Presented and written by Dr. Brent Gloy for the 2017 FCS Financial Commercial Farmer Symposium.

1. Managing in Turbulent Times
FCS Financial
Columbia, MO
January 25, 2017
Brent Gloy
Agricultural Economic Insights, LLC
www.ageconomists.com
bgloy@ageconomists.com
Twitter: @BrentGloy

2. Agricultural Economic Insights, LLC
• www.ageconomists.com

3. Where
are we
at in
the
Cycle?

4. What Has Been Going on With World Acreage?
• Up 236 million since
2000
• South Am 86
• Sub S Africa 57
• FSU 42
• E Asia 16
• Largest ever decline
was in 87/88
13 Primary Crops: Barley, Corn, Cotton, Millet, Oats, Peanuts, Rapeseed,
Soybeans, Sunflowers, Milled Rice, Rye, Sorghum, and Wheat

5. The Big Questions
1) Will farm profitability return?
2) Will farm finances hold?
3) Commodity stocks and plantings
– still building or not?
4) How will broader economy
gyrations impact ag?
5) Trump takes the helm. What
now?

6. Some Perspective on the 2017 Situation
“As we know, there are known knowns; these
are things we know we know. We also know
there are known unknowns; that is to say we
know there are some things we do not know. But
there are also unknown unknowns- the ones we
don’t know we don’t know.”
- Donald Rumsfeld

7. Farm Profitability

8. There Were Some Positives in the US
During 2016
1. Fertilizer prices are down 20%+
2. Fuel prices are down 30%+
3. Fixed costs are down a little
4. Interest rates are really low
5. Inflation is really low
6. Farm income may be stabilizing
7. Farm financial conditions have held so far
8. Some will get a large government program payment…..
$50-$60 per
acre cost
reduction for
corn

9. Will Farm Profitability Return?

10. What Costs Will Adjust to Alleviate Margin
Pressure?

12. Farm Finances

13. Farm Financial Conditions.
Which World is it?

14. More Work Required on Machinery Costs and
Investment

15. Income Cannot Support Rents at these Levels,

16. Farmland Values Likely to Follow

17. Commodity Stocks and Plantings

18. The World Has Plenty of Grains

19. China is Holding Substantial Grain Stocks

20. Price Ratios are Currently Suggesting that
Beans will Gain Acres

21. Many Budgets Favor Beans but Keep Relative
Production and Alternatives in Mind

22. Wheat’s Woes

23. Broader Economy Impacts

24. Rates Still Low in Historical Context

25. Exports are Critical to Agriculture

26. Where do US
Exports Go?
These were the three
largest export markets in
2015.
These three countries
account for 44% of ag
exports up from 19% 25
years ago.

27. The Dollar Soars

29. Trump Takes the Helm

30. A New Administration Comes to Town
Key Issues
•Trade
•Biofuels
•Immigration
•Regulation
•Taxes
Take the 3 Question Test

31. Situation Recap
• Cost structure still too high, $50 down $50 to go
• Think 3 to 5 not 1 to 2
• Will likely see more financial stress this year than past two
• Working capital drawdowns continue and some get critical
• 2017 will be a tough environment, lots of difficult discussions

32. Which Conditions Describe Ag Markets?**
**The Poor Man’s Guide to Market Assessment – Adapted from The Most
Important Thing: Uncommon Sense for Thoughtful Investors, by Howard Marks

33. Building Your Strategy for the Shifting
Environment

34. Strategies for Success in Today’s Environment
1. Establish clear profit and cash flow targets
2. Determine what has to go well
3. Seize marketing opportunities
4. Revisit time management
5. Free up capital
6. Beware and navigate ARC-CO payment cliff
7. Evaluate opportunities carefully
8. Consider upside and downside
9. Focus on cash flow generation

35. 1. Establish Clear Profit and Cash Flow Targets
• Realistic planning needed
• Profit – per acre, per bushel, per…
• Cash flow – what’s included?
• Set 2-3 financial goals for 2017
• Discuss with your partners

36. 2. Determine What Has to Go Well
• What are the key drivers in the
business?
• Price/Yield – how variable have
they been in the past?
• What drives yield on your
operation?
• What cost categories got away in
the past? Why?
• What other budget categories
deserve the most attention?

37. 3. Seize Marketing Opportunities that
Meet your Profit and Cash Flow Goals
• Don’t be lulled to sleep by low
prices
• Lessons of 2015/16
• Use price range to advantage
• Understand comfort level with
different outcomes
• Afford versus not afford
• Discuss your plan

38. 4. Revisit Your Time Management
• What are the best uses of your
time?
• Allocate your management
where it has the largest impact
• Create a stop doing list

39. 5. Free Up Capital
• How much cash do you need to
run your business?
• Where are you going to get it?
• What are the costly and less
costly ways to get it?
• Underutilized assets
• Beware tax implications

40. 6. Beware the Looming ARC-CO Payment Cliff
• ARC-CO payments will
begin to decline rapidly
for crops planted in
2017
• Keep this in mind when
renting farmland
• Payments DO NOT
depend on what you
have planted
• Are their other
government programs
you can benefit from
(CSP)?
Table 2. Calculation of Olympic Average Prices for Corn, Soybeans, and Wheat.
Year Corn Soybeans Wheat
Prices used in 2014
(from 2009 to 2013)
($5.18+$6.22+$4.46)/3
= $5.29
($11.30+$12.50+$13.00)/3
=$12.27
($5.70+$7.24+$6.87)/3
= $6.60
Prices used in 2015
(from 2010 to 2014)
($5.18+$6.22+$4.46)/3
= $5.29
($11.30+$12.50+$13.00)/3
=$12.27
($7.24+$6.87+$5.99)/3
= $6.70
Prices used in 2016
(from 2011 to 2015)
$6.22, $4.46, $3.70
= $4.79
$12.50, $13.00, $10.10
=$11.87
$7.24, $6.87, $5.99
=$6.70
Prices used in 2017
(from 2012-2016)
$4.46, $3.70, ? $13.00, $10.10, ? $6.87, $5.99, ?
Minimum Price in
2015 so that
Average Doesn’t Fall
in 2016
$6.22 $12.50 $7.24
Average if 2016
Price <= Reference
Price
$3.95 $10.68 $6.12

41. 7. Evaluate Opportunities Carefully
• What is your strategic plan?
• How does opportunity fit with
your goals?
• What are your top 3 investment
priorities?

42. 8. Consider the Upside and Downside
• Beware of your biases
• Understand decisions – both
good and bad
• Don’t be paralyzed
• Use analytical approach to think
decisions through
• Play devils advocate both ways
• Talk through ideas with people
who give honest feedback

43. 9. Focus on Generating Cash Flow
• Evaluate alternative
plans/enterprises
• Cash rental agreements
• Share rental agreements
• Refinance/restructure
• Equipment sharing, etc.

44. Agricultural