Part I: How to get your financial house in order

Jeremy

Dutch: Hello and welcome to the Farming Banker Podcast. My name is Jeremy Dutch. I am the Farming Banker. You can find me on most social media under the Farming Banker or the Farming Banker. You can also visit my website at www.farmingbanker.com. To learn more about me, the services I provide, our farming operation. And on that website is all my contact information if you'd like to get ahold of me or book some one-on-one time with me to get your house in order under the financing operation of your farm or agribusiness. So thanks for tuning in. Hope you enjoy the show. Hey, Jeremy Dutch here. Today is the 17th of September. Coming at you. Haven't done one of these in a while, um, and what we're doing is kicking off a 3-part series of how to get your house in order, uh, for your loan renewal and your, uh, banking relationship.

So, um, I know I've been— I can't remember the— I think the last one we did was effective communication. It's been a little while. My buddy Chris Danner, shout out to you, Chris, if you're listening. You, uh, uh, you, you, you let me know, hey, it's been a while since I've heard you, and I appreciate every time you do there, buddy. So what I, like I said, what I want to do here today is I want to kick off this 3-part series. Few things that are changing with the Farming Banker company here is that we've partnered with a company by the name of Ag View Solutions that does consulting and runs peer groups, figures your cost of production, have a bunch of files. So if you're So, and they're fantastic at what they do. They've been in business for over— I can't remember, maybe 20, 30, maybe close to 30 years. And I'm, you know, going on just a little bit over 20 in the lending side.

So I think it's a nice partnership to be able to help get some people's houses in order. We're probably going to see some little tighter margins here as we head into 2025. So Um, I am, you know, I'm gonna put this on YouTube. So if you're listening in the audio feed, um, and you want some clarity or some visual representation of what I'm talking about here, I'm gonna go through some slides, um, and some stuff, um, by sharing my screen. And so if, uh, if you wanna do that, I, I'm gonna have the link to the, uh, YouTube page embedded, uh, into the description of this podcast. And again, it's gonna be, this, this is gonna be titled, um, Get Your House in Order, Part 1. And so I'm kind of going to break this down into 3 different segments, 3 different parts, you know, however you want to look at it.

But, but I'm doing 3 different time frames and the first time frame is going to be this August and September time frame on how to start getting your house in order. Buddy of mine, Joe Paulson, who was in on the— he was on the podcast before this. Told me, he's like, I start my profit manager usually in July. And that made me think it's probably starting to be a good time to at least start looking at what next year potentially could look like and running through some scenarios. You know, we get, we get where we end up, you know, with a lot of retail sell, you know, ag retailers that want to come through and start talking about pricing. And so we'll start to get our arms wrapped around potential seed costs, fertilizer costs, maybe you end up buying your fuel and you know where that's at.

So if you know, start to know some of those figures, or as you get those, I think we need to start looking at what is 2025 starting to shape up to. And then you can start making decisions as you start, you know, prepaying and making some purchases, that type of, that type of thing. So this segment is going to be part 1, and it's going to be the August-September things to do in August and September to get your house in order for this, for your banking relationship. So real quick before I do that, though, I don't know if I've ever done this and I want to highlight the, the team of individuals that were, you know, that's putting a lot of this stuff together, just real quality guys. So I'm going to share my screen. And, uh, uh, take you to a couple different websites. Uh, if you guys haven't been to my website, here's what she looks like. Uh, this is, uh, at farmingbanker.com.

You can see a picture of my wife, my two sons. Um, right down here, if you click on this white area here that says book time with me, it'll actually take you right to my calendar. Um, and you'll be able to schedule a 1-hour meeting with me that we'll do over Zoom. So if you want any feedback on what you got going on, or do a, you know, quick, you know, consultation, pick a time on my calendar, get it set up, and we'll go from there. If you keep going on my website, scroll down, you'll see a little bit of background about me, what I've been involved in in the past, what I'm currently involved with. There's a link to our website for the farm. There's a link back to the podcast where it's hosted at, a little clip about me, and then some blog information I write. And then at the very bottom, you'll see you can get— you can, you know, you've got all my socials here.

So if you want to go see me on the social platforms, they're right there. Contact information is off to the left. And if you scan this QR code, it'll put you into my phone as a contact. So this is kind of my business card if you want to get ahold of me. So That's me. Uh, let's, uh, talk about Ag View Solutions. Uh, if you go to Ag View Solutions website, this is what it looks like. Uh, they, they basically are, um, a full consulting, um, operation where they, uh, have speaking engagements. I know if you, if you click on there and you look at Chris Barron and Shay, um, Andy and Joe, you'll end up seeing, you know, a lot of the stuff that they're involved with. They host peer groups, which if you don't know what a peer group is, click on that. Peer groups are— I've witnessed it firsthand. They are so powerful and amazing.

You've got the consulting part of what they do and then their annual business conference, which I believe is limited to 100 or 150 participants. It's going to be down in Margaritaville Hotel down in Fort Lauderdale this year. And then this Farm Profit Manager. And the reason why I'm bringing this up the last is because this is kind of what we're going to talk a little bit about today. If you click on that link, it takes you to that actual website, which is farming— I'm sorry, farmprofitmanager.com. What this has is some tools here to help you figure out what your cost of production is, how to build your projections, and is what Chris says is a windshield view of your operation. The things that I like about this is that it's a fluid workable document.

You know, a lot of the projections you can put together and, um, you know, end up, uh, you know, putting them together and then forgetting about them. This is an actual tool that can work with you all year long. As things change, you can update that. So, um, love this. This is a, this is a huge tool for figuring out your cost of production, excuse me, and then navigating your way, uh, throughout the growing season. So With that said, let's, let's jump right in. You know what, sorry, I'm going to back up and show you contact information for everybody at Ag View Solutions. You can see it on this slide here. You've got Shay, Chris, Andy, and Joe's information, their phone numbers, QR code to their podcast, which is the Ag View Pitch, and then the website along with the Farm Profit Manager website as well.

So With that started, I think that, you know, what came out of this, Chris and I had talked along with Joe and Andy and Shay about creating this financing toolbox. And, you know, this financing toolbox of how to handle your renewal, you know, how to really proposition yourself the best way to the bank. If you're looking for a new lending relationship, what to put together., you know, that type of stuff and then just managing a more healthy banking relationship as it pertains to your farm. And so, you know, we put this financing toolbox together and Chris put this information out here, which I think is probably, you know, real and something that we potentially could see. And that's, you know, the 2025 is setting up for a potential storm that's brewing.

And, you know, without a black swan event or some you know, something that helps trigger a, you know, a price movement to the upside in the egg economies. Obviously, we're looking at some, you know, negative profit margins on this. So I think this— how you position yourself in these three segments when you talk to your bank is going to be imperative for this year. So let's, let's just dive right in and start talking about what we're potentially looking at for 2025. Just to give you a flavor of what that looks like. So for corn here, I've got the corn side. Looks like we're doing roughly, you know, somewhere in that area of about $1,000, $1,017 per acre in expense and around $971 an acre for gross. And again, this is using as of September here, you know, Dec corn price around $4.50. Cost of production looks like it's about $4.77. So we're looking at about a $45 an acre loss on corn.

If you look to soybeans, you know, similar story. We've got about $761 an acre in costs. We've got around $700 an acre in gross. That's using about $11.03 price. Cost of production is $11.99. So we're looking to, you know, lose about $61 an acre for soybeans as well. So This is where my head's at, you know, from coming from a banker side of this, as you put this together, is that, you know, how to, how to, you know, put yourself in the best position with your bank. So I'm going to just share a profit manager for ours. This is a '25, you know, I think in August, you know, one of, one of the first steps is knowing your cost of production, you got to get to where you know your cost of production. And then the second step in Phase 1 is how do you sell or defend your cost of production? So if you break this down, you've got, you know, Segment 1, Part 1 is this August and September timeframe.

You need to find out two things: what the next year— so for this year, it's 2025— what that cost of production is, and then how you're going to sell and defend against that cost of production. So I'm just going to walk through this and what I did on my farm. You know, if you don't want to do this exercise and put this together, I am going to show you a quick slide. And I know that, you know, the folks at Ag View have this, it's a pre-meeting item, kind of worksheet. You can fill this information out all the way through here. And, you know, the folks at Ag View can certainly walk through and get your next year's Profit Manager set up as well. So, you know, kind of up to you on what you want to do and and how engaging you want them to be and/or myself. So I'm just going to look at, show you what I'm kind of doing.

I'm, you know, I'm sure Joe and everybody else at Ag View, they may have it, you know, slightly different of what they do, but it's just basically going to show you how I get my arms around my cost of production. So I took my 2024, saved it as, you know, saved a copy as 2025. I know some of the expenses are probably going to be really similar. You know, my return to management's probably going to be the same, maybe slightly higher. You know, my land cost, uh, unfortunately is not going to change a heck of a lot. Neither is taxes. Interest might— I might have to adjust that. Um, seed, fertilizer, nitrogen, herbicides, all that kind of stuff, you know, I'm getting my arms around. So basically what I did when I first got pricing and we started to get honed in on exactly what, what our acreage mix next year is and what we wanted to do, I started filling those tabs out.

So if you go over here, you click the nitrogen calculator. I just, I put in our price for '32 that I think we're going to end up at. That gives me the total amount of cost per acre. I may end up throwing some stabilizer in that, so that may change, but that gets me in the ballpark of where I'm at today. You can see my yield goal, you know, how many bushels, you know, I got to change my acreage. My acreage I think is going to be closer to 830. So it gives me about 182,000 bushels or somewhere in that range. And so the good thing is, is that, you know, if you go to this tab, this stuff bleeds through. And just like, you know, on the Profit Manager, you know, everything that's in the yellow area, you kind of fill in, everything else kind of calculates. So I've got that on the nitrogen, on the fertilizer.

You know, we're kind of going through two different programs with our, one of our ag retailers. You know, we typically put down some, you know, potash, DAP, and then AMS. I've got the totals here. I'm looking at a program that he's talking about with some calcium sulfate that's got some gypsum in it along with some elemental sulfur and the cost of that. I ended up plugging the $88.64 an acre in rather than the other one just to get me close in the ballpark. Not sure really where I'm going to want to go. So you can link this straight into your crop production tabs or you can bleed it over, you know, from looking at these other two, whatever you want to do. But, but basically here's how I started. And this is a good exercise and what the bank would like to see, you know, is look it up here. You're putting how many acres you have in corn. You know, the costs are coming through again.

They were as quick and easy because they were saved from last year. I'm just changing, you know, fertilizer and lime nitrogen. Changing some of that stuff as I get some other prices. I'm going to change in these second section here where it's field operations. You know, I'm not 100% sure much is going to change there. When I buy fuel, I'll probably start looking at, hey, what was my fuel cost, and maybe change some of that around. If I'm getting appraisals every single year on some of my equipment, I may go back through and just reevaluate that and make sure that my values are okay so that I've got a true cost plus return. And then, you know, I'm going to come down to this yield price calculator, and that's where I'm going to plug in what my expected yield is or where I'm hoping to be.

You know, I use the price, and you don't have to do this, you know, every guy and gals obviously for themselves on this and what you want to do. But, you know, I kind of took the December board price minus a $0.20 basis and got to where I'm figuring at, you know, for a price side of it. And so you plug, you know, kind of all of those numbers in and it's gonna spit you out a, a number. And my, my number, uh, as it stands today, looks like it's about $4.48, you know, for cost of production. I do the same thing for soybeans. I put all that information in. Um, and then I look at that and it looks like cost of production for soybeans. Um, I'm using $11.50 price. Uh, I, you know, you may look at that today and say that's a tad high, but we grow some, uh, Seed beans, I get a little bit of premium on it, so I'm kind of in the ballpark of what I think.

Some of that's a little bit unknown yet, and the way I can price that, I'll show you that when I get to the marketing tab. But, you know, soybeans looks like it's around $12.25 in cost of production. So you can go back to your income and expense tab, and you can see, you know, and this is what I think you'd hand out to the bank, you know, at the very least. Maybe you want to hand out the corn production, corn, soybean tabs,, as well, if you're wanting to, uh, show some supporting data. But at the very least, I think this income expense summary, you know, at the very top shows you how many acres, you know, total income, what you're standing to lose. And then as you scroll through here, you can see your cost of productions, the prices you use, the yield. All of this is relevant information for the banker. And, uh, so I think that this is really step one, you know, of part one.

Is, is to start looking at that. So then, you know, whether you get this together yourself or you have Ag View do it, I think the next part is turning over and starting to look at, you know, a marketing plan and what that looks like. And I just want to, you know, there's a marketing tab within Profit Manager if you're using Profit Manager. So I'm certainly not trying to make it, you know, duplicated work, but I will tell you I have built this, this here marketing plan that you're, you're seeing on my screen from a lender's perspective. And it's a perspective of where I think lenders, when they go to their board, they go to their credit committees, they go to whomever it is that wants to know, hey, how is your so-and-so farmer? How's the overall ag economy doing? They're going to want to point to something like this.

That shows the positions that you have open, what you've got sold, targets that potentially you, you would sell at, and cross-reference that with cost of production. So whether you use this or not, up to you. If you want help building it out, feel free to contact me and we can certainly help put this together. But I'm just going to go over it real quick and tell you this is part 2 or step 2. Let's call it step 2. So it's step 2 of part 1. Of getting your house in order. So the part, the step, the first step in part one was knowing your cost of production. This is the second step. And here's why you got to start with cost of production is because if you don't know that, how are we, you know, where we're going to go. And so I'm just going to show you my 2024 crop plan before my 2025, just to give you an idea of how it works. And then we'll show 2025 and wrap this segment up.

So for 2024, I, I was projected to raise about 2,000— I'm sorry, 200,000 bushels of corn. My cost of production for 2024 was $4.66. And again, this is just like your Profit Manager. Everything that is in the orange-ish boxes you fill out, everything else outside of that automatically calculates. So I try to build it out as similar to Profit Manager as possible. And so, you know, this bigger box up top here, I'm having you put in, you know, your actual sales. And so this is your sold positions and you can see, you know, price. And down at the bottom here in this yellowish, it's going total and average. This $4.81 is actually a weighted average. And that's why I like this is because if you sold, you know, $5 corn and only sold 5,000 bushels, that's not necessarily a true reflection of what your average is. If you sold, you know, this, you know, $4.50 at 15,000 bushels or 20,000 bushels.

So this $4.81 is a weighted average that is calculated on a per-bushel basis. And so, you know, I've got 130,000 bushels sold out of the 200,000 I'm raising, so I, or I think I'm going to raise. So I'm open about 70,000 bushels. But the thing that I like about this is I can say, okay, I'm 70,000 bushels open. I— my cost of production is $4.66 and I've got a weighted average of being sold at $4.81. Banks love this stuff. And then I've just plugged in my insurance and again, fill in the orange boxes. You know, we've got our spring price, your APH, the percent that you're insured, that calculates your guaranteed revenue. And then for the price, you know, insured, this is just my own little calculation that I like.

I just took the gross— I'm sorry, the guaranteed revenue divided by your APH just to give you kind of an idea of, you know, roughly from a price perspective, where's your backstop? And that again is in relation to the amount that you have insured. If you had any options, reownership, you know, whatever the case is, you're trying to defend the downside, you put it over in here in this option side. And what I would just say is put, you know, the type of option how many bushels, whether you bought or sold it, whether it cost you a cent on the, you know, bushel, or you've collected a premium on it, strike price, and then when it expires, just to give you some ideas of, you know, how you've mitigated that. Last two sections down here, you know, just show you, you know, if you have offers out there, it allows you to, you know, track your offers and then your target prices.

And so, you know, as you saw from up top, I'm 70,000 bushels open, but I got 75,000 bushels that are in offers here. And again, this is also a weighted average that's calculated here. So I've got some offers in there well above the product cost of production. Not sure if they're ever going to hit. But if they don't hit, I've got some target prices, and I may end up actually for 2024 revising these just a little bit. But it's basically the target, the T price over here in the purple is just saying target price. And it's just, you know, one of the things that banks love to see is a well-documented plan that says, hey, if corn gets to X, I'm willing to sell this and then stick to it. And so I've just put in, you know, these prices are saying, hey, if corn gets to $4.95, I'm willing to sell 20,000 bushels. If it gets to $5, I'm willing to sell 40,000.

If it gets to $5.20, 50,000, and so on and so forth. And so as you look at this, it starts becoming a, you know, a pretty decent marketing plan that you can turn it into your bank. Now on the soybean side, if you're watching this, go a little easy on me here. I haven't quite got all this, uh, I'm more open than I'd like to be, but, uh, some of it is a little bit indicative of how we have to price our, um, our seed beans. Uh, so we, we, we can't quite do what we do on the corn side with that. But the point I guess I'm trying to make is that you can do the exact same thing on the soybean side that I just walked with you guys through on the market on the, on the corn side. And all I would do to flip the page for the 2025 year is I would just do the same thing I did with the Profit Managers. I just sell— I would just save a copy as 2025 and update that information.

So as you see kind of next to each other, I've got 2024 filled out. It's all completed. I'm going to minimize that out and maximize 2025. And just show you where I'm at on that. And so for 2025, where this starts to become relevant, you know, especially as you're, you know, do a, you know, I know sometimes banks like to come out and do a mid-year review. You can show them what you've got priced, but then you can also show them, hey, I'm already kind of looking at my 2025 cost of production. And you pull this, as this note says, right from your corn production tab. And the same thing for your total bushels from the corn production tab. And so I know my cost roughly is $4.48 and I'm gonna produce around 190 bushels, or at least that's where I think I'm going to do at this point in time. Obviously things can change. Same thing for soybeans.

You know, I'm looking at $12.25 and 37,000 bushels there. And you know, I don't have a heck of a lot as far as, you know, cash sell sold positions. I don't have a heck of a lot out there for options. I do have, uh, an offer out there. At this point in time. But I've thought through some of my trigger prices. And I think this is where the bank would love— this is where this marketing plan, why it's really good for the bank is that I've thought through and said, hey, you know, I'm— these are some target prices, you know, and eventually what I probably should do is take these and move them into offers at some point.

But at this point in time, I'm not quite ready to do that as I'm still finishing up my 2024 So I'm just going to document, you know, if it— and this helps me track things as I'm in the field trying to wrap up harvest, you know, what, at what point, price points would you be willing to sell some or defend the downside? So that's, that's kind of the point of starting your 2025, whether it's a, you know, profit manager or something similar, but understanding your 2025 cost of production. And get a marketing plan set up is so that you can kind of, you know, track and start working through this side of it. So, you know, that, you know, that really for me, I think wraps up the segment, segment 1 or part 1, let's call it part 1. I think that kind of rolls off the tongue a little bit better. So this part 1 of what to do to get your house in order is 2 steps.

It was the figuring out the cost of production. And the second one is starting to develop a marketing plan. So hope that, that helps. Again, more to come. Next step. So part 2 is going to be things that to do once you've put all the machinery away, getting your balance sheet in order, filling out a debt schedule, and getting yourself prepared to start working through your State of the Farm address. So If you found this useful, you have any questions, want to reach out, you'd like to see any more different information or whatever the case that, that you know, you may want to contact me for, go to my website, my phone number, along with my email address and or you can book a Zoom meeting with me as well. I'd love to talk to you. So thanks a lot. Stay safe, safe harvest. I hope everybody has a good day. Thank you.