Profit Manager 101

Shay: Thanks everyone for tuning in to the Ag View Pitch. Today we got a special conversation looking at Profit Manager, or specifically profit management, how it affects your farm operation, uh, the tool Profit Manager that we have available through Ag View Solutions. What I would most importantly encourage you is if you're already using Profit Manager, you're going to want to listen to this podcast. It's a great refresher on the tools, the availability, how to utilize it to its fullest potential., and also you'll hear— listen all the way to the end, you'll hear some encouragement on reaching out to us or some things that you might want to consider as you look forward to the year ahead. If you're new to Profit Manager, if you haven't seen kind of what it's all about, this video is specifically designed for you.

Podcast, you know, if you're listening on the podcast, go check it out on the YouTube channel at the Ag View Pitch. Hope you guys get a ton of value out of this. As always, you can reach out to us anytime. Check out our website, AgViewSolutions.com, or more importantly, FarmProfitManager.com. Thanks for watching. Welcome back, everyone, to another episode of the Ag View Pitch. Today you have Shay Foulk and Chris Barron. Chris, how are you today?

Chris: Pretty good. Working hard.

Shay: Yeah, the weather is starting to cool down a little bit more here into November. I know a lot of people in our area in northwest Illinois are getting some fieldwork wrapped up. The guy that does the strip-till work for us, he's doing an awesome job right now out there, getting the strips made. And we've been pretty fortunate here with some late fall fieldwork. So, you know, as you're listening to this podcast, you might catch it, that might be you getting equipment cleaned up. We were just talking about that, Chris, or people that are setting out getting tillage done, ready for, ready for some holidays, maybe ready for some beach weather here. Speaking of, they might be interested in the conference, correct?

Chris: Ah, yeah. Hey, that's a good, good thing to bring up. Uh, January 25th, 26th, 27th, St. Petersburg, Florida. We've been trying to just kind of remind everybody of that at most every podcast we do. Um, as we record this here, we've got a, a lot of, uh, people, uh, registered, but we, we've got room for some more. And I, I continue to talk to people, they're like, oh yeah, I'm going to register for that, I'm going to go. And then I, I kind of see some of those same people aren't registered yet. So I guess just a reminder that, you know, we still do think we'll fill up, but we want to make sure that if you're planning on going, please get registered and, and tell, tell some of your friends, you know, this is an executive business conference that I think is going to, I think it's going to be a top of, you know, maybe all the conferences that, that a person could go to this winter.

I'd essentially guarantee that. I mean, the content that we have, the speakers we have, the information we have, and the attendees and the networking that's going to come out of it, it's going to be pretty phenomenal. So, yeah, super excited.

Shay: I agree 100%. And I think the conference has been a culmination of a lot of the work that, you know, you've done over the years and the networking and the people that we've met that have kind of really asked for that. But a lot of that discussion has started with today's topic. Around Profit Manager or profit management in general. Now, Chris, you started working with profit management 27 years ago, sometime in that frame. Is that right?

Chris: Yeah, we keep saying— yeah, it was 26. We said 26 for a couple of years. Yeah, around 26, 27 years, something like that.

Shay: And you started well before that, but that's when you kind of dialed in. So I wondered if you could just quickly kind of share that story on how Profit Manager came about, and then we'll dive into specifically what we're talking about here today.

Chris: Well, I grew up raising hogs, and so the first 20 years of my farming career was with a livestock operation. And when we decided to get out of the hogs, um, my dad challenged me with the idea of how well I knew our numbers with the hog operation. I knew pigs per sow and feed efficiency, and I knew rate of gain, and I knew all kinds of really granular detailed information with regard to the hog operation. And at the time, we didn't really know anything about the crops. We just knew that we, we bought the seed, we bought the fertilizer, we paid the rents, we paid the land payment and bought machinery and farmed and, you know, and fed the hogs and sold some of the grain. And apparently we made money because we were able to stay in business. But, you know, it really changed the face of our operation once I put, you know, things together.

My dad challenged me with, with one key thing that I think everybody needs to be aware of is that knowing your cost of production shouldn't be complicated. His, his point to me and his comment to me was you should be able to put your expenses and your income all on one page. It shouldn't, it shouldn't be a complicated, um, array of information that you got to go through and you got to drill through and it should be difficult to do. It should be easy. It should be easy to assemble. It should be easy to think through, and it should be easy to manipulate with respect to run-in challenges like, you know, what happens if the yield is lower or higher? What happens if the cost of production changes in certain line items?

And that's really what happened then is over the course of, you know, initially putting this together, you know, 26, 27 years ago, whatever it was, to today with farmers helping us and saying, you know, I wish it would do this, I wish it would do that, putting these things together so that it's real easy for producers to, to put this together. And if they're watching this, they can see that one page. It's the one page that gives you your cash flow. It gives you exactly where you're at. It's something you can hand your lender and they're going to understand. It's something you can show your family. It's something you can show your employees. And it's pretty simple to understand.

Shay: You know, you keep saying simple. The other thing that I would add is it's also comprehensive, and we have people that frequently reach out to us. And one of the first things I always hear someone say when they, you know, talk to me about Profit Manager is they say, well, you know, I got some spreadsheets of my own and I do a little of this. And, you know, I'm just— I'm trying to get the whole picture. I'm trying to get a comprehensive outlook on how do I tie all of this in together and credit to you on what you've done here over the last, you know, almost 3 decades on building this. When people ask you, you know, how long did it take you to build Profit Manager, I know you always kind of joke with them and you say, oh, you know, about 26 years. And there's a lot of truth to that.

And here the last couple years in particular, we've made a lot of changes on the machinery analysis and made it user-friendly, which has garnered a lot more interest. So I would iterate at this point too, you said it there, Chris, if you're listening to the podcast, check out the video on the Ag View Pitch YouTube channel. We're going to have it posted up there. And of course, if you're— you know, who might you be if you're listening to this? You might be someone that's already using Profit Manager. And Chris, you and I talked about this offline. It's good to hear this messaging over and over again just to kind of refresh you how you can utilize Profit Manager kind of to its fullest potential.

