Strive to thrive in 2025: navigating the financial hurdles

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. Today we're going to have sort of a part 2 from a conversation that we had back in July. If you didn't get a chance to watch that, we did Future Proofing Your Financials, and we did that back in July, Paul and I and Jared and Jeremy Dutch had a conversation from a lender's perspective, a CPA perspective, and from a risk management perspective with Jared. And so thought we would kind of follow back up with that. And, and so today we have with us to kind of have a conversation around just trying to thrive as we roll into 2025. There's a lot of headwinds, a lot of hurdles and things we're going to have to adjust and work toward.

And so I think today's objective for this conversation is to really talk about what are some of the key things that we can do to To kind of introduce who we have here with us today, a lot of you know Paul Niefer. We have Paul here who is the farm CPA, so he's going to kind of hit us up on the tax things that we need to know and a little bit on farm programs and disaster payments and all that kind of stuff. And we'll bug Paul on that stuff today. We've got Jared here with JCEG Financials. We're going to hit him up a little bit on just kind of some risk management things. He works with a ton of farmers around the country as well and kind of get some perspective on some of the things he's seeing and what he thinks we should be thinking about to strive in '25. And then we also have with us Paul Schrader with Current Brothers Bank in Cedar Rapids, Iowa.

He's the chief financial or chief credit officer at Current Brothers. And so I'll have to mind my P's and Q's because in full disclosure, Paul is my lender. So I'm going to have to be a good boy here in this conversation, I guess, to make sure that I get to farm again next year, right, Paul?

Paul

Neiffer: So that's right.

Chris

Barron: That's right. So, well, with that said, I'm going to start here, I think, with you, Paul, and have you kind of just start the conversation. What are some of the things, you know, if there's one or two key things that producers need to be paying attention to and thinking about going into 2025, what are they in your mind?

Paul

Schrader: For us, I think it would be, as always, I don't know if there's a lot of change from any other year, but just, you know, to have accurate financials. As far as the year end and in some cases some interims where needed. Make sure you come to the— when you're having those meetings and conversations with your lenders, make sure you have a plan. You know, obviously there's going to be some situations that are maybe a little tougher this year than we've had in the past couple. So make sure you come in with a plan and an open mind and hopefully you can draw on the relationships that you've built with your lender. You know, if you don't have a really good relationship, it's probably going to be a tough year or maybe a tough year for you.

So hopefully you've taken the time, both you and your lender, to work together and build a good relationship so that when situations or years like this come, you're able to talk through them, work through those, and come up with some good solutions to get through some of the more troubled times, if you will.

Chris

Barron: You said a plan. I just want to real quick ask you a question on that. Yeah. You know, at loan renewal time, there's the standard stuff that needs to be to show up, you know, balance sheet, cash flow, you know, some, you know, some metrics a little bit. So, you know, where their working capital is at, liquidity, that kind of stuff. Is there anything new this year that people need to be aware of or make sure that they also have sort of handy? So that when, you know, they're with the lender, just some additional information that maybe they wouldn't normally need to have?

Paul

Schrader: There's probably some things that they should have in every year, if you will, but maybe called upon a little bit more this year. That would be, you know, a good marketing plan, you know, working with people like Jared to do that, you know, good marketing plan and also appropriate insurance. You know, once again, I know Jared has great expertise in that area too, but and whether that be on the the production ag side, the crop side, or even on the just the normal asset and capital asset side to make sure that the insurance is what you think you have. You know, the last couple years, you know, we've had some weather issues in this area. And there have been some people that were surprised by the insurance that they had on, you know, buildings and machinery and equipment. So just want to make sure that as a borrower and a grower, you understand what you have out there.

And are able to convey that to your lender because at the end of the day, you know, you guys are working together, we're working together, and we all want to understand and make sure we know kind of what we're playing with, if you will.

Chris

Barron: Gotcha. Got lots more questions for you, but we're going to hit Jared now for a minute. Jared, what are your, your keys as we roll into 2025 to make sure that we try to, try to thrive at least and be successful?

Jarod

Creed: Oh, I think Paul unintentionally probably opened Pandora's box when he started thinking about a plan for 2025. I don't think that a plan towards, you know, locking in certain type of profitability per acre is the same going into next year of the opportunities we've had in the past. I like to live in a black and white world that we know input costs are still very elevated over the last 3 years. Obviously, you know, commodity prices have dropped. And it's created a very, very stagnant, if not negative margin outlook for the broad majority of US row crop producers. So again, in a black and white world, I feel what's important in that plan is you got to identify what are you going to do if things would get worse.

And I just think that we're in a moment in time here where there is a, there is a more of a widespread applicable strategy to lots and lots of producers versus years past of everybody needing to define where they actually needed to market their grain in conjunction with their yields, in conjunction with their insurance, in conjunction with their, with their insurance and such. Anyways, my point being is, Chris, I'm going to use you as the producer. You, your situation is different than 10 other farms right there in your backyard. We get that. However, everybody's margin outlook right now is very, very challenging.

And I think what that leads an individual to discuss with the proper individuals alongside the bank, alongside the accountant, the entire team, is what can I implement in a more aggressive manner across the entire farm to make sure that I have a seat at the table if things get better, but most importantly, to still have a seat at the table a year from now if things would get worse. And Chris, I know we have talked about this for— it feels like a year to 18 months and it's starting to come to a head and it's unfortunate. I'm sure Paul is seeing this. I'm seeing this at all these other banks that the theme is working capital, working capital, working capital just getting blown up. In severe fashion. How does that look on your operation if you become prone to that a year from now? And so again, I'm going to try to simplify that. What's the plan?

Well, the plan is that I'm going to be farming in 2026. And what do I need to do to accomplish that? And right, wrong, indifferent, again, the strategy to implement something like that is more applicable to more individuals versus an individualized marketing plan in the current environment. Now, I know we're recording this at the end of 2024, just as a little bit of look into the beginning of 2025. Complacency kills. Maybe individuals have not spent the ample time needed to understand what they need to accomplish in 2025, or maybe how challenging it's going to be in 2025. I think most Ag View listeners, knock on wood, have probably already done that. But that complacency piece specific to corn, we spent a tremendous amount of time in the same price range, eerily similar to what we did in Q4 of 2023, leading into 2024.

Lots of headwinds on the table with inauguration around the corner, big global production, maybe de-escalation of global conflicts. Have to ask ourselves is, are we in an environment of $5+ corn and $10+ beans and $6+ wheat? Nothing in my mind today suggests that that's the situation that we're in. So it's just again, that plan, make sure that we're going to have a seat at the table in 2026, I think is the easiest way that I can summarize it. And that's how you kind of got to define success, survive and thrive, sure. But that means you probably need to implement something with a pretty high level of aggression.

Chris

Barron: Mm-hmm. One quick question for you, Jared. You know, you had mentioned, you know, that when things don't go quite right, what about the contingency plan? What specific thing or things do you have in that contingency plan?

Jarod

Creed: Are you referring to a contingency plan after execution of a strategy, or just— I'm gonna hope—

Chris

Barron: what was it Mike Tyson said? It's, you got a plan till you get punched in the face, whatever.

Jarod

Creed: Yeah, I mean, the contingency plan— again, try to live in a black and white world. The contingency plan today is doing what the banker ultimately is telling you you have to do to be able to farm the next year.

Chris

Barron: Mm-hmm. Yeah. Well, we'll have—

Jarod

Creed: that sounds like a lot of doom and gloom. I get it. But it's happening. It's hearing stories on a daily basis. Some of your largest lending institutions are talking about in excess of over $200 an acre drop in working capital year on year. And it's going away faster than when it came a couple years prior. And that's obviously requiring all kinds of different creativeness at the lending level if somebody's going to operate the next year.

Chris

Barron: It kind of looks like there's some regional tendencies to that stuff too. But I'll— we'll come back to that. I want to transition over to Paul Niefer. I'll use your guys's last name so we know which Pauls we're talking to here. But Paul, what are some of your things as you look out into 2025?

Paul

Neiffer: You know, this is one of the few times where I actually get to be the positive, not the negative person. So in reality—

Chris

Barron: Paul will take that role. It's okay.

Jarod

Creed: He doesn't want it.

Paul

Neiffer: And actually, when I say positive, I don't really mean positive, positive. But, you know, from a tax standpoint, when we're dealing with farmers, typically they've been kicking that tax can down the road. They built up some excess grain in '22, '23, '21, whatever it might be. And they're worried about how we're going to pay taxes. Well, if we really are going into a period where we're going to have some negative margins, that does allow that farmer— now this isn't really that positive, but from a tax standpoint, it is— to, you know, soak up some of that excess grain and not owe any taxes. Now, Also, I've been blogging, everybody knows I've been blogging a lot on disaster aid and economic aid.

We do know that there is a little bit of a Band-Aid, you know, and I'm going to say it's not much of a Band-Aid, but there is a Band-Aid that's going to show up here in the next, you know, 6 months, 3 to 6 months that is going to help mitigate that pain a little bit. And I think to use a baseball theme, and I think both Paul and Jared really said this, this isn't a time to be hitting a home or trying to hit a home run. This is the time to be hitting a bunch of singles, you know, or bunts, you know, make sure that as Jared and Paul are both saying, make sure you're there for '26, make sure that you're there for the next season. You don't want to be going for the big home run and then striking out and then you're out of the— you're out of the game, so to speak.

So that's— those are some of the key things that I think, at least from a tax standpoint, when times are bad, that's actually good from a tax standpoint. Make sure, and also for the farmers out there, don't be creating some large loss. You know, I sometimes see farmers try to do that, and that doesn't really help them any.

Chris

Barron: There's some of these guys that are, that have bulldozed a ton of taxes forward. And then one of the things we see, you know, Paul, in the, in a trough like this, when all of a sudden we go down into a tighter economic situation, all of a sudden some of the senior operators decide maybe this isn't as much fun as we thought it was. And so maybe we will start to step out a little bit. But there's some situations that we see occasionally, obviously you get a lot of phone calls from when they occur. Any advice on some of the producers that are thinking about slowing down, either on the senior side or the junior side coming in, because that creates a new kind of a unique challenge when we're in a tight margin environment for both sides of the equation, for the senior partner trying to get out and also for the younger partner coming in. Any, any thoughts there for, for those folks?

Paul

Neiffer: Yeah, and again, one of my favorite sayings is working capital that you've paid tax on is yours. It's not Paul Schrader's, it's not, it's not Uncle Sam's, it's yours. You get to do whatever you want with it. So I, I think you just have to understand what is your deferred tax liability. Good operators know that if I liquidate today, here's how much tax I'm going to owe. Not on the land, we're talking about on the grain, on the equipment. So the better that they can manage that, the easier that transition to the next generation is. That, you know, Chris, you and I have seen that multiple times where they haven't managed that very well, right? And they want to do the transfer and, oh, they're looking at half a million, million dollars of taxes. So, uh, that, that's something they just definitely need to be aware of for sure.

Chris

Barron: Um, I want to circle back to Paul Schrader here for a minute. I have another question for you, and I didn't want to keep asking you 10 questions in a row there, so I got another one for you. On the balance sheet, one of the things that we're starting to see, and I'm sure, sure Jared and, and Paul are seeing this too, is that the machinery and equipment has devalued massively. And we have some operations that have like huge equipment fleets, and even if you don't, it's all relative, right? So let's say you have a— in 2024, you had a balance sheet that had machinery and equipment on it of $1 million. Now all of a sudden it's $800,000 or $720,000 or some, you know, it took a huge, huge hit. I know I just— I've done ours. I think ours took like a 20% hit. Talk a little bit about that. How, from a lender's perspective, how are you reconciling that?

And, and what kind of conversations do you see around that as part of the balance sheet issue?

Paul

Schrader: Yeah, so our balance sheets, the ones that we work with, we actually run a dual column balance sheet. So we have a cost basis and then a market value. We use the cost basis to look at a more of a truer earned net worth, if you will. But obviously the market value, uh, column did take a hit, um, and that column drives more of the collateral value, collateral valuation, if you will. But honestly, with the conversation we've had so far, growers have— they've understood, they got it. And most of them have come in sort of expecting that to happen. Fortunately, most of those growers have put themselves in a position where, yeah, it's a huge hit as far as the net worth, if you will. Market value net worth.

But as far as operating next year, you know, looking at staying at the table, as Jared said, it hasn't been a huge issue up to this point just because of the— maybe it's the leverage amount that the guys have been running, guys and gals have been running, where they haven't been as leveraged and have kept themselves in the position to be able to handle or withstand some of those downturns.

Chris

Barron: Either any of you can take this question, but, or all of you can take a turn on it. What do you, let's talk about opportunity for a minute. You know, Jared, you brought up the idea of there's a lot of operations that are in trouble there, you know, and I know in the last conversation we had, we discussed the idea of, you know, being a good neighbor, you know, some collaborative opportunities or You know, I think Paul Niefer brought that up, or there's, you know, there's just simply the fact that some of these guys are going to step out. Some of these older operators are going to say, you know, this isn't fun when I'm losing money. It was fun when I was making money. I'm going to do something different. Um, any, any thoughts or comments on that, Jared?

I think there's going to be some pretty big opportunities moving forward here, uh, first, I think for a lot of the operations that really know their P's and Q's.

Jarod

Creed: When are you going to release this? At least it's not going to be Christmas. I mean, don't have to talk about all kinds of negative components here. So let's compartmentalize this a little bit. Paul talks about a Band-Aid coming from some of these government programs. I like to think about it as, let's say you're going to the doctor and they give you a shot and you end up being allergic to whatever chemical you had to receive. This Band-Aid, this shot in the arm, is going to turn into a rash. It's going to be a bad deal for agriculture. It's going to create additional headwinds for agriculture. Sure, we're getting some short-term money into a challenging financial environment. Chris, you and I have talked about it for years. Cost, cost, cost, up, up, up, barely budge lower going into next year. In what way, shape, or form do we expect costs to go lower?

Once the government puts more money in the farmer's pocket? Equipment, seed, chemical, fertilizer, land, I don't care what it is collectively. I like to, I mean, playfully joke, seriously joke with guys. All right, you're gonna get $30, $40 an acre from this first program. Now be prepared for your costs to go up 2x that in the next 2 years. And at the same time, the US farmer is really, really good at doing something, and so is the global farmer— overproducing in a short amount of time. And I think that the biggest hurdle that we have to overcome today in the US is the competition with Brazil. And we're losing that battle significantly on the soybean side. So here we are just basically hoping and praying that you have a production issue in Brazil. Well, that's about off the table for at least the soybean side for 2025.

And the corn side is going to leave the US farmers suspect to planting way too many corn acres. And all of a sudden, we overproduce ourselves in an environment with higher than normal— or I shouldn't say normal, but higher than years past interest rates, higher input costs, and lower commodity prices. That is a recipe for— I mean, that's a rubber band, something's going to stretch until it breaks. So okay, here comes this money from the farmer, for the farmer from the government. And black and white world again, no disrespect to any listeners, one man's opinion here. All we're doing is kicking the can down the road. That I, I get in arguments about this with my own wife. Trust me, there is weird— there is a— yeah, weird. She's very, very strong-willed, not myself. Uh, it's, um, yeah, yeah, a family farm is a real thing. I get it. I understand that.

But I feel like the faster we admit how much agriculture has changed in the last two decades, the quicker we realize that the family farm is now a business and nothing more than a business. And I tell you what, I don't think that necessarily Walmart and Target and GM and Ford really care about the success of the other. And quite frankly, You think about these big companies, they thrive on the challenges of others. They thrive on the shutdown of business of others. It's consolidation. It's in front of us. And there's nothing we can do to stop that train. All we just did now is probably buy a lifeline for the marginal producer that is not going to be around in a couple years as it is.

And I'll say this one thing, I'm not going to use the insurance company's name, but a big, big general insurance company in the US, their CEO had a line in there that said, praising the government for something, something, something to let the farmer hold on. I mean, what are we doing? If I'm a successful producer, and I'm running my operation like a business, my business just took a hit. Because the government put more money out into the entire farm complex. Sorry, maybe that's really, really doom and gloom. But if there's one program that irks me more than anything else in the last couple of years, it's definitely the one that's rolling out right now. Because I'm sorry, we just came off of record US production, record farm incomes from the couple years prior.

And oh, sorry, if you didn't run your show like a business, We're going to give you a little bit of money as a Band-Aid, and by the way, it's going to give you a rash.

Chris

Barron: Mhm.

Jarod

Creed: So good luck with it.

Chris

Barron: Well, one of the things, Jared, just throw a question at your and/or comment, but you know, when you look at the, uh, situation that you just discussed, when you go back to 2012 and you look at history, a lot of times history will repeat itself to an extent. And in 2015, we entered into a the trough to its deepest level. '16 took us even deeper yet. And then '17, we kind of leveled off. '18, we started to slowly climb out and it was yields in general. Not everybody had the yields, but we started to dig out a little bit and everybody started to change their behavior too. There was, you know, spending was tighter. Everybody was in it. And it takes about 3 years for the prices to come back down. The prices go up,, and then they don't readjust to commodity prices for a long time.

And so that's what flushes these people out that you're talking about, you know, and it happens every single cycle we've ever had, it's happened. And so I guess the thought process is, you know, that still is gonna create some opportunities. But to your point, I would agree with you that from what we see at least, the dollars and cents that come into the producer, about 70% of it goes through their hands. And only about 30% of it gets, you know, gets held within anyway, because, you know, your, your land prices stabilize, your rents don't go down, all of these other things, you know, machinery and equipment, to your point, all these other things stay up or increase to the, to the level of those dollars and cents. So it's hard to disagree with you there. I was trying to disagree with you, but it's kind of hard do that right now.

So, um, Paul, any comments on, on, you know, or maybe you can go positive again since Jared keeps pulling us down here.

Paul

Neiffer: Well, even if I'm negative, I still sound more positive than Jared, I think. So, um, but no, actually, I'm, I'm gonna throw out another negative. You know, Jared has sort of, uh, brought it up— Brazil. Um, you know, we can't compete with Brazil. Look at the Brazil real. It's dropped another, what, 15% or 10%? That just makes their product cheaper. Also, I've heard, you know, from other people that, you know, they can still make money at $2 corn and $6 beans. You know, that's, that's the reality for them. So we just have to understand that. And I am worried about what Jared brought up that, you know, the American farmer is going to plant 95 million acres of corn next year. So this is the time, I think, to be managing that risk that the American farmer is going to plant 90, 95, 96 million acres of corn.

And the price of corn is now $0.75 cheaper, you know, in March or April or May than it is right now. What, what is your plan if that is the situation? Or what's your plan if the insurance price, you know, set first part of March has a 3 instead of a 4 in front of it? What is your plan? So I think I guess I am starting to sound negative here, but that's where I was bringing up, you know, set your singles right now, set your bunts, get that in place so that you're still at bat a year from now when you go in and talk with Paul Schrader. So that's, that's the key right now.

Chris

Barron: I think I'm afraid we're raising Paul Schrader's blood pressure here right now. So, you know, we— any comments, Paul, or You know, looking at it from, from a lender's perspective, you know, you see a little of everything, you know, kind of like the budgets we get to see throughout the course of the wintertime when we're putting these budgets together and helping a bunch of people with loan renewals and looking at what that looks like. There's some operations that are super strong, I think, are going to weather the storm without too much trouble. And in fact, they're going to, they're going to thrive, I think, in this turmoil because of their working capital position, and also their cost of production is pretty low because they've managed debt in the really good times. They didn't buy that extra farm or update the machinery to, to excessive of an amount.

Any comments on what these, these two guys are saying?

Paul

Schrader: I think there's definitely going to be, or is and will be, some have and have-nots, if you will. You know, as you mentioned, those operations that in those good years that we've had, have done the right thing and done the work, you know, sort of the practice, if you will, or done the work at that point, they're going to realize and have the opportunity when some of those other operations, you know, to be honest, they fail. And so there's going to be opportunities for ground and whether that's purchasing or rental opportunities. You know, that consolidation continues, as Jared touched on. So yeah, absolutely.

There's going to be some opportunities for those stronger operations and the people that haven't done the work, they're going to have some issues and there'll be some really tough conversations to have on both sides, both from, you know, sort of our side, the lender's desk, and then also the operator's desk. And that's where it comes in to, you know, if you haven't done the work, it's going to be a challenge. But hopefully you've got a good relationship with your lender so that, you know, all avenues can be entertained. You know, if, if there's a— if that operations is, is willing to make changes to be— I won't say profitable in '25, but make changes to be maybe more profitable, if you will, going forward. And whether that be, you know, downsizing, making changes on the labor front, could be selling some land.

To make things work just to get the, you know, whether it's getting the balance sheet right-sized or— but outside of that, it's tough, as we all know, you know, as far as the input costs, it's not like you can go to all of your landlords and say, hey, I'm not making any money, so you need to lower the rent by, you know, $20 or $30 an acre because as we all know, they could go probably down the road pretty quickly and replace those funds if, if it's just a dollar conversation. So, you know, that's another relationship that hopefully you've built up and, and are able to, I want to say, take advantage of. But hopefully you've, you've worked with those landlords and given them some, maybe some gravy and some good years. So maybe they at least be willing to have a conversation with you in some lean years.

Chris

Barron: Yeah, it's going to get interesting, I think, when a lot of these producers, um, see the opportunities that are there, um, how many people go after them. And then that stabilizes the rent too, right? You know, if the rent— the rent's probably not necessarily going to go down because of the strong that do survive are going to, going to be bidding for those, for those acres, I think, as well. So I think it's gonna stabilize it. And then as Jared said, you know, if the government continues to throw money to try to fix things, it just creates inflation in the ag sector.

Jarod

Creed: And anyway, so I think, I think there's something— go ahead, Paul.

Paul

Neiffer: I was gonna say, and for those strong producers, there's still contribution margin available even at these prices and these input costs. There's still contribution of margin available for those strong producers to go out there and rent that ground at what Air Bale says is too high of a price. So I think that's the one thing we need to understand, even at these current prices and current costs, that, that good efficient producer is still going to make money on those extra, those additional acres. They may still have a loss, but the loss is going to be smaller and that's good.

Jarod

Creed: This maybe sounds like a little bit of a tinfoil hat here. Question in the form of a comment to both, both Pauls. It seems like it's a situation that can almost cannibalize on itself, that when you have a medium to small lending community, community banks and such, they might be actively looking for better customers. More financially sound individuals. I'm hearing that. Is it premature for that? Definitely. But is that risk there long term, that in a consolidation, the one who takes care of their business is probably going to get a few incentives down the road, for lack of better words, from the lending institution, giving them better opportunities to continue to capitalize on opportunities that come up in tighter times.

I mean, I don't think that there's any secret that a financially strapped producer walking in the office versus a producer that the bank knows is very, very healthy and takes care of their business. They walk in and tell the banker that I'm going to buy this piece of dirt, or I'm going to rent this big block of ground. One banker is going to get a very, very interesting look and full of questions, and the other one's just going to say, okay, good luck. And I think there's two paths that we're getting ready to go down. And, uh, Chris, you brought up that 2013-14 and on and on stretch. I'm not suggesting that we're going to go down the same amount of years, but I do feel like we're in the, you know, first couple innings of a repeat of that environment. From '13 to '18. And don't forget that I know that this is not apples to apples.

'12, we came off of a drought and enormously high corn prices. Anybody want to take a friendly wager at what our March planting intentions were for corn in March of 2013? High. 97.4. Mother Nature shut that down. We didn't get that all planted. That can definitely still happen for 2025. But if you want to know what is possible or what is doable or what the farmer has suggested they will do in prior times, that doesn't really feel like all that much of a different situation presently because corn was begging for the acres relative to beans. Yeah.

Paul

Neiffer: Well, what was the ratio back then, Jared?

Jarod

Creed: Do you remember? I'd have to go back and look. I wish I knew that. But I mean, We didn't— yeah, beans went to $17, $18, but by the time we got to planting timeframe, that ratio was probably a lot closer to 2:0 to 1 than 2:5 to 1. It's probably definitely below 2:2. Yeah.

Paul

Neiffer: Which is where it's at right now, isn't it?

Jarod

Creed: 2:2, right? You gave the farmer the opportunity to plant $6 corn going into 2013. And here we are not talking about $6 corn, but looking at the potential of something that allows you to survive versus, just lose money in beans, rotational weed cover crop, whatever you want to call it.

Chris

Barron: Yeah, when you look at the rotations, I mean, and I know you're seeing the same thing, Jared, but— and Paul, both Pauls, you guys are probably seeing it too. If you— and you're looking at somebody's budget, the, the corn almost in comparison to any crop wins, you know, wins out the acres. I mean, we've got some cotton guys that we've been working with the last couple of days, and there doesn't even doesn't even compare. I mean, it's like, okay, we're just going to plant as much corn as we can. So, you know, to your point, Jared, that's common.

Paul

Neiffer: Yeah, but that only wins out if the price that is there now is there when you finally sell it. And that's my concern is for those farmers that think, okay, yes, corn is looking a whole lot better. But then, like I say, let's say your insurance price is set at the projected price is $3.70. Is corn still better at $3.70 at 85%? Well, throw in SCO and ECO and so on. But yeah, that's my concern.

Chris

Barron: I think once that insurance is out—

Jarod

Creed: I don't want to derail that conversation, but, you know, what's the takeaway from everything that we're speaking of? We started talking with Paul Schrader that you're going to go sit down and have a good communication with the bank and have a plan. Well, it might all sound like a lot of doom and gloom in the nearby. That's not what's necessarily being projected. That's just an elevation mitigated risk of the what-ifs, that we can't be surprised if XYZ unfolds. And Paul, you bring up a good point, we don't have any type of insurance coverage until middle of February at best.

So what can a producer do between now and then, as they have that communication with the bank, then that comes into the marketing side, marketing, crop insurance and inputs and my cost, in essence, I need to pair those together probably— I want to say earlier, but I better have a better idea than normal going into 2025, certainly compared to the last 3 years.

Chris

Barron: Yeah.

Jarod

Creed: And just making sure that, you know, one-size-fits-all type of approach again is probably relative just to make sure you're going to have the seat.

Paul

Neiffer: And we've had a little bit of a rally. Are you taking advantage of it now? I don't know if '25 has rallied, but certainly '24 has rallied a little bit. Even on your '24 crop, are you taking advantage of this rally or are you just hoping for another $0.50 or $0.75 on the upside?

Chris

Barron: Yeah, I, I've my two cents, Jared. This is on the marketing side, but it just seems like if people were to stick a fork in 2024, wherever that is, and we see the rally in the new crop, that's the time because there's still a fair amount of unsold corn out there. I mean, because we came into this year with a lot of '23 yet not priced, and now you still got a potential wet blanket when the farmers do decide to start unloading this stuff that's going to really put a cap on where we can go in the first place.

Jarod

Creed: Last tinfoil comment, and then I'm going to stop bringing up the tinfoil pieces. The money that Paul was talking about, I find the timing Very, very convenient. You're trying to push through a bill in DC. And it seemed like the Trump administration, every time a bill was presented, they said, nope, we don't like the language, we don't like the language. But you need to put money in there for agriculture. Rinse and repeat, rinse and repeat, rinse and repeat. And then finally, a bill gets introduced. And it gets passed. And what do you know, there's money in there for agriculture, albeit maybe a little bit less than what was originally forecasted. But the timing, Inauguration 3 weeks away. You have a January stocks report coming on the 10th, and we're actually going to have shortened market hours the day prior for the National Day of Mourning.

You're starting to stack up these things 10, 20 days out while you're going to go have this communication with the bank. I think that the next 30 days is probably— I shouldn't say probably, in my opinion, the next 30 days is make or break. For production agriculture in '25. It's going to set the tone. It's going to be the culmination of old crop. And we're going to set the tone for what the Trump administration wants to do in the future. Hey, we're going to push this money to the farmer because we don't want to waste our time later having to recreate the wheel all over again to put money in the producer's pocket for the rollout of tariffs that cannot be a surprise to anybody. How does the market react to that? We'll see. But we have past precedents to understand what the impacts are there.

And just again, trying to stack these things up from a timing perspective, conversations at the bank level and the execution of a strategy could very well be very, very critical in the next 30 days leading into February before you have anything from your insurance.

Chris

Barron: Yeah. Comments on that? I got another question to throw out there at you guys here in a minute, but Any other?

Paul

Neiffer: I agree.

Chris

Barron: Paul Schrader, interest rates, last time I checked, are they higher than they were 3 years ago? And, and so really, yeah, a little bit. And so when we look at the, at the categories of increase, it's the highest increased, increasing category of, you know, because, because it carries over into all these other things too.

Paul

Schrader: Yeah.

Chris

Barron: And when I talk about interest rates, I want to also compound that with the idea of third-party debt. So these banks, so you guys are gonna, gonna have like a line of credit amount, and you guys are gonna have to watch really closely with some creative producers that go to the seed companies, they go to the chem companies, they, they borrowing money from John Deere credit and Case credit and all this other stuff. Talk about navigating that and some things that producers need to do, because that interest cost and that debt service number as a number on the cash flow is a really super important thing to pay attention to, maybe the most important thing to pay attention to. Now, I don't— you can argue with that or tell me it is or it isn't, but you're— I'm pretty sure, and I've had this conversation with you before one-on-one, I'm pretty sure you're going to want paid back.

You're going to give us money, but you want it back and you want paid.

Paul

Schrader: I think so.

Chris

Barron: Yeah. Isn't that weird? So talk a little bit about some of the expectations from the lender's perspective as it relates to third party and where interest rates are at and what people could or may or may not be able to do when it comes to interest rates.

Paul

Schrader: Sure.

Jarod

Creed: Yeah.

Paul

Schrader: Interest rates are higher, you know, as of the last couple of years. But, you know, if we look, you know, look back a little further, maybe they're not quite as high as we think they are, but our recency bias, they are definitely higher than they have been. I think some of that comes back to, you know, the opening conversation, if you will, with the communication with the lenders. You know, I think a lot of lenders are— they like surprises for their birthday, but not in conversations with their borrowers. Right. You know, they don't want you coming in and going, oh, by the way, Not only do I have this line of credit with you for, say, $1 million, we went and borrowed, you know, $500,000 from someone else. And oh, we'd like to get them paid too. Well, that's fine, but you're going to pay us first.

So having those conversations to come in and go, hey, look, you know, maybe the rate, that third-party rate is really attractive and the terms are really attractive, more attractive than the line that you have on the books. And so maybe there's an opportunity to utilize that, but go have the conversation with your lender so there isn't a big surprise, you know, come the next meeting that everybody understands where those funds are coming from. Most likely your lender would really like to loan you the money, like they've sort of joined you in this partnership. They would like to loan you the money and work with you on the project, if you will. But they also understand if there's some really, really significant gains to be had for you. If that relationship is really good, they should be also looking out for you.

And so if there are some opportunities out there, go have the conversations with them so everybody understands that, hey, we're going to utilize this for, you know, maybe this period of time or this introductory thing that we got going on. But at the end of the day, those borrowers need to keep in mind that they still have to pay all that back, whether it's to the bank, or to the third-party lender, or to the, you know, the crop input supplier, wherever they're getting those funds. So they need to get all that all paid back. Isn't just magic money that you go out and pick it up and stick the crop in the ground and then not have to pay the darn thing back.

So making sure that the, that the, you know, projections as far as the, the crop money, the crop inputs, and then also all the other term debt that's out there, whether it be machinery or real estate, that all that's going to get taken care of. And what's the plan to do that, if you will? And so keeping the surprises out of it, being transparent and having good communication will solve a lot of issues both this year and every year down the road.

Paul

Neiffer: Paul, I was going to ask you, are you for next year going to, quote, I'll put in quotes, require farmers to try to max out the crop insurance coverage and maybe take advantage of ECO because it's going to be cheaper and so on? Or what's— what are your thoughts on that as far as for your typical farmer?

Paul

Schrader: Yeah, as we talked about, each operation is a little different. So you want to make sure that that's appropriate, that it's appropriate, if you will. There are definitely some operations that would need or would warrant higher levels of coverage, just the situation where, you know, if, if there is a maybe not a full crop failure, but a significant failure, are you going to be able to survive, if you will? And not only that, but let's, let's be honest, I think it was touched on a little earlier. We aren't farming in a bubble, we're sort of competing with the operator down the road, right? So if you have a bad year, and they don't, all of a sudden their opportunities are much, much stronger than yours.

So it isn't just the survival situation, it's how am I going to compete in this game and what's going to allow me to be the best competitor I can be, you know, this year, next year, 3 years from now. But we do, you know, we do have some customers where we'll set some requirements on that, you know, also some covenants that can be put in place as far as third-party financing, that kind of stuff. And CapEx, you know, requirements just to make sure that, hey, you're going to spend over this amount, let's have that conversation just so it's essentially in the contract, if you will. But at the end of the day, it just comes down to transparency and communication.

Jarod

Creed: Yeah.

Chris

Barron: One, one thing, Paul Schrader, that we've been doing with our clients here in the last— a little bit last year and started doing it this year on budgets. But just kind of asking for a consolidated debt service report where we bring in all the third party, the, the short-term, long-term, everything, put it on one form. So, and, and sometimes it's interesting because I think some of these operators have not done that. They look at it all as separate in separate places. And so when you look at a line of credit that's got $500,000 on it and you got the seed at $160,000 and you got the equipment at, you know, at 240 and something else that, you know, you consolidate the, the line of credit, the intermediate and long-term debt all in one thing and look at that total debt all in one little block and look at that debt service as one number.

It, it starts to really open your eyes and then you, and then you take that number and what we've been doing, which this, You know, Jared's gonna love this 'cause he likes to, you know, point out the pain a little bit once in a while, right, Jared? You know, here's what's really happening. Here's what your cost per day is. And you really like, holy shit, that's my number for the day of what my cost is. And then take the interest and look at that per day and per month. And if you had to write a check out every day and, and, you know, for the interest and a check every day for the debt service that, that's required for that annual— for those annual payments or biannual payments, whatever, quarterly, whatever they are. But if you had to do that every day, you'd get sick and tired of writing checks and you'd realize how big they are.

And I think when we started doing that, it's really changed some behaviors in terms of updating some equipment updating, you know, maybe, maybe questioning, can I really truly justify, or is that farm purchase actually feasible as it relates to what my debt service capacity is? Because the capacity a year ago, or 2 years ago for sure, was significantly better than the capacity is now. It just, you just, we're not able to do it now. So Any comments on any of that stuff or anything anybody else wants to throw out? We're getting down to about another 10 minutes here.

Paul

Schrader: So I know that we, you know, when we're working with our borrowers, that's, you know, that has been done forever, if you will, to consolidate that and make sure that they understand, you know, where those numbers are and what the— hopefully they come in with a break-even in mind, but sometimes it's it's up to, you know, the lender to have those conversations to at least lay the groundwork like, hey, this is based on this stuff. Here's kind of where the breakevens are to help with, you know, going forward and making sure that that, that debt is serviced, whether it be with us or with anybody else.

Jarod

Creed: Mm-hmm.

Chris

Barron: Yeah, it's really— it's not the lender's job to do, to do all the homework. It should be the producer's job to do the homework because if I always tell people, if you can't explain your financial situation, then you sure as hell don't understand it. You know, so we've been trying to do, you know, a state of the business address every year where encourage people to, you know, and we've done it with you, Paul, where we sit down and we talk about how the year went, every, you know, all the categories of the businesses, and then talk about, you know, what does the next year look like again, what is that plan. So, um, Jared, wheels turning there, I can see some wheels turning. What are you thinking? Or Paul?

Jarod

Creed: I think maybe back to one of my first comments of defining what you want 2025 and 2026 to look like. There's still every farmer, as I said, okay, the marketing strategy might be widespread, worthwhile. However, every operation is still going to have a different longer-term goal. And I do think that there is probably a segment of producers out there who are willing to operate on a slightly negative or just very reduced margin for a while, to act as a long-term investment, to be able to acquire more ground, to be shelling out a substantial amount of working capital on an annual basis for those expenditures, but still taking care of business enough to the point that keeping them within, uh, the straight and narrow with the bank. And I think that's exactly what happened from 2014 to '19.

The individuals who kept their powder dry had opportunities to step into new things, rented ground, own ground, combination of the two. And then the big boom come around. And the real money to be made was not the accumulation of that ground over those years. The real money to be made was that 2 or 3 year cycle that will probably repeat itself again at some point in time. That if all of a sudden a 5,000-acre farm is able to expand by 30% over the next 24, 36 months, and the next time that $200, $300 an acre profit opportunity comes around, that quickly makes up for those tighter years that you were running through with that long-term goal. That the communication with Paul Schrader and the bank staff is critical to tell them, this is what I want to try to do. I'm willing to run on a tighter working capital.

I'm willing to maybe pay a little bit higher interest rate for a little while— or not higher interest rate, but more interest. But here's my plan, how I'm going to accomplish it, and I'm going to meet my risk tolerance to acquire ground as the opportunities come up. Not every opportunity is going to be the right opportunity for sure. But the opportunities are going to continually come. And I think the real money to be made, as I said, is the accumulation of wealth, in essence, the accumulation of long-term wealth over the next couple of years. And that's kind of, hey, you want something positive? That's long-term optimistic for agriculture. How about that? Long-term optimism for agriculture ownership of land.

Chris

Barron: I like it. At least you're positive on that, that comment. That's good. We're going to come circle back to you. So try to think of one more yet too, if you can.

Paul

Neiffer: So I was just going to throw in, I think this just reinforces that farmers need to remember that I'm going to call it every 30 years, we sort of have a supercycle in ag, and you're going to have 5 to 7 really good years, you know, excess of profits, 2012, '13, well, maybe early '13, '22, whatever it might be, but you're going to have 7, 5 to 7 years, they're going to wipe out those excess profits. You know, it's been It's been that way for the last 2,000, 3,000 years. I mean, we've always cycled. And the farmer that understands that we're going to have those excess profits and banks them, like Jared says, and Paul says, and Chris says, and banks them and takes care of them and grows them. Those are the farmers that are really going to thrive. So that's, that's all I just want to reinforce.

Chris

Barron: I think what we'll do here is we're getting close to time here. I'm going to circle around and we'll start here with you, Paul Schrader, first. Kind of get, you know, a little bit of a takeaway from our conversation. And then, you know, what's one last thing you'd like to leave the producers with? And it doesn't have to be positive, Jared. You can do whatever you say, whatever you want to say. But, but no, Paul, seriously, just, you know, any takeaways and anything that you want to leave producers with to think about as they head into 2025?

Paul

Schrader: Well, you know, I think we all realize that, that 25 and maybe 26 going to be a challenge. And so we just have to plan accordingly and make sure we do what we need to do. And that when I say we, I'm serious about that with, you know, as a lender and also working with the borrowers as well to do what we can and utilize all the tools that are out there. If there's a path forward, you know, if borrowers are willing to do what they need to do, to be a player, sit at the table in '25 and '26 to make sure that line of communication is open, transparency is in place. There's no surprises on both sides, you know, both the borrower and the lender. There's some terrible stories out there of maybe lenders not being as transparent as they should have been and borrowers sort of getting sideswiped. And that's not fair either.

You know, it's not fair to bring up big surprises to borrowers either. So both sides of that desk, I hope that there's transparency, good communication, and, and, you know, if it, if it does come to the situation where, you know, maybe there isn't a path forward, it's much better to call a spade a spade now and to shut things down or to work yourself out of it in a more controlled and managed fashion than to have someone come in and be the hammer. And that, that's not good for anybody. Nobody wants to do that. Well, maybe some, but I don't want to do that. We don't want to do that. Um, and so much better to live in a black and white world, as Jared said, and, you know, call it what it is.

And if, if it isn't going to work going forward, let's make a plan to sort of exit as I say, as easy but as efficiently as we can so that you don't burn up any more equity and, you know, ruin what you have built up to this point.

Chris

Barron: Awesome.

Jarod

Creed: Jared, kind of double down on what Paul just talked about. And again, I'm going to maybe lean towards knowing a lot of your audience that listens to this, and I think maybe a pat on a lot of their backs, but If there's maybe one thing to try to put an extra foot forward in Q1 of 2025 is take that communication channel to a whole nother level higher with anybody and everybody around the farm. And that's from a CPA level, from the banker level, from the marketing and crop insurance and whoever else that has any type of pulse or impact on the money in and out of an operation. I think those conversations need to go to a higher level, to more of an often level, more and more of those conversations, that communication is probably going to act as a think tank, there's going to be ideas that present themselves to consider execution to keep the farm going in the right direction.

That's a positive, right? That's nothing but positive things come out of that. To just ramp that up and almost ask for more participation from all your teammates. I mean, maybe, you know, you know I'm a big Chiefs fan. Uh, when it comes down to crunch time, the team comes together and they find a way to win. How's that any different than right now? It's crunch time. Times might get tough. The times could be already tough. Come together as a team and figure out, uh, it's like, again, I can't remember what announcer it was, it said the Chiefs find a way to remove the credits and focus on the— excuse me, remove the debits and focus on the credits. Help them succeed. And I think that's, uh, that requires a collective effort. Not very few operators, uh, would be expected to, uh be able to accomplish 100% of all of that on their own.

Chris

Barron: Mm-hmm. Yeah. You had a title too that you said, and maybe I shouldn't even bring that up, but I'm going to anyway. You know, remember the title that you're going to have at our conference? All three, all four of us are going to be at our conference. Obviously, I will be there.

Jarod

Creed: Our business is one full of constant Our business is full of one of constant crisis. I'm going to go to Paul. I got to look it up now. I can't remember exactly what it is.

Chris

Barron: Yeah, look it up because that's a— that's a— I just listened to it again last night and went back and listened to the podcast that you and I did and you gave me that title. Paul, what's your takeaway and what's your message for producers going into 2025?

Paul

Neiffer: I think my takeaway, it's okay to lock in a small loss. You know, it's okay to have a loss. I mean, the banker understands that, the CPA understands that, the farmer understands it. But make sure you lock in a small loss. Don't let it get to be a big loss. So I think that's my takeaway is, okay, figure out what your small loss is and do everything to protect that so it doesn't become a big loss. That, that, that would be my takeaway.

Chris

Barron: Awesome. Jared, did you find it?

Jarod

Creed: Our business is one of constant crisis interrupted by brief periods of intense success. Yeah, I'm not going to lie, I nerded out on that. I rewinded that show and listened to that a dozen times.

Chris

Barron: Yeah, I listened to you saying it about 15 times last night and still couldn't remember it. So, so I think you sounded like you're going to have it on a slide at the conference, though.

Jarod

Creed: So I definitely will.

Paul

Schrader: That'll be good.

Chris

Barron: So with that said, you know, I guess My takeaway is, you know, it's kind of what we're seeing is a lot of consolidation. We're going to see some collaboration. But I think most importantly, to echo what Jared and both Paul said, is the communication is the key. When we do peer groups, when we do individual farm meetings and stuff, that's always the one area that there are some issues. I think as producers, if we want to do one thing going into 2025, it's It's step back and make sure we're communicating with everybody, like Jared said. But I also think it's communicating with the employees, letting them know what's going on in the operation too. Because if your operation is like, like most operations, the employees are spending some of your money too. They're making you money, but they also need to kind of know what's going on.

And I think transparency with employees, transparency with family is very important. I think those are kind of the key things. To make sure that we can try to thrive. Because as Jared said, too, it's a team. It's about the family. It's about your whole organization. And part of the team is that lender and the CPA and everybody else working with you. So that's my, my final takeaway and really appreciate you guys, both Paul's and Jared. You know, Paul, the CPA, the guy that's going to help us make sure that we're doing our taxes right. Jared's going to make sure that we understand what hurdles are in front of us and how to get over them.

And, and Paul Schrader, um, you know, making sure that, uh, that the funds are out there but that, but they're intelligently lent out and, and in a, in a situation that, you know, you can get paid back and that we can pay it back so that we can thrive to go for another day. With that said, hey, you guys did a great job, really appreciate it. Hopefully we can do this again, uh, you know, maybe quarterly or something and, and kind of see how the year is going and stay in touch. But that said, Thanks again, everybody, and we'll catch you again next time on the IP Pitch.