Agriculture's top ten issues and opportunities for 2023

Chris: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now here is your host, Chris Barron. Welcome everybody to another episode of the Ag View Pitch. You've got Chris Barron here, and today I just want to kind of talk a little bit about the season we are in. Obviously we're recording this in December of 2022, and we're starting to prep a lot for 2023.

And you know, a lot of you getting ready for lender renewals, insurance reviews, you know, thinking about the structure of your business, and, and of course marketing, which we address weekly, and just some of the things that you have to work on, you know, from the crop standpoint, thinking about livestock, and just kind of getting some of these things forecasted. And, you know, obviously the equipment updates and all those things. So really what I wanted to do today is just kind of talk about what we consider the top 10 ag issues. And so these are the top 10 ag issues I would encourage you, if nothing else, to to pause this and grab a sheet of paper and just write these 10 things down. And then just ask yourself the question of, you know, am I paying attention to these things? Because we look at these issues equally as opportunities.

And so when I'm gonna rattle through the top 10 here first, and I'll say this at the end of the podcast, I'm gonna say it now as well. We intend to do a podcast on each of these 10 categories throughout the course of the winter. And so as you listen to these and I kind of address them, kind of think about what you might want us to, to cover, who you'd like to have on as a guest, and anything that we can do to kind of add value in these categories. So I'm just going to rattle through the 10 first. You know, we've got land rents and values. We've got commodity prices to pay attention to. We've got machinery and equipment values. We've got labor. We've got cash flows and budgets to manage. We've got risk mitigation. We've got interest rates or access to capital. We've got information gathering. We've got transition planning or the lack of— talk about that in a minute— and communication.

Surprise, surprise, the biggest issue a lot of times for operations that we see is that communication thing, especially when you got more than one person in the operation and usually there's a couple of different opinions. And so with that said, those are the 10. I'm going to go through each one again here for a minute and just touch on them. Just to kind of give you a flavor for some of the things that I think, you know, again, you know, write these 10 things down and then just kind of ask yourself, how am I doing in these categories? Because I guarantee it's an issue in your operation. And, and keep in mind, an issue isn't necessarily a bad thing. An issue is something that you need to either pay attention to. It's either a challenge or it's an opportunity. And so just recognizing what that is for your operation, I think, is really a key thing..

And, you know, sitting in the office, and Shay and I talk a lot about this, you know, it's a little bit more fun to go to the shop right now probably and work on a piece of equipment or jump in this semi and haul some grain or go out and check the cattle or work with the hogs or whatever. But ask yourself this question: am I spending my time working on the $30-an-hour jobs, or am I spending my time working on the $300-an-hour $1 an hour jobs. And so think about that for a minute. You know, what I'm asking you to do here is jot these things down, think through this stuff, put your thinking cap on and sit in the office and do some planning because the amount of time you spend working on your business, as we always talk about, especially this time of year, is going to pay huge dividends to your bottom line. And that's, that's really what we want to see. So let's hit, let's hit these 10.

So let's start with number 1, land rents and values. You know, what we're seeing out there is just some pretty crazy numbers. Illinois, I know there's pockets of Illinois land values in that $24,000-$25,000 an acre. Just, it's crazy. And you know, in other areas where you get up into the Dakotas or upper Michigan, different areas where, you know, land used to be $3,000-$4,000 an acre, it's double that. And so it's all relative into a given area, but You know, that's a topic that I think we need to pay attention to. And then as far as the rents go, more so even important is, you know, and we're seeing some rents that are set more so than not set, but we also are seeing that there's a lot of rents that still haven't been determined yet in terms of like, what's that rent amount going to be?

If you do have that figured out, I still think it's a smart move to have a conversation with your landowner bring them in, you know, wintertime's a great time, take them out to dinner, maybe have an event where you bring them all in. I just was at a peer group meeting, one of the farmers there was, was talking about how they brought in all of their landowners and had a kind of a Christmas party for everybody and just, and, and, you know, and got everybody in there and it just, they really appreciate that kind of thing. So that relationship building is a great time of year for that opportunity and just You know, think about, you know, how am I managing my land rents? The largest line item expense you have is your land in most operations. So that's number one. Number two is commodity prices. Obviously, we do a podcast every week, comes out on Sundays at 11.

If you like that and you're listening to it, please share that obviously too, or, you know, subscribe to us and that kind of thing. That really helps us. You know, just paying attention to, to these commodity prices. I guess the biggest one there is just there's really no carry in the market. And one of the things we've been working on with people a lot is just understanding what, what it's really costing you to hold on to those bushels and not make sales. Not making any kind of advice or anything here, just saying that, you know, these prices aren't going to stay at these levels probably forever. Maybe they will for 2, 3 more years, who knows. Nobody knows. Not one person knows, but you know your costs now. You've got all your numbers dialed in. They're known. Just make sure you have all that stuff in front of you and you put together your plan.

There's a lot of issues going on out there. You know, you got South American weather, you've got China, you've got Ukraine, Russian war still going on, you know, exports, all that demand. So just a lot of things to pay attention there and just, just keep your hand on that pulse of the, of the commodity index. Number 3 is equipment values. That's probably the biggest thing that we're dealing with right now is machinery and equipment. I just did a podcast a week or so ago with Brent Judisch on machinery and equipment. I think that's a good one that, you know, everybody probably should go back and listen to if you haven't listened to it. You know, utilization of your equipment, should you be purchasing or leasing, do you have a 3 to 5 year plan.

Shay and I have a 3 to 5 year plan that we use with our clients to formalize what that plan is, especially if you got multiple, multiple people in the operation. I think it's important that, you know, you put that plan together so that there's not a surprise and that you can cash flow and that you can forecast those expenses. And so that's, again, that's another topic we can spend more time on and do another podcast on that if you want. Labor, access to good quality labor is kind of the issue. I mean, there's some labor out there, but, you know, it You don't just hire dummies to do stuff anymore. I mean, we— and not that we did before, but we've got a lot of technology, a lot of things that take training.

Some of us aren't really the best trainers in the world, so, you know, taking some, some courses on leadership and accountability management and those kind of things for a lot of us is probably be a smart thing just because, uh, you know, we aren't probably, like I said, probably the best trainers, but it's also just, you know, managing that turnover. And, and it's not always about pay. A lot of times it's about, you know, the, the values of the operation, the culture, who is their boss. You know, if you asked your average employee, um, who's your, who's your boss, you know, and if there's you and your brother or your son or your, your dad or whoever, uh, there's multiple leaders in the business and the employees don't know who their boss is, they won't stay around long.

And so It's just kind of figuring out, do you have a good accountability chart so everybody kind of knows who's accountable to who and who's their direct report? So again, that's a podcast we can work on. Number 5, Budgets and Cash Flow. We've done a lot with Joe Vaklovic on his podcast, just kind of helping him with his subscriber-only videos, just kind of talking through the importance of budgets. Because, you know, the budget is going to really be what drives your marketing. If it's not, then you're a speculator, you're just speculating on the markets, and If you're that good at it, maybe you'd be better off, you know, just trading instead of trying to grow the crop. If, you know, any of us think we know where the market's going, I think we get in trouble pretty fast.

So we got to start with the budgets, and then when we look at the budgets, and that— this could be a long podcast eventually if people want us to go down this path, email us— what we see for healthcare costs, family expenses, It's kind of that return to management category is really high. That's a big one that's just really taken off. And, and, you know, I think we're at like $92 an acre in that category. And so it's a, it's a big expense. It's, um, you know, we've seen a pretty big inflationary increase last year. It was like 21%, I think, last year. I don't have those numbers in front of me, but, and then this year it's looking like it's going to be about 7 or 8% already. From what we're seeing. And so it's just the increased cost of living is just getting crazy, and it's just something that I think we really got to put these budgets together probably more so than ever.

And then just, you know, looking at your working capital position, managing your tax situation and all those things. We'll touch on that tax thing here and working capital again here in a minute in another category, but just pay attention to those budgets and make sure that they're dialed in and you're looking at them. Probably weekly. You know, people always ask, you know, how often do you look at Profit Manager? Um, we, we use it pretty much weekly and look at it, kind of see where we're at. So number 6, risk mitigation. So like I said, you know, this is the time of year I mentioned at the very beginning of the podcast, uh, insurance reviews. If you haven't scheduled your insurance review with your insurance agent, uh, probably mark that down and make sure you get that done. It's amazing how many times people have this piece of machinery or that piece of machinery insured.

They haven't had it for 3 years, you know. It's like, uh, maybe it's worthwhile to take a few minutes and bring the agent in, go through everything, and make sure you've got peak season coverage, you know, going into the spring when you got herbicides and chemicals and seed and all that stuff, you know, that you're warehousing in-house and those kind of things. And just kind of make sure you don't have any gaps in coverage. And you're talking through all that. When I say risk mitigation, you know, a lot of times people think crop insurance. Well, obviously crop insurance is going to be a big deal this year as well. We'll do some podcasts on that with Steve Johnson, and that's an absolute guarantee. We'll be having conversations around that topic as we get a little closer to February.

So, and then having a lender on the bench with risk mitigation, you know, interest rates and the amount of working capital that's there when we're in the midst of putting in the most expensive crop we've ever put in before, I think warrants just starting to have some conversations with lenders. Maybe an additional lender, what we call the lender on the bench. When you put all of your financials together for your banker, put those financials together for another lender and then just go talk to them. And it doesn't mean you're going to leave. It doesn't mean you're going to you have any intentions of doing anything like that. But if something were to happen to your lender, are you borrowing? Are you— is that relationship the important piece, or is it the relationship with the bank, with the institution? And typically it's with the lender. The lender understands what you're doing.

They understand your line of credit. They understand your debt and everything. So, so think about, you know, you're already putting all that stuff together. You might as well do it with another one. And do it when times are good. You know, when, when we— when times aren't so good and, and we need a lender, that's not when you want to be looking for a lender. You want to look for a lender when you're flush, when, when you're in really good shape, you know. And it sounds crazy, but that's, that's when they want to work with you, is more so when they don't need you. But that's when you can work on the relationship and you can build that rapport and you can build up the history within that bank. Because, you know, the, the best operations we see have one or two lenders on the bench.

And if something happened and the lender that they're working with left tomorrow, got ran over by a beer truck or whatever, and it's completely out of the picture, they could go to that other bank and probably have the, the bank they just left paid off in a couple months and, and not have, you know, hardly any kind of a problem in that transition. So again, risk mitigation. I mean, to keep talking on that one so long, but it just There's just a lot of stuff there with risk mitigation, especially as we get, get stronger financially. That just means that our risk is, is getting larger as well. Number 7, access to capital and interest rates. That kind of carries over from what I was just talking about, but, you know, having that lender on the bench, I just talked about that. Balance sheets, debt service, and debt-to-asset ratios.

It's, it's looking at those line items, and it's also just looking at your ratios of whatever it is that your lending institution looks at. So it's having that conversation with your banker and saying, okay, what ratios are, are you looking at, and how do I compare? Because if you show up and you give your balance sheet, you give your cash flow, they're going to take that. And if you're farming with other family members or other collaborations or multiple entities or whatever it is, they're going to assemble all that internally at the bank and they're going to look at it from a global perspective. Ask the lender to share with you how they view you. Don't just show up, give them the stuff, and then you get your renewal and everything, especially when times are good.

You know, ask them, you know, tell me what I need to be doing better, what, what do I need to improve on, give me some constructive criticism. Ask for that constructive criticism from the lender, especially right now if you're in pretty good shape, you know, and then take some of that advice, you know, just at least ask for it, listen to it. With that said, number 8 is information source. You know, who are your information sources? Who are you working with? Who are you using? Who are your consultants? And, you know, some operations are like, you know, yeah, you know, we, we spend X amount of dollars per year, we budget $20,000 or $30,000, wherever the number is, or we don't have any. You know, we're already smart enough, we know this ourselves, we read a lot, we do this, we do that.

That's fine, but be really careful of where your information sources are and understand, you know, there is a value there. And when you look at these information sources, including accounting systems and all of these information data sets, Are they trustworthy? You know, where are you getting that from? Are you using your peers? Do you have access to some peers? You know, I just was at a peer group last, uh, last, this last week, and, you know, who can you talk to that's a peer of yours that you can compare information with that's, that's reliable? And so again, that information piece is just huge, whether it's from your lender, whether it's your attorney, your CPA, your insurance agent. One of your peers, a consultant, whatever it is, just make sure that you understand that the importance of that information. It's pretty easy to get backyarditis. It's pretty easy to get complacent.

It's pretty easy to just feel like it's good enough. And, and when things are going good, a lot of times bad decisions are made. During good times, bad decisions get made a lot. And during, you know, bad times, that's when people start like, oh geez, I guess I need to be making really good decisions. And so We're in a position right now of power of opportunity. So that's number 8. Number 9 is transition plan or the lack of a transition plan. Some of the best operations that we work with still don't have a very solid transition plan. It's not that we're not working on it. We are. But sometimes the wills aren't updated. Sometimes there's just low motivation from some of the older people in the operation. You know, there's not the buy-sell agreements that need to be there. There's not the life insurance that needs to be there.

You can have, you know, 2 or 3 people farming together that are transitioning. For example, you have a dad that's transitioning over to a couple of the kids that are, that are at the farm, and those kids happen to be married. Their spouses maybe don't know what's going on in the farm. What happens if something happens to one of those kids? Now the other, the rest of the family's in business with that spouse. And so, you know, that, that's just one example. I could give a thousand examples. Like I said, we'll do a podcast on Transition plans, again, the importance of it, where there's some holes, where there's some things that need to be done. It's probably the least favorite thing for people to do is sit down and work on transition plans.

You're sitting there thinking of all the other stuff you have to do, but the lack of a transition plan could be one of the most expensive things that your, your business ever purchases is the lack of that. So just keep on it and then understand that when you get it done, it's never done. Right? It's a living, breathing document that you have to continue to work on. And so really important. And then number 10, I'm gonna, it's enough harping on the transition plan. We'll do some podcasts on that. And if you got questions, let us know. The last one is communication. Shay and I joke about that one all the time. You know, that's the issue that shows up in every operation we work with, including our own. Including his family operation, including my family operation. I don't care who you are, what you have going on, that is always an issue.

It doesn't mean that it, it had, that it, you can fix it perfectly, or that, you know, if you just don't deal with it, it's going to get better. You know, a lot of times it has to do with, you know, just the need for some meetings. Maybe it's a morning huddle that's needed, maybe it's quarterly meetings, maybe it's weekly meetings. Maybe it's having a third-party person step in. A lot of times what we see is you have 2 or 3 different generations if you got a multi-generational business, and you know, the older generation tries to tell the younger generation something that goes in one ear and out the other. A lot of times a third-party person will show up, could say the exact same thing to that older generation or the younger generation, either way, And it's like, oh well, that, yeah, that makes sense.

But when they hear it from their kid, or, you know, the other way around, or if, if the kid hears it from Dad, you know, they don't listen a lot of times, or they, you know, in, in your ear, in one ear and out the other. And it's like, you know, so I think those are just some things, you know, on the communication side. The other thing too is just, you know, are you communicating with the off-farm kids? A lot of times mom and dad are trying to be fair. Fair isn't equal and equal isn't fair. However, transparency a lot of times can fix a lot of that stuff because a lot of times the non-farm kids just want to be informed and it's not always about money. A lot of times it's about communication or, you know, if you want to, you know, piss somebody off, to put it bluntly, you know, the, the thing that makes people frustrated more than anything is unmet expectations.

And so, you know, it's having those conversations and say, you know, what, what is it that you feel like you would like to know or be aware of? And, and, you know, and then when something happens, it's not a big deal, you know. And, and some of the things— I mean, we just was at a farm operation the other day, um, you know, there's, there's multiple siblings farming together and You know, one goes and buys, you know, an asset, buys a semi or whatever. Another one goes and buys a combine or hires somebody and maybe isn't communicating with the other people in the operation. And, and so, you know, those kind of things can really start to upset the apple cart as time goes on. So again, that's something, you know, communication is a non-ending thing. So it's just paying attention to that and looking for, you know, where can you get extra training on leadership and accountability.

There's some really good stuff on YouTube and places I've found that can really help you kind of think through some things to improve communication. So that's a lot of that. What I'm going to do real quick is wrap up the top 10 things, issues and opportunities for your farm operation in 2023. Land rents and values, commodity prices, machinery and equipment, labor, Budgets, risk mitigation, interest rates and access to capital, sound information, transition plans and communication. Those are the top 10. If you got something that we didn't put on our top 10 list, email us and say, hey, you should have said this too, or whatever. We're open to that. We're open to doing some podcasts. Like I said, these are kind of the top 10 areas that we've heard from our clients in 2022.

These are continuing issues and opportunities that are going to precede us and continue into 2023, and we just want to make sure we're there for you. And hopefully this was of value just to kind of talk through those again, writing those things out, taking some notes, and then just asking yourself questions. Am I paying attention to these 10 things, and am I making them issues, or are they opportunities for my farm? So that's really all I had today. I hope this was useful, and please, again, like I said, please reach out to us. Let us know if there's things that you want us to have guests on and, and, uh, any other topics besides these top 10. Hope everybody has a great rest of 2022 and a very profitable and outstanding 2023. And thanks everybody for listening, and we will catch you again next time on the ITU Pitch.