So if, if you have Profit Manager and you're thinking, well, I don't need to hear this stuff, I would encourage you to stay on and just kind of listen through how we think about it and how we've seen it help farm operations the most. You might be someone that just wants to evaluate a single scenario, and that's where your interest in Profit Manager came in. You want to say, okay, you know, I've had an opportunity to take on this land, or my cash rent has changed to this, or I'm looking at a major upgrade in machinery. How do I handle some of this information? The value in Profit Manager is getting your numbers in and studying them and knowing them accurately.. But then also being able to reach out to, you know, Chris and myself and say, hey, how does this look? You know, what is this like in comparison?

And with the number of farm operations that we work with kind of all across the United States and Canada, Chris, wouldn't you say that, you know, we kind of have a pretty good pulse on what's going on and can offer a lot of information and perspective, I guess, to what people, people have questions on.

Chris: Yeah, we really appreciate when people send us their Profit Manager either accurately populated or maybe not so much, and they got some questions. That's always good. And then what I like to do is take the, the information and aggregate it during the course of either the summer, whether it's a projection, or during the winter as it's a projection going in, for example, going into 2023. I think we want to understand that Profit Manager is not an accounting system. It's a look-forward system. It's a windshield. And I always tell people that's how we look at Profit Manager, whether you've had it for 2 days or for, for 20 years. You're utilizing it to look out the windshield of your business. Accounting is important. Accounting is really good, but it's postmortem. It's already happened.

What we want to do with Profit Manager is we want to run scenarios as often as necessary so that you can make marketing decisions, so that you can make purchasing decisions, so that you can make crop rotation decisions, or, or just decisions on, you know, what can you pay for cash rent, or what's your machinery and equipment cost analysis look like. And so, so that's kind of why and how we want to use it.

Shay: Again, we're recording this here last month of 2022, so A lot of people that we know, Chris, had a really good year, record year or near record year. A lot of the numbers that we're starting to see come in on the gross and net revenue side are going to be, you know, top 5 for a lot of people. And a lot of people in other areas maybe had a really tough year. So if you're, if you're looking at this and you're thinking, you know, do I need Profit Manager? Is it a good fit for my farm operation? The first thing I would say is I can't think of anything that would provide more value to your business in the years ahead, regardless of which boat that you're in, either one of those situations, but also just on, are you a professional farm operation that's looking to make positive changes, you know, positive impacts, create that sustainability and the longevity in your business?

That's what Profit Manager was designed for. So I think we'll jump into it again. We're going to make sure that we're verbalizing here if you're not actually physically watching the video. Profit Manager ties back into a single page, as you mentioned, Chris, of income and expense analysis. The way I describe it is, is it's essentially as close to cash accounting as you can get without actually having to do all of the accounting nonsense, because it gives you a true picture of what went on in your farm operation for that year. So for instance, you know, I would say a minimum of 3 times, we encourage people to do a projection. So whether it's at the end of the year for the next fiscal year, in this case, it would be people looking at 2023, or an in-season kind of update or remediation.

So once you know what all of your crop expenses are, or you get to the end of your application season, and you're pre-harvest, you're plugging in your yield numbers and saying, okay, instead of 65 average, maybe we got you know, 70-bushel soybeans out there. How does that affect my marketing? What does that do to my cost of production? Is there anything else that I should be doing in this growing crop in order to enhance that potential, enhance that yield, to ensure that we're making the most money? And then finally, the third one there is your end-of-season remediation.

It's going to give you that true picture, 100%, what happened at the end of the year and If you're someone that just recently got wrapped up, you have Profit Manager, or you want to get a good start on Profit Manager for your next year as you build out your budgets and your cash flow analysis, in my mind, Chris, this is probably the best time of year to dive into some of those numbers and see what happened here this last year so that we can set ourselves up for success next year.

Chris: Yeah, for sure. There's never a bad time to, to jump in, but I think what you just said is very true, you know, especially when we look as we record this now, we're going into a year that's probably going to be the most expensive crop we've ever put in. And it's probably going to be the most important time ever to, to know these numbers. And, and as you were talking there, Shay, one of the things I was thinking about too that I didn't mention is just that with Profit Manager, like you said, it's very comprehensive. And like I was saying earlier, it's simple. You know, we don't have to get so granular initially anyway on every single individual field and start looking at every single field because it's pretty easy to get information overload.

What we want to do here in the, in the primary objective is to get our line item expenses dialed in as closely as we can in what we would call a master report. And that is the overall farm business because that's how you're going to make your decisions. You're going to make your decisions. From that single report that has all your acres for each of your crops. It's going to have your cost of production dialed in. It's going to have whatever marketing that you've done so far, and it's going to allow you to establish, you know, a margin target. It's going to allow you to, to kind of determine, you know, what happens if this happens or that happens. Once you get your, your, your line item expenses in there, your yields, your price objectives and things, you can run scenarios on any one individual item and see how it's affecting the whole operation without getting too far into the weeds.

Shay: So I want to jump in here because a lot of people give a, give a little bit of pushback or ask questions specifically on what you said about, you know, this is the global outlook for your farm operation. And, and you and I know from having done this time and time and time again that That global outlook is most important because that's how you market, right? And so specifically what we want to take a look at here when you're in Profit Manager, one of the things that is designed within the system is to dial all of these costs from your overhead, your variable expenses, your fixed expenses back to a cost per bushel, ultimately arriving at what we refer to as your cost of production.

But for instance, you know, Chris, you're talking about, or you use land as an example, if you're looking at field by field analysis there, the scenario that we have plugged into our system is, you know, if your average land cost is $286 for this producer, so again, you can check this out online. But, you know, if you're running 2,000 acres, 1,000 corn, 1,000 soybeans, and have a quote unquote normal projection for 2023, whatever that is for your area, you could have a land cost of $1.79 per bushel. And let's say you have someone, a landowner that's reaching out to you and saying, hey, you know, I really think we need to be doing more than that $286. Maybe we need to be at $300. And that can be a really emotional discussion. But what we want to be able to do from your global outlook that drives your ultimate decision-making process is know, okay, how does that impact our farm?

So if I put $300 in there, what I can tell is that changing my cost of production $0.09 a bushel, you know, it went from $1.79 in this scenario to $1.88. Now, you can decide how that impacts your farm operation. But what's really neat is you can do this on a line item by line item basis. And it's instantly updating with all of your other variables, connected to that. Yield, I think, is another great example, Chris. When we're in season, you start looking at instead of 200 bushel corn, maybe we have 250 bushel corn. Okay, so how does that lower our cost of production for one, but at the same time, that's going to increase our drying costs, that's going to increase our trucking. Maybe we, we have some other storage and logistics issues that we need to take care of. So that global outlook, again, just to stress that, It's not saying that the details don't matter.

