilty of this, Chris, you know, we say, well, we want to make We want to make a bunch of money in 2022. That's my goal. Well, how do you go about doing that? And what are your plans that you have in place? And you hit on it earlier, you know, on the yield, the market price, and the cost of production. You know, how do you think through that as we set goals for 2022?

Chris: I— it just really is what it is. I mean, again, if you're listening to this, you know, it's important, I think, you go over to YouTube and look at these slides or have, you know, reach out to Shay and we can send you the PowerPoint. But I think, you know, the, this, the specificity and getting a goal set that actually means something is really important, you know. So, you know, I always talk about, you know, a lot of times I think as producers we have price targets, you know, like, well, if corn gets to $6, I'm going to pull the trigger, or if, you know, beans get to $13, I'm going to sell some. Well, what, what the heck does that mean? I mean, what's that connected to? That's a price thing. That's That's just a price objective, which is fine, I guess, if you know that that's meeting that profit objective. But if you don't set that profit objective, what if corn goes to $5?

What if it goes to $4? What if it goes to $3.80? I mean, what's your cost of production? You know, know that stuff. And, you know, and it's not just, you know, we're talking row crops here too, but I don't care if you're a large dairy or if you're a you know, if you're raising hogs or what you're doing, these, these 3 principles apply that we have on the slide here. You know, you first look at what's the production, what's the productivity of that business, or, you know, when it's crops, it's yield, it's what is that, you know. Then you look at, okay, what's the price that we can get, you know, what— and, and this is in order. The number 1 most important thing is productivity. That affects the bottom line faster than any of the other variables. Your second variable is marketing, you know, can you get a good price?

And do you sit there and, you know, give up 20 cents because you were waiting for 2 cents, you know, on, on the market and it moved back the other way and, you know, you were trying to get that extra 2 cents and it screwed you up. The last one is, you know, cost, cost of production and managing that. Now this year is a little different because of supply disruption issues and all those kind of things, so you better have Plan B figured out too. You know, if, you know, well, I'm planting X amount acres of corn and you can't get a hold of nitrogen, or you can't get a hold of some input that's critical to growing that crop, and it could possibly impact yield or whatever, you better have Plan B in place.

And, you know, and we're trying to do that in our own operation is figuring out, okay, what's Plan A and then what's Plan B, you know, if the crap hits the fan here.— you know, worse than even what we think it might, you know, and hopefully we don't even need that. And I wouldn't spend a huge amount of time on that, but I would have Plan A, Plan B. And again, you look at production, you know, yield or productivity, then you look at your, your market price, and then you factor your cost of production, and then, and that gets you to your profit margin. And then that's, in my mind, that's where you set that specific goal. I want to make x amount of dollars per bushel. I want to make 45 cents a bushel on corn. I want to make 88 cents a bushel on soybeans. Whatever those, those goals are, those are specific goals.

Shay: So, you know, Chris, you and I use the analogy— I have it off to the side here— have a target, right? You know, if you go out to a shooting range and you just take your gun and start firing off into the air, you're probably not going to hit. You know, you're getting the rounds downrange You hit something. That's true. But maybe not what you want to, or maybe not as effectively. So having that target in place just helps keep you on track. And when I think about these, your yield and your production, your market price, your cost of production, who are your accountability partners in your operation that are going to help you have a plan in place? Maybe you're the sole operator, maybe you have the next generation as part of it. Maybe you have strategic resource partners that are invested in your operation but maybe not involved in every decision-making process.

It's important to meet with these people regularly and say, how are we doing? Are we on track? You know, what are we doing to hit that yield goal? And then at the end of the year, reflecting on how did we do, you know. So 2021, we're planning for 2022 right now, but have you taken time to go back and say, okay, You know, we had a whole farm corn yield average goal of 234. Did we hit it? You know, how did we do as a team? How did we do as a farm operation? Chris, how did you do in marketing in your operation? How did our cost of production stack up? Did we accidentally have higher maintenance and repairs, or did we make a change in a tractor that we weren't anticipating? Are we getting close to these goals? And you're not going to be 100% on all the time, or if you are, you're a better farmer than you know, me for sure. But, uh, just understanding these goals are crucial.

Chris: Yeah, I want to add one thing to that real quick too, Chase, is, you know, as you talk through that, it made me think that, you know, a lot of operations had really good yields this year. And I don't know how many times I've heard, well, geez, I started selling in the high 3s or in the low 4s, and, and that was, that was so stupid, and I don't have, you know, and I'm not going to sell anything now until I can get $6 or $6.50 or, you know, or whatever. And all of a sudden these price targets start coming into the game instead of stepping back again and looking at that profit margin and saying, okay, well, well, geez, what was your yield? You know, you know your yield now for '21 crop. Most everybody does probably by this point, or they will by the time they watch this.

And it's like, okay, well, you know, you know the yield, that's a known, and you know what it cost you to grow that crop. Now all you got to do is pull the trigger if it's meeting that margin target, you know. And, and I, I still go off of Mo Russell, who used to be a consultant in our operation for years, and great guy. He always used to say, you know, there's two, two words that drive how you make decisions in marketing. One is fear, the other one is greed. You know, you got to manage those two things. And the only way I've ever found to manage them is to have a specific plan with a specific margin target that meets our financial objectives. So I just had to throw that out there. Sorry.

Shay: Next one we're looking at here is communication. Big topic, sometimes a scary word when we think about it, but it's a daily occurrence and we need to evaluate how effectively are we communicating within our team. Chris, I'm going to take you and let you take this and run with it here for a little bit.

Chris: Okay. So For a lot of people, you know, I said the, you know, the debt management and the financial was number one. I would say with almost everybody we work with, and you can shake your head yes, Shay, and agree with this, I'm sure. But, you know, when we say, you know, what's working in the operation or what's not working when we're meeting with clients, this one comes up as one of the things not working more often than not. And if it doesn't come up, it rears its ugly head during the course of the meeting when we're having it because of communication issues. And, you know, so if you're not watching the slide, you know, who are the communication insiders or those that we need to make sure communication is functioning properly with?

And it's family first, you know, then your employees, it's, you know, it's your partners, it's your suppliers, it's the processors that you sell and that you market to. It's your lender, it's your insurance agent, it's your risk managers, it's your, your marketing, you know, advisors and people that you work with and, you know, consultants or whatever that you're working with. It's that, that human resource team that's around you. Are you communicating and being transparent with everybody like you need to be? And those are just some things that, you know, if you want to even just have a conversation on the phone, even if you're not a client, you want to give a call and say, here, here's some issues that we have. How do you— how are you dealing with that? That helps us learn too. And so we're always open to some questions and conversations on, you know, just communication management.

But, you know, you look at the team communication, a couple of key things here. First of all, you know, the question for a lot of you to think about is have you defined core values in your business? You know, and a lot of times people are like, well, geez, managing the labor is a pain in the butt. You know, all that kind of stuff. And a lot of times it's because we haven't defined our core values. We live them or we kind of are that way, you know, and people might even know what some of our core values are. But, you know, if I asked any of your employees, you know, what are your operation's core values? They'd be like, you know, would they know or would they be like, I don't know, you know, for sure what they are. And, you know, and with core values, you, it's basically, it's how you hire, It's how you fire, it's how you reward and how you discipline.

And so those are really 4 key things to keep in mind with core values, because then you don't hire somebody that you shouldn't have on your team. And I know that it's tight getting help and stuff, and there's going to be exceptions to that. But primarily speaking, you want good people on the team. And then the next one is regular meetings, and Shay's got that one highlighted here. By regular meetings, it's probably weekly, you know, and you might have different types of meetings. You might have meetings for owners, you might have meetings for managers, and you might have meetings for the, the workforce, for the, for the team. And so you got to decide, you know, what do those meetings look like? You know, you want to start them on the, you know, start them on the same day, same time, same place with the same people and get regular with them.

The other thing though is there's, there's 3 reasons people don't have meetings, and it's It's because, you know, they're worried about, gee, is there going to be conflict? And I don't want to go through that. And it's easier just to avoid it and not talk about it. You know, the other one is, you know, we don't have time, we got work to do. And what the hell, we're gonna stop and talk when we could be working. And then the last one is, is just concerned about conflict. They don't want conflict. And so if you're not having meetings, I bet you one of those three or all three of those reasons are probably why you're not having them. And then just clearly defined roles and responsibilities. So often, you know, if you asked any of your employees on your team, who's your direct report? You know, is it, is it one person? Is it two people? It should be one person, you know.

And a lot of times our employees get bounced around. If, you know, back to that father with, with the two sons farming together, they might have a couple of employees. And if you ask those employees, who do they, who do they answer to? And they might say, well, all three of them. You know, well, that, that doesn't send a very good message to the employees, you know. And part of the issue there usually is just not having clearly defined roles and responsibilities. And then the last one is just short and long-term goals that are defined, but more so than just defined, they're documented, you know. And what's that look like? And again, we just talked about some of those goals, you know. And then you can have conversations about how are we going to get there, you know. How are we going to produce that yield? How are we going to do a better job marketing?

You know, how are we going to manage these expenses? You know, those types of things. Then we can hold people accountable because we've got things documented. And, you know, and there's another one we don't have on here that we could just add to that, but it'd be an accountability chart, is, is making sure that everybody knows who's accountable to each other and who do they report to. And so those are just some things I think, Shay, that are really important and probably You know, like I said, managing the financials is critical, but this, this issue is probably the one that can screw everything up faster than anything, is when the communication's not right.

Shay: And how we frame this whole conversation is, you know, if you made a checklist of all these things and you went through them and made an effort, you're probably going to see a successful 2022. And these aren't things that are, are new or foreign necessarily. They might spark something as we talk through them, and, and there's Chris, I'm going to do a whole other podcast on this because communication does not get the time.

Chris: Oh, yeah.

Shay: It doesn't. And the effort that it needs, but people like hearing about the processes that go into it. So just understanding that this communication is crucial. And two things I want to add too. So one, on the meeting process, but also more importantly on communication in general, I think it was Truman that had a sign on his desk that said, "The buck stops here." And if, if you know communication is a poor part of your operation, whether it's with you, uh, your brothers, your sisters, your team members, your investors, your employees, the landowners, uh, resource partners, whoever it is, the buck has to stop somewhere. And so take this opportunity right now, this discussion that we're having, and say there are things that I need to fix in my operation.

You know, Chris, we talked that We're friends with a lot of the people that we work with on the consulting side and other farm operations, but it's not always our job to be friends as consultants. And if you need this as a wake-up call for the communication, the buck has to stop somewhere in your operation. Take this as your opportunity to really focus on this because, like you said, so many times we see in every single operation communication is, is the key issue or a key concern as we move forward. So take the opportunity on this. And, and the second thing is with the meetings, you know, That time is one of those 3 things on why people don't have reason. Well, we don't have time. We got to do this and we got to do that. And we, you know, we're here, there, and everywhere. But are you taking that time to work on your business and not just in your business?

And the operations that we work with across the country, across the globe, that take the time to work on their business are operating more efficiently. They have a better work-life balance and they have clearer goals of growth and development in their farm operation than those who don't take the time to work on their business. So there's a reason we highlighted those regular meetings as a key part of communication. It doesn't matter if you don't like it, it's important and take the time to do it. So, uh, I'll get off my soapbox here. I just wanted to make sure that I hit on that as we talk through communication.

Chris: I would like to add one other quick thing on that though too, Shay, is that it is exactly what you said. You know, if things, if communication is not going the way it should be and some expectations aren't being met and you're either dialoguing about it or you're not, or, you know, somebody goes violent or somebody goes silent, that's not good. You got to have the dialogue and you got to make sure you're working through issues and you're solving them. And I think a lot of times If that's not happening, people are frustrated. And if you're sitting there in your operation and you have some level of frustration, what that does is it consumes energy. And then what that does is it consumes your mood and how your attitude is in your business. And then that affects everybody. It becomes a cancer internally with everyone. And it changes the culture.

And so just, you know, we don't need to be harping on this one forever. But it's just something that can be fixed, and it can be talked about. And if you don't want to work with us, we've got a bunch of people we could send you to that would come to your operation and work with you specifically just on this communication and structure of how you operate. And so, you know, if you're having issues there or think you can improve there, you know, keep in touch or get in touch.

Shay: Absolutely. You know, this last thing that we're looking at is stress testing your plan. So, Chris, you always ask the question, oh, what could go wrong? And usually it's when we're looking at something funny like a Guy changing a light bulb standing on a ladder and a bucket full of water or something ridiculous. Or in a pool. Yeah, or in a pool. What could go wrong? Well, the important part of these stress tests is taking the time to not only run the scenarios, but understand the decisions that you might make if A, B, or C happens. And I don't think we want to waste all of our time and energy going down rabbit holes But putting that stress test on your operation from a working capital standpoint, understanding how the markets impact it, or, you know, one thing that we don't have on this list that Chris is going to talk through here in a minute is employees.

What if something happens in your management team? You know, what if you get— what if someone gets hit by a beer truck or, you know, something catastrophic happens in the operation? What do you have in place in order to keep things rolling here? So, Chris, if you want to talk through some of the stress tests that we work with operations on.

Chris: Yeah, you hit, you hit the good one that I probably should have had on the list as number 1 is, is, you know, what happens if all of a sudden on day 2 of planting you break your leg and you're out of the picture? You know, what, what happens then? You know, have you cross-trained? You know, do you have somebody that can back you up? You know, are you the one that does the books and, you know, you have an issue? Or like you said, like Chase said, you get ran over by a beer truck. How does everybody know where everything's at and how to, you know, take the reins from there. That's critical. But, but in our— additionally, though, in our list is, you know, play with the numbers. In other words, so we talked about earlier on here in the slide deck, we talked about the importance of putting together your, your cash flow and your yield and all that stuff.

And he's got Profit Manager on here as an example. But I don't care if you use Profit Manager or if you— there's about 4 or 5 other companies out there that have tools that you can run scenarios on. Obviously we're biased Profit Manager, but it's more important though that you get the numbers right. Okay, so you get all of your expenses in there accurately, then you can start to play with variables such as yield or what happens to your to the amount of cash and your cash flow if interest rates increase during the course of this next year. How much, how much operating do you need, or are you going to have to have available?

And if your working capital is set in a certain place and all of a sudden you have an unforeseen expense that you didn't have in the cash flow— and I know that probably never happens to anybody, but I know in our operation it seems like every year it's like, holy crap, and think about that one, or, you know, this expense came out of nowhere, that frickin' tractor blew up and, you know, it's $22,000 to fix it, or what, you know, those weird things that you don't know. Well, plug some of those things in, plug 3 or 4 of them in and see what happens, you know, and, and be able to run those scenarios. Market volatility, change, change the price of corn a buck, you know, lower it a buck, raise it a buck, you know, look at that and say, okay, how does that change my return on investment? What's that doing to me and, and, you know, make sure that it's, it's a live number.

It's not like a static number that you're just going to go in and have one conservative number and that's your cost of production for the rest of the year, because your cost of production is a moving target. And so you have to be able to in real time play with those numbers periodically based on new information. It seems like we get new information about every third day anymore. And so, you know, be flexible. You know, cost increases, we talked about supply issues. You know, it might be a thing, like I said, where you got to look at a different crop. You know, we got guys that, that grow, you know, cotton and rice and wheat and oats and barley and all kinds of different crops, you know. And there's operations that have more flexibility than some others, possibly.

You know, it might just be corn and soybeans that are your two options, but what What happens if you need to increase your soybean acres by 25% in your business? What's that do to your operation? You know, so you need to know those things and you need to be able to have those line item expenses entered in there correctly so that you can tweak individual scenarios and see what that does to the bottom line.

Shay: Absolutely. You know, and when, when we look at the, the inside factors, we kind of hit all the main ones we wanted to discuss there. There are a lot of outside factors, and I listed them at the beginning, you know, inflation, interest rates, supply chain, COVID, market volatility, weather, and government policy. Those are— and there's a bunch more than that too. When we think about these outside factors though, they add a lot of stress. Maybe they add a lot of burden to these decisions that we're making. How do you think about inside versus outside factors in, in your operation and also in just managing these as we move through 2022?

Chris: Well, I think the outside factors you don't have much control of, so it's a matter of monitoring, right? So it's, it's kind of like you're flying an airplane and you— there's a bunch of stuff you can control, right? So if you're flying into or toward a storm and you see blue sky off to the left, what are you going to do? You're probably going to get permission to turn the plane to the left and you're going to go around that storm. What happens if you have to go through it? You're going to start paying way more attention, right? All of a sudden, you know, you might slow the plane down, you know, you make those fine-tune adjustments. It's the exact same thing in your business. You know, if inflation continues to go up, you're probably going to slow the business down. You're going to slow that plane, your throttle back a little bit.

You know, maybe you put the flaps down for you got better lift or whatever. You know, it's those things that you have to do to manage the business. And then, you know, the supply chain issues, you know, there wasn't enough fuel in the plane when you took off. And now all of a sudden, holy crap, you know, we, we're gonna have to land somewhere here. You know, you have to change, you may have to change course. So what's Plan B? You know, back to the aircraft analogy, they have two of everything in there, right? Have Plan B so you have that second option available all the time. And you look at COVID, I mean, it seems like that's hitting the news all the time. We're going to have to manage around that. This is one of those black swans that we've had a flock of, it seems like, in the course of the last 18 months or 2 years. We've had this flock of black swans, that being one of them.

And then the market volatility, that's going to continue, but that's our friend. If we use it as our friend because it's going to give you opportunities to reach that margin target a lot of times that you might otherwise not reach, you know, and the weather and the government policy. The government policy, one thing I'm going to say there is stay tuned to what's going on. You know, you don't have to sit and watch the news all the time because it's— you'll go crazy if you sit and watch the news for more than about 10 minutes, I think, but You know, but be aware, you know, do your research, know what's going on, and understand what you need to do in your business. And, you know, we, we utilize Paul Niefer a lot, obviously, on the tax management side of things. There's been a lot of darts getting thrown around at business people in different functions of our businesses.

And so we're going to have to pay attention to where those darts are flying and make sure we, we duck when we need to, and we get out of the way of some of the challenges that we may have. And And I think that's kind of how I would answer that, Shay. I guess it's just a matter of paying attention to them, but a lot of them you can't control. You just got to know what's happening around you.

Shay: Right. With these outside factors too, I mean, Chris, one of the reasons you and I do the podcast and have these discussions is to provide value and perspective. That's the whole reason that we do this. And so whether it's talking with people on these issues or who are you talking about these things within your operation? Are you having conversations with your CPA? Are you having conversations on what's going on with government policy? Do you have consultants that you work with? Who is part of your strategic resource team to help you make these decisions? And I think that's kind of the key thing here is, you know, pay attention to what's going on, focus on what you can control. And that's, you know, that's why we're here to help have these conversations to help you think through some of these things. And again, hope hopefully provide some value and perspective to what's going on.

Um, it, it gets lonely in a lot of operations, and I don't think that's a secret of, you know, maybe not feeling like you can talk to the neighbor about some of these things because they see you as a competitor, or maybe you're spending so much time in the business that you don't have time to, to do as much in the community or in the social side as you'd like. And so sometimes we miss out on those conversations. And if you have time and you have questions on some of this stuff, Pick up a phone, give us a call, whoever that you feel comfortable talking with, because they are an important part and they do weigh heavy on your decision-making process and on the decisions that you make on a daily basis. But that's what these people are here for. So that's all I would kind of wrap up with on the outside factors there, Chris.

And ultimately, it's a saying by Mike Tyson, everyone has a plan until they get punched in the mouth, right? And I think the important thing Military planners, I've said this many times before, they don't go into a mission without having a plan, right? There's SOPs that are in place. They have margin targets. They have plans on what they're going to do if A, B, and C happens. They're stress testing the situation. What if you take this many casualties? Or what if you encounter this obstacle? Or how are you going to get around this if this happens? So it's important to have a plan. Same with, you know, even though Mike Tyson said that, he's not getting into a boxing ring without having been in the gym for weeks in advance studying how his opponent throws punches or studying what's going on. So have this plan in place.

Understand that it's a dynamic moving target and things are going to change pretty rapidly. But by taking the time to have these in place, you're setting yourself up for success. In your operation, not only as we wrap up 2020-21 but also move into 2022. Chris, any final thoughts here on this strategic outlook for 2022?

Chris: Yep, real quick, I guess my final thought is use this set of information just kind of as a guide to go through as a checklist and just ask yourself, am I fulfilling you know, these— some of these requirements, or the majority of these requirements inside this 7-step strategic outlook plan. And if you do that, and it's the same for Shay, I mean, I put this together, you know, and Shay and I kind of worked on this together. And, you know, Shay puts it out so it's organized and looks really well, and it's something that you can look at, you can work through, and you can check off things one at a time. Again, not in any set order, But if you would just do 85 or 90% of the stuff that's listed here, you're going to have a phenomenal '22. You know, I'm optimistic as heck.

I mean, we're seeing, you know, numbers already that are showing profitability potential in '22 really close to what we saw in '21. And '21 is going to rival 2013, I think, on net farm income. It looks like it could be You know, '21 is going to be pretty phenomenal. I think '22 has the exact same potential, but we gotta have the plan. Like, like you just said, Shay, I think we gotta make sure we're doing the things we need to do and, and, uh, you know, and go from there. But one other thing too, I'm just gonna make a plug. I mean, we're, we're depending on when you're watching this, if you're watching this before January, um, uh, 20— excuse me, before January 26th, 27th, and 28th, we are having our Ag View Executive Business Conference as well.

And so if that's something that, that you are not registered for and you're interested in that, go to our website agviewsolutions.com and check out the opportunity there because I think that business conference is going to be pretty awesome. We've got Paul Niefer and Joe Vakovic and Shea and I and Damian Mason who wrote the book Do Business Better and Jim Wishmeyer talking on policy. You know, we talk about government policy and that kind of stuff and Bill Connerly, who's a phenomenal economist out of Oregon that's going to spend a lot of time talking about the economy, how that affects agriculture and our businesses. And then Steve Johnson, who a lot of you've heard on our podcast, kind of talking on risk management and some other strategies. So pretty excited about that too. And I had to throw that plug in there, Shay.

Shay: Well, it's just, you know, overall it's that further education. It's taking that time to work on your business and not just in your business. We're extremely excited for it. I know we have a lot of really excellent top-notch farm operations that are going to be there. So the networking opportunity is great and I'm really looking forward to it. So Chris, thanks for taking the time to go through this. My final thing here is if you have questions, if something here sparked your interest, if you want to talk with us further on this, that's what we're here for. I mean, Chris and I are, again, our goal and the whole reason Ag View Solutions exists and that we work with farm operations across the world is just to, to help you make better decisions, to help you reach the goals and the potential that you have in your operation. Please reach out to us.

Our phone numbers are here on the slide deck. Chris is available 319-533-5703. I'm 319-464-5708. You can learn more at agviewsolutions.com. Thanks, Chris, for taking the time here.

Chris: You bet. That was great.

Shay: As always, we will catch you next time on the Ag View Pitch.