It's that we don't want to get too hyper-focused on the details. We want to know exactly how they impact kind of that whole picture. Did I say that accurately?

Chris: Yeah. Yeah. And, you know, and when you're just to add to what you're saying too, is, you know, it's pretty easy to take, you know, and change just that one line item, you know, adjust your acres to that farm discussion with that landowner and lay this out in front of the landowner in a pretty simplistic way, yet comprehensive, as you said earlier, so that you can have a discussion around what is, you know, the most reasonable rent. There's somebody on here right now thinking, well, my landowner wants the high number. I don't care. He doesn't care. Well, that landowner is going to want the high number anyway. And, you know, the only thing you can do is leave that report with them and pray that they'll, you know, they'll reconsider down the road. But it doesn't mean that you still don't do your due diligence.

You still need to do the due diligence, if nothing else, for yourself so that you know what your numbers are. I mean, we're playing with just some plug numbers here. The critical part is knowing your own, is running those numbers. And like you said, first of all, the global picture and then get granular from there. Don't start out being granular and trying to figure everything out and bring everything into a big picture. That's almost impossible to do. That's why we like to start out with the big picture. And then if we need to start looking at individual scenarios, we can do that then. But we got to get the big picture right first, because as you just said, that's how we market. We don't market necessarily off of one farm. And if we do, then, then that's a global picture for that, that unit or that entity. But you want to do these by marketing entity.

So whatever, you know, whatever bushels are being marketed, you know, we see that a lot of times with a father-son or, you know, or partners that are farming together and they market all the grain together. We would want to put those expenses together as a unit because we want to know what the cost of production is for that unit as it relates. And the same thing with crop share. We have a lot of producers that utilize this with crop share. You know, and it's a great tool for sharing with the landowner what their cash rent equivalent is. So they're just— there's an endless amount of things you can do once you get the data in here accurately.

Shay: Yeah, and you said it, I just want to emphasize it and highlight it and underscore it and put it in big bold letters is we want you to know what your cost of production is. We'll talk about this a lot when it comes to the machinery analysis and, and how I think we do that differently than anyone else that I know, anybody, to the extent of, you know, that it's very, very personalized, very accurate to your farm operation, and can have a dramatic impact on your cost of production. I wanted to bounce around here a little bit, Chris, you and I both have some notes in front of us, looking specifically at these line items of, you know, what are some of the biggest players that we all, that we all know of, but maybe some that we don't, So we already talked a little bit about, you know, the number one cost in most operations.

I shouldn't say most, in a lot of operations that we work with is that land cost. And how we look at that is, you know, what's your total principal and interest payments on loan on owned land, plus your cash rent divided by all your acres. And that gives you kind of that, you know, simple, here's our overall, because a bushel of corn that's raised on owned land doesn't care if it's any different than a bushel of corn that's raised on cash-rented land at a really high rate. Ultimately, that has to cash flow into your global structure because you're marketing that bushel of corn as a number 2 yellow dent corn. You know, talk about some of the other expenses that we have here, Chris, that we look at frequently, top 3 or 4.

Chris: Yeah, the next big one that I would discuss, I guess, which is probably in some operations it's in the top 3 or 4, and some operations it's lower down the line. But it's one that, that has crept up more than anything with the inflationary scenario that we've seen in the last couple of years and with interest rates and some things changing. But that is what we call return to management. That's on that line 11 if you're watching this or looking at this. Return to management, as, as we define that term, is all of your overhead expenses. And so if there's one thing that is kind of an irritant to me is when I hear people talk about cost of production and they're rattling off numbers that I know are way lower than what they really are. I mean, it's pretty common for us on corn, for example, we have a lot of growers growing all kinds of different crops.

And I'm just going to use corn as an example. You know, they'll be talking about, you know, $3.80 or $4-something or whatever, you know, most of our clients this year in the mid-fives for cost of production or in the low to mid-fives anyway. There's some maybe that, that aren't to that level, but most are. And where a lot of that cost is, is in this return to management. It's in that overhead category. And so I guess what I would do is I'll just rattle off a few of these for those that are listening. And if you're watching this, these are the things that would go in that return to management category. And it's, you know, your healthcare costs, if that's something you're paying for. It's owner draws and employee pay and benefits. It's all those things that we pay out, that the farm business is paying out. You know, everything from vehicles to your phone, your cell phone bills.

I mean, look at cell phone bills on the average farm anymore, is like an astronomical number. And, you know, and then just technical fees, you know, you look at your internet, service, you, you know, and it's crazy how much it is in some of the rural areas yet. And just a lot of, a lot of the tech fees that we pay for, or cable TV, whatever it is, you know. Hedge accounts is another one. Sometimes we'll, we'll have growers that'll put that hedge account number in, in the marketing category, which is where we prefer it, but sometimes there's a hedge gain or loss that needs to be accounted for that's not in the mix. And so that needs to be— and that's a whole nother podcast, probably.

Shay: It is about questions coming up more and more, Chris. I know a lot of, a lot of you listening right now probably have had an interest in a hedge account or are involved in it in some manner. And we work specifically on how do you tie that back to specific sales, or how do you manage that or think about that at a, uh, I guess I would say a higher level from a lot of operations that we've seen over the years. Maybe just, maybe just some things to add into that and how to handle that more carefully in a lot of cases.

Chris: Well, with the hedge account, and then we'll keep on, we won't get off target here too much, but I just wanted to— I would add to what you just said is a lot of times what we see is a disconnect between the hedge account and the marketing. In other words, they don't have a hedge account. In a lot of cases, they have a spec account. In other words, they aren't tying those, you know, if you buy option strategy on 20,000 bushel, a lot of times it doesn't get tied back to 20,000 bushel of cash sales at a later date. And so, you know, and we'll get to that here in a little bit with marketing report, that those things all need to be tied together. If they're not, then at the end of the year, either the, the gain or the loss needs to be applied to your return to management category. So it's not a lost number, I guess, is my point there.

But There's a lot of other things too, whether it's income tax. There'll be some people paying income tax in the next couple of years, trust me. You know, insurance, business travel, education, consulting, supplies, repairs for non-equipment items, buildings. And, you know, maybe the wife wants to remodel the kitchen and guess maybe the farm paid for that or whatever. You know, those things that get paid for by the farm have to be part of the cost of production. And like right now you've got, just for those who can't see this, you've got $20 an acre in there. That's 13 cents a bushel. And I assume you have the corn yield at what, 200 bushels maybe?

Shay: Yes.

Chris: Yeah. So if you make it $100.

Shay: Yeah. So at 200, you know, that $20 is closer to, uh, 10 cents a bushel. But in reality, I think what you're saying, Chris, is What if that number is 100? You know, what if you're not pulling $40,000 out of the farm? What if you're pulling somewhere closer to $200,000, which isn't far-fetched? That's a 40-cent-per-bushel swing in this operation by these numbers, and, and that's not out of line. I screw up my marketing a lot, but I think I want to have it dialed in a little better than 40 cents a bushel.

Chris: Well, that's just it, you know, that's where I think it's a line item that that people in, in, in Profit Manager, we have a budgeting tool. I was just with a farm in, um, southern Missouri a week ago, and we sat down, pulled, and, and, and they did a great job. They pulled all of their, their budget items out and we dialed them all in literally to the penny. And so now that operation has their return to management dialed in for what their budget is gonna be for this upcoming year. And they know what they can spend. They know what they can't spend too. You know, and, and those are things— it's pretty hard to be disciplined unless you know what you need to be disciplined to or for. And so I, I think that, you know, like I said, that might not be the biggest category, but it's, it's one of the categories that's the most misunderstood next to machinery and equipment, I would say.

Shay: Yeah, and that machinery and equipment— we'll wrap up kind of this portion on that here, but, you know, machinery and equipment, typically the second or third largest line item expense. And up there as far as misunderstood or mismanaged with return to management. And I had a gentleman that I was talking with here yesterday, and his comment was, you know, I've, I've been in this position before where we've had a string of years with good revenue, and then I go to buy new or used equipment that has an overinflated value, and then all of a sudden your commodity prices drop off significantly., and then you're laying there in bed at night wondering how the heck you're going to pay for it.

You know, if you're playing, if you're, if you're working within the tax system and trying to buy and update some equipment, which is not wrong, you know, when you have times of increased working capital or, you know, revenue to upgrade machinery and equipment. But we want you to do it in a really smart way and we want you to do it in a way that's sustainable. Some of the profit manager analysis that we'll talk about and run through here in a little bit is really important. But generally speaking, you know, as we look at these crop production pages, we want all of those fixed line item expenses, we want all of those variable line item expenses, we're going to really dial in that equipment, which we'll jump into here next.

But things that, you know, maybe, maybe you haven't included as in-depth or as effectively as you, as you could have in the past, things like storage and drying and trucking, how are we calculating that? You know, how do, how do you and I work with operations across the country to do that. And then things, you know, that this tool with the insurance calculation is, is really important, not only in areas that maybe are struggling seasonally, you know, if you have a drought or flood or something severe, but also for the areas of higher volatility, maybe into the western states when you have more and more crop disasters or that are more frequent than other areas of production.

We want to know how all of these different systems tie in and can give you really good information, really good projections, and to know just where you're at all the time consistently within your profit management system. Anything else to add on that note, Chris?

Chris: No, I think you got it covered good. I think, you know, it's, it's really, again, like you said earlier, it's just the understanding comprehensively by crop where you're at and being able to change any one line item to see how that affects the bottom line.

Shay: Very good. So I want to jump in a little bit maybe to marketing here before we go over to the equipment side of things. You know, pretty simple sheet. The nice part about Profit Manager, just a few things here. Profit Manager is really easy to use. It is an advanced spreadsheet or table or whatever, you know, whatever you've called it over the years. It's an advanced comprehensive program that's really easy to use, but it also has the capabilities to tie in because it's, because it's a complex spreadsheet. So you might have some systems that you really, really like that you've built over the years. And Chris and I encourage people that if you have a good system and something that works for you, how can you create synergies between what Profit Manager offers and what you already have?

But what we do is on your marketing pages by crop,, we pull that information off of your crop production pages and say, okay, when we're making marketing decisions, we want to know some key things. You know, what percent of my projected insurance am I selling? How much of my variable expenses do I have covered? How much do I have safe to price? And, and where am I at, on total expenses or total income by crop? So you, you know, you took a lot of time, you, you developed this. Chris, talk a little bit about the marketing page and what you think is so important about it in Profit Manager.

Chris: Well, I think it doesn't matter if you, if you got cotton or if you got corn or you got 10 different crops in between, we can, we can handle. I mean, we've got, I know one farm in Canada that's got 12 different crops in here. And so, you know, what we try to do again is, is get it laid out so that it works well for whatever the farm operation has for crops. What it does is you could go in, you populate, first of all, you just populate your your individual crop. So let's use corn as an example. You've got the corn marketing sheet up here, which is pretty simple by design, and that is to go in there every time you make a sale, you put it in the date, you put in the, the price, you put in the bushels.

What it's going to do then is for you is it's going to tell you where you, like you said, where you've got covered for total expenses and variable expenses and where you're at on your crop insurance. It all automatically feeds over to this So that's what makes it comprehensive, because a lot of the programs, a lot of the tools don't tie back directly to what you're doing on the input side or the yield side all at the same time without having to do anything with that. And so that comprehensive tying back that there is critical. The other thing I want to hit on really quick too, Shay, is just the idea of what we talked about with the hedge accounts. I like to use this as a cash marketing only. I don't care if you do all of your stuff as hedges all on the board, you're on the CBOT. I would put those on here and, you know, in the vendor list.

So you'd put Chicago Board of Trade in the vendor, and then if you sell, you know, 30,000 bushels of corn on the board or however many bushels it is, eventually that's got to be a cash contract. And so what we want to do then is we want to come back in here. As you convert those to cash, we'll convert those right back to cash. And if there's a plus or a minus, we'll go in the price and we'll add a plus or a minus in there based on, on, you know, maybe you bought a put, maybe you bought a call, you know, maybe you were doing spreads or all kinds of funky things. Go in there and tie those, whatever you are doing on the board directly back to bushels. And then what I do is I go in the comments when I'm done with that 30,000 bushel, I would put complete in there, literally type the word complete. And if that— in that case, in this example, that's 15% of this, this example's bushels.

You theoretically should probably be done with that 15% of those bushels. Otherwise you start going back in there and reowning and, and doing a whole bunch of other goofy stuff just face it, you're a speculator. You, you've decided to speculate. If that's what you want to do, that's fine. We're not telling anybody what they can and can't do, but just recognize what you're doing. And ultimately, what we, what we need to do as producers, we're all along, our goal is to get rid of this stuff. I have a friend, my, my partner always jokingly says it's a lot easier to stack $100 bills than it is corn, you know. So, you know, so you want to make sure that you analyze and make sure that there's a connection between the hedge account and where you end up with your cash sales. That's my soapbox. Yeah.

Shay: And just another way to paint that picture. I like that stacking $100 bills instead of stacking corn. I think I told you I tried to do stacking corn this morning and it doesn't pile very high when it's coming out the wrong door on the belt. But, you know, so if you made a or if you had a cash position around $5.75 and you did have a hedge either way, let's say you came out plus $0.25, we're just going to add that into, you know, that projected price, $5.75 plus that $0.25 shows a net $0.06. But then you're managing, you know, 15% of your bushels or this 30,000 bushels on contract, you're able to clearly track that. It's just, it's better mentally on, okay, associating this bushels with a physical product and not necessarily, uh, just on that speculative, uh, side. Make, make it— the light bulb clicks for a lot of people that we work with.

Chris: Yeah. And the other, the other thing, Shay, is it's so critically important because a lot of times people would be like, well, how often should I open Profit Manager? Well, how often do you think about your farm? You know, I mean, how often are you thinking about business decision-making? I don't know. Oh, I'm, I'm pretty much doing it all the time. I pretty much don't ever have mine closed unless I save it and, and date stamp it, which I do quite often, is I'll save it and date stamp it. And then that way you have a pretty good idea of what you were thinking 3 weeks ago, and that's where you were at at that point. And I think it's just important to, um, to keep in mind that if you're going to be looking at the markets every day, you probably should be looking at the whole system, because the market price you get is only part of the equation.

No different than the yield is only part of the equation. No different than your expenses are only part of the equation. You need to look at that, that, that triangle, you know, that profit triangle in those three things all comprehensively at the same time.

Shay: The amount of tabs that I have in my profit manager would probably make some people sick, but like, I love what you said there, Chris. It's, you know, how often do you think about your farm and make business decisions? Well, for most of us every single day, right? So when it's fertility programs or my field maps or, you know, anything that's a decision-making process, I just— that's the nice part about Profit Manager is you can add as many sheets or tie in as many sheets as you want. So I have all of that built in and, and for me, I live in it. I have it pulled up, you know, on my screen every single day. And one of the key things here, onto another thing with marketing is this all maps out to a nice chart for your breakeven.

And Chris, you and I like to joke that on this breakeven chart, what you ought to do is cut it out, you know, print it off, cut it out, tape it to your forehead or to the mirror, get it tattooed somewhere or whatever. And, you know, if you're above this breakeven line on corn cost of production as an example, you got to ask yourself, you know, okay, this has all of my expenses included. This is all the Amazon packages that show up at my house. This is the utilities, the rent, the fertilizer. Everything else. If I'm above that breakeven line at any of these given yield levels, you know, do I need to be making sales or should I be making sales? And if you're not, just ask yourself why, you know, go back to what is my target margin, how much money do I want and/or need to make for my farm operation? And again, this is individualized, it updates automatically.

If I change my land price to $500 an acre here, you know, this corn chart would look a lot different, but kind of a neat tool, and, and hopefully people find value in that too.

Chris: One of the things I would, I would say about your breakeven, um, line, which to me the breakeven line isn't, isn't just covering your, your individual costs, it should be covering your profit margin as well, because part of the cost of doing business is paying yourself. And so when I, I tell people all the time, if you listen to any of our podcasts I say it enough to make you nauseated, probably, that you need to know what your profit margin target is. What is, what is your target? And so when I look at that line on my Profit Manager, I use it all the time. It's helped me do my marketing way better for years and years and years, because when I look at that line, I know that it's covering my cost and it's also covering my overhead. And the most important thing is, is covering is my profit. If I want to make a 20% ROI, that line is showing me where I would be at with a 20% ROI.

And if the market's above that, I have to look in the mirror and scratch my head and say, why in the hell am I not making some decisions here? Why am I not marketing? Why am I not at least protecting that line, you know, with some option strategies or whatever it is? I don't care what tools you use. HTA sell. Sell the insurance level, whatever. But when you look at that in a year, like, you know, since 2020 and '21 and '22 and probably '23 and who knows, we've been able to actually accomplish that. And you go back to 2013, after 2012, from 2013 to 2019, that option was never there. So what I had to do is come back, draw that line, and narrow my margin, but I was able to make money every single one of those years. It might not have been the margin I wanted. I had to recalculate, you know, it's like recalculating, you know, we're recalculating what that, what that margin target is.

But we are so blessed from 2022. Let's not let how big the margin was in '20 and then '21 and then '22 screw up our '23 because we get used to and we get, you know, we, we just get comfortable with what the way things are. The way things are won't be there forever. So I think we just got to be really cognizant of that. That's another soapbox, but sorry, but I had to get that out.

Shay: No, you're good. I got, I got two comments that I don't want to forget. One is on livestock and then one is on additional income. I'm going to start with livestock here, Chris, while I'm thinking about it. And with livestock, we get that question a lot of, you know, I got pigs or cattle or whatever, ostriches if you're raising, I don't care what it is. But how do these businesses that are currently integrated help find better synergies or help better understand the cost? And the biggest thing here is either between the grain that you're producing and the feed products that are being consumed on the livestock side, or that split in machinery. And so we address both of those very specifically. On if the livestock end is being subsidized at the detriment of the grain side of the business.

You need to understand that if there's any subsidization, subsidization that's occurring between businesses within your operation, it's okay if that's happening, but you better understand where it's happening. And you might be able to show a profit on both of them and not have these extremes between the two businesses year in and year out. But you have to be comfortable and you have to know what those numbers are. Dialing in your cost of production on those grains is huge. The second thing is with the machinery equipment and analysis that we'll get to here in a few minutes, Chris, and that's understanding that, you know, on these power units that we have, a combine is going to combine corn, a planter is going to plant crops.

But on things like your tractors or your primary power units or your semis or feed trucks or whatever, you're going to have some allocation of revenue and some allocation of expenses between those entities. And it's really pretty simple to get it divided out. But we, we maybe have to change mindset a little bit on that or just talk through what some of those options are when it comes to the livestock. So anything else to add on that for livestock producers, Chris?

Chris: No, I just think that, you know, a lot of the livestock producers have this kind of data. Especially the dairies that we work with and a lot of the hog operations, sometimes some of the cattle feeders, maybe not as much, but you do have the accounting to go off of. And once we get this portion of the crop dialed in, the balance is pretty easy to figure out. You know, it becomes a profit and loss scenario that, that we can become as integrated with that information. As we need to. It kind of depends on the size of the operation and the, and the percentage of each portion of the business as it relates to crops versus livestock or whatever. But those are all individual things we can, we can work with producers in any scenario like that and kind of help them think through that.

Shay: The second thing here, Chris, that I wanted to hit on real quick is additional income. And so we have some operations that their return to management number is pretty low or even negative because they might have some form of off-farm income. Maybe you're doing a trucking company, or maybe a spouse has income that's coming back into the business, whatever it may be, we account for that accurately in here. And then on that same area, or in the same region, when we're looking in these crop production pages, we also account for things like government payments. And so when you say, and you know, that period from 2013 to 2019 was low or negative income for a lot of people, the government payments that started rolling in '18, '19, '20, '21, whatever your alphabet soup is there. I hope we don't have to deal with it to that extent ever again.

But there was a lot of dollars there that created a lot of, a lot of revenue, made a lot of people whole again. But more importantly is a lot of people were taking, you know, a $20,000 check that came in and they were just cashing it at the bank and they weren't necessarily tying that back into their cost of production. So Chris, you and I saw a lot of operations that, you know, their cost of production was $3.85 to $3.96. And corn on corn and corn was, you know, cash price, CBOT, $3.30. You know, some areas with basis had a 2 in front of it and they were thinking that they couldn't make sales, but that income wasn't being accounted for in their overall profit management picture. And when you started plugging those numbers in, you started realizing that, hey, for cash flow needs. Maybe I can make sales because this is the anticipated payment that's coming in.

A lot of this just ties back into the complexity of these business decisions that we make as farming operations and as businesses on, you know, what are the needs for our business? How do we accurately define that? And what numbers do we need to know in order to make sure that we're making the best decisions possible? Okay, so I do want to hop over here then to the equipment side of things. If you're listening, this would be a good area to go check it out online. But what we want to look at is a pass-by-pass basis when it comes to cost of production for your farm operation. And Chris, people out there that have listened to me time and time again, they probably think that I have like a vendetta against universities, and I don't, I promise. I went to Iowa State University. Great institution, and I think all of these universities are doing the best they can with the numbers that they have.

But it maybe doesn't get it as defined to an operational level as what it needs to be. And so how you kind of devise the system and put this together over the years, with a lot of input and a lot of feedback from farm operations, is we need to know how much working capital we have tied into each of these passes. How long do we plan to run that equipment? And then what are the variable costs that are associated with that to get a true picture of what this cost is in the equipment side of things? So Chris, I'd have you maybe add in a few comments on that.

Chris: Yeah, and, and I'm, I'm looking at the one that's on there too. I don't know if you've got one that, that we can go through and maybe do a kind of a, an example of of just kind of looking at it. But as we, as we look through the machinery and equipment, I would first of all give you some credit. I mean, one of the things you did was you took the tool I had that was calculating a cost on a per-pass basis and made it a lot easier to work with, look at, and to analyze. And so what we do is, as you said, we take the power units. If you've got, say, 4 or 5 tractors, each of those tractors do multiple things, then we're able to apply the value of those power units as a percentage back to what— where they're being utilized. We take the capital value each year, we do an appraisal on the machinery and equipment fleet annually.

With that dollar amount, then we can calculate exactly what the, what the cost is on a per-pass basis. And I think literally we've done this long enough now, Shay, that I'm very confident saying we can get guys dialed in on, say, a harvest pass or a sprayer pass or a planter pass or any, any kind of a pass to literally within pennies per acre. And, you know, eventually we've, we've, over time we've been able to analyze this and cross-check ourselves after the year's over. And it's pretty, pretty amazing how close we can dial these numbers in.

Shay: So, yeah, and the example that I ran through through, so I didn't have an example pulled up here if you're watching online. But again, we've done this once or twice, so I can kind of pull numbers out of thin air and say, yeah, this is an example that might make sense. But what we're looking at is a harvest pass. So if you're, if you're listening to this, I want you to think about, okay, what, what all goes into our harvest operation? We keep trucking separate. That's on a line item expense that we do on a cost per bushel back in the crop production pages. But when it comes to your harvest, okay, you have a combine. Let's say you're a corn and soybean producer for the example that we have here online. 1,000 acres corn, 1,000 acres of beans. You're going to have a, you know, maybe a 12-row corn head, 30-foot draper.

You got a grain cart, maybe a head cart to move the soybean head around. And then you got a tractor that's pulling that grain cart. And again with that combine. So we want to know what all of that working capital expenses tied up. And then we want to say, okay, there's, there's an annual cost of ownership for that. And I think, you know, the depth that goes into that discussion probably warrants its own time on a podcast. But what are you, what are you looking at for your inflationary cost or your depreciation in machinery, the appreciation? How are you managing maintenance and repairs over time? And so we need to know what that annual cost of ownership is. And then on top of that, we need to have the other variable expenses. So we need to say, okay, what's your labor cost? Fuel, what's your efficiency with that machine, how many acres are you able to cover in a day?

We tie all of this together, all of these variables, not for, not for Iowa State's numbers or Michigan or Virginia Tech or whoever.

Chris: I don't care.

Shay: We want to know what Chris Barron's numbers are, or Joe Farmer, or the person that's watching this or listening to this podcast. We want to know what working capital is tied up in your harvest pass on your acres for your efficiency in your farm operation. And by knowing that and adding in things of, you know, do we want to return on asset for that, for that machinery? Do we want to make sure that we have adequate replacement costs? Do we evaluate trades in 3, 4, 5 years on this machinery? We can really dial it into pennies, uh, on the bushel or pennies to the acre on what it costs you to truly run that machinery in your farm operation. With that being said, um, we will— what we like to do is we like to do this on, on every pass for every acre.

So that's going to be everything from tillage, planting, uh, if you run a ditcher, if you're out there making sure that, uh, maybe you're doing custom harvest and you want to know what your numbers are, what your numbers need to be. I don't know of any tool or any system that's more comprehensive that ties this back into your overall cost of production management to ensure that, you know, you have your equipment cost dialed in as well as you need to be. Again, if you're, if you're listening to this, please go check it out online. Look at the example in front of you. There's a lot that goes on behind the scenes that runs and formulates what you see on your screen here. Again, we're trying to take something that's really complex, get a comprehensive grasp on it, but also make it really easy to understand.

So at the end of the day, you know what your cost per acre is when it comes to your machinery. Anything else to add on that, Chris?

Chris: Uh, the only additional thing I would say is, you know, what, where we, I think we can really help people is, you know, there's a lot of tools out there and you said it, you know, there's not a lot of equipment data analysis out there anywhere that I'm aware of. Um, there's, there's a couple of programs. That do a pretty good job. But I think when it comes down to your strategy of machinery fleet updating and understanding, you know, because you don't buy a piece of machinery for one year, you buy a piece of machinery for multi-years of use, and understanding when is it time to trade, when is it time to, you know, to update or to increase the size, are we getting the efficiency out of the machines that we need to, and that kind of thing.

We can provide some perspective as well because of doing this with so many other operations that I think gives a unique perspective that I don't think you can get anywhere else. If somebody can find that place, let us know because it'd be interesting to partner up with them and share information, but we just haven't found anybody doing the same thing. And we've got enough years of data and I think we've seasoned, we've become seasoned enough that we're probably, we're probably pretty dangerous with the information now. We can, we can. Really forecast a lot of cool stuff. So I guess if you're not familiar with it, check it out. If you are familiar with it, keep it updated, keep us updated, let us know when you're going to be making trades. Or, you know, we get emails all the time when guys are, you know, thinking about, should I lease this combine? Should I, should I buy it?

Should, you know, what about this sprayer? I mean, you look at, look at how much inflationary increases we've had over the last several years, you know, guys weren't updating machinery like they should have been because we couldn't very easily, you know, just the working capital wasn't there to do that. And so there's a lot of operations playing catch-up now, trying to buy stuff now after we've just had a 24% inflationary impact on new machinery. And, you know, probably close to a 15 to 16% inflationary impact on, on used equipment. So, you know, these are all factors that I think are important that we think through and, and know that there's ways to analyze this and calculate it, uh, to kind of know where you're at to the penny.

Shay: As we wrap up here, Chris, you know, a thought just came to mind. If you're someone that's listening to this and, and trying to think of, you know, how does this immediately bring value back to my operation, uh, I would say first thing is knowing exactly where you are on that cost of production for the marketing decisions that you make or think about day in and day out. Second thing is gonna be on that equipment, making sure that you have that machinery dialed in. It's not uncommon, Chris, for you and I to link in with someone and go over a sprayer decision, combine decision, fleet changes, whatever, in the year ahead. And frequently have that producer say, this saved us a bunch of money. I mean, to the tune of, you know, tens of thousands of dollars.

And you think of the impacts of that over the years, the compound interest in particular, but just the value that that's bringing to farm operations year over year is huge. And then the value in the decisions that you're making, just that peace of mind, knowing that you know exactly what's going on in your operation, you know, that even if you're not always making the right decision, you're always making an informed decision. And I think there's a lot to be said about that on knowing that, you know, Chris, you mentioned you save your profit manager with a time date stamp frequently. So if you ever have a question on, man, what the heck was I thinking? Why didn't I sell more, you know, $7 corn? You can go back to that dated timestamp in May of 2022 and say, well, these were the numbers I was looking at and I'm, you know, I just had a little uncertainty.

I didn't know, you know, what the future is going to look like. And, uh, there's a ton of value in that. None of this even begins to get into things that we work with frequently on, you know, how does this help with transition planning, or how does this help with communication between, uh, collaborative partners, or as you bring in the next generation to make better decisions in the farm operation, how do you, how do you teach people like that to make those good decisions? So In my mind, that's where Profit Manager can provide the biggest ROI or the biggest value to your farm operation. And again, just having access to— you can call us anytime, you know, call, text, email. We're pretty available when it comes to that.

And if you have a specific question at any time, you can send us a Profit Manager and you're going to either get Chris Barron or you're going to get Shay Foulk that's looking at those numbers, looking at the emails, providing value and perspective and saying, hey, this is what we think, or, you know, feel free to give us a call to talk about it. Um, hard to find that anywhere else, Chris, I guess.

Chris: And if they're smart, they'll check with me and they'll check with you and see if they get the same answer.

Shay: They, they may not always get the same answer, but I bet they'll get different perspectives, uh, that would provide value either way. They're, they're going to be close. It might not be to the penny. Way.

Chris: But yeah, I wish I would have had something like this. Like, like my dad was— I was a spender over the years. I, I always was more of a risk taker than my dad. And I see that with a lot of farm operations. You mentioned communication and, and, you know, family businesses are difficult. And I guarantee you there's a lot of people listening here that, that are, are in business with family. And the best way to resolve issues and problems is to let the numbers dictate the decisions. And then that, that allows for people to get along a little better. And, you know, you can, you know, our, our motto has always been, I think it's a good place to, to, as we get towards wrapping up here, is, you know, in God we trust, everyone else bring numbers.

And that's, that's really what it, what it boils down to, because your banker looking at this information and looking at a one-page cash flow that's comprehensively tied back to every piece and parcel of your business is going to look at this when you're doing your line of credit. And if interest rates continue to go up, I guarantee you there's a direct correlation to what you know, to what your interest rate is with your lender. And there's, you know, talk about saving money. There's a lot of opportunity to save some money on interest rates provided that you can be a solid borrower with that lender and that lender has trust in what you're doing in your decision-making.

Shay: Mm-hmm.

Chris: Yeah.

Shay: And we've had a bunch of people reach out to us, especially as we head into, you know, the next year here. Any, any next year is important, of course, when we think about planning. But, you know, headed into 2023 at the time of recording here, what are interest rates going to do? Well, no one knows, but we have ways of looking interest carry cost calculators. And for every tool that you've seen here today, we probably have as many other tools and other business decision-making aspects of your business that help producers year in and year out. So that's the other thing I would add is Profit Manager is kind of, you know, the premier, the flagship program that we run. But anybody that we work with, we're happy to send other tools. Or if there's a question that Profit Manager doesn't directly answer,, we probably have a way of arriving at that answer or giving you perspective.

And the other thing that I would say here too, so I just kind of plug this into the crop production corn as a, as a line item expense on a per acre. Profit Manager is a one-time fee. At the time of recording here on November 26th, 2022, Profit Manager is $2,495, just under $2,500. One-time purchase, you own it for life. There's no recurring fees. There's no subscriptions, there's no hourly rate, there's no, you know, if we make an update 2 years from now and you send us an email and say, hey, I'd like to have that update, there's no charge for that. And you get Chris and I's perspective, you know, 24/7. So on a big picture, you know, what does that mean? Well, $2,500 for a 2,000-acre operation is less than a penny per bushel. You know, this is rounded up on what you're seeing here on your sheet, but It's less than a penny per bushel.

And not only do we see the markets move more frequently than that, but we know and we, we guarantee that the value that it's going to provide back to your business is going to be worth a heck of a lot more than a penny per bushel and really get you set up kind of for the years ahead. If someone's interested in Profit Manager that's listening to this, or if you've used Profit Manager, gotten a lot of value I would encourage you to share it with anybody that, that you know that might get a benefit from it. What it would look like is if you reach out, you can text or excuse me, email me, shay@agviewsolutions.com or cbarron@agviewsolutions.com. If you email Chris, he's probably gonna forward it to me. So you might just want to email me first. But when it comes to the setup there, typically we'll do like a 45-minute run-through.

If you have additional questions from what you've seen on here today, that 45-minute run-through at the end of it. If you decide to move forward, there's no pressure on our end. We want to make sure that it's a good fit for you. If, if I talk with you on the phone or do a video call and say, hey, you know, you probably need something different, we're not going to sell it to you for no reason. We want to make sure it's providing value to your operation. But if you decide to move forward, you can purchase it online at farmprofitmanager.com. You can go there right now. You don't even have to call me first if you think this is a good fit for your farm. You can go to farmprofitmanager.com, do the checkout process on there.

And then what it looks like from there is I will send you a series of homework, I guess we call it, or numbers that we need to have collected and put together that really expedites the process of getting Profit Manager populated. Instead of taking 3 to 4 hours, we can probably get your cost of production dialed in 95% of the way in about 2, 2.5 hours. Depending on the complexity of your equipment. And then what we'll do is, you know, give you some time to find maybe the rest of the numbers that you don't have or the numbers that you need to compile yet, and then link in on another 1 or 2-hour call, get you fully populated on that, and then you're up and running. You know, we want you to feel as comfortable as possible utilizing Profit Manager. We don't do, we don't do Profit Managers for people. You know, we don't set them up and have you send us your numbers and plug it in.

We want you to feel comfortable running these numbers. And again, you can send us your Profit Manager. You can contact us anytime. You can call us, shoot us an email. That's part of what we provide as a, as a service and as the problem solving that you need for your farm operation when it comes to Profit Manager. Did I miss out on anything there, Chris?

Chris: No, the only other thing I would say is obviously there's a lot of tools out there available. You know, we put the value— I mean, you can go online, the universities have a lot of tools. There's 5 or 6 other companies I can think off the top of my head, and the listeners probably can think of them off the top of their head. I think the value really comes from, you know, comes from you and I, you know, being able to have a conversation with somebody after they've ran their numbers or whatever. And then a lot of times that leads to other things. That we can help with their business, whether it's transition planning, whether it's, you know, communication within their business, whether it is, you know, business structure. We do a lot with business structure. We do a lot with collaboration. You know, we teach at Texas A&M, TPAP collaboration and those kind of things.

This is, this is the foundation. This is what you have to do first. Before we really feel like we can work with an operation with regard to transition or collaboration or, you know, any of those types of next steps or business structure or whatever. You got to know your numbers. We get those things dialed in, then we can go on to the next steps of business development and becoming the biggest and best executive you can be of your own operation.

Shay: Yeah. And And what you said there of, you know, for us, Chris, you and I really being able to understand it when we talk with someone. This is, this is our universal language. I mean, this is, this is English to Chris and I, so that if I have another farm operation, there might be an operation exactly like my farm operation in Illinois, they could be my next door neighbor. But if they send me their farmer spreadsheet, or they're, you know, comprehensive, they could have a really good spreadsheet. If I open that, I don't, I don't know exactly what I'm looking at or how I can compare apples to apples. Whereas everyone that sends Profit Manager, they're speaking our language. I can tell you instantly how it stacks up at the, at the benchmark or comparison is the most important thing.

But I think it's just that perspective of if you're in Utah growing potatoes, or Idaho growing potatoes, or you're, you know, growing beets or canola or whatever, it doesn't matter. I can look at this crop production pages, I can look at your income and expense, I can look at your profit manager and say, okay, here's some things that we might want to look at more in depth. Here's some things that we can evaluate more closely, and instantly provide value to your business without having to cipher through all of your, your internal systems that you have. So that universal language has been something that, you know, just took me a little while to kind of understand that concept, concept. It clicked. It's like, wow, okay, this is a really powerful tool. When we're working with other producers, that's how we can provide the most value.

Chris: Ditto.

Shay: Very good. Well, I think that's pretty much it. Again, if you, if you are a current Profit Manager user and you listen to this, I hope there was a lot of value in just going back through thinking, okay, what do I need to be doing here for year-end? What do I need to be thinking about for 2023? If you listen to this, please reach out, send us a text message or an email and just say, hey, checking in. Send us your updated profit manager. This is the time when Chris and I start hitting the road pretty heavily, start getting a lot of profit managers in and get these compilation of numbers that provide a really good outlook. Chris, thanks for taking the time to do this. I'll have this posted up, you know, on YouTube and on the podcast and look forward to hearing from listeners out there.

Chris: Thanks, Shay, and thanks everybody. And again, if you are using Profit Manager, keep them coming because, uh, we can give you— the better, the more of them we get in, the better perspective we can give you too along the way.

Shay: Absolutely. And thank you everyone for listening. We will catch you next time on the Ag View Pitch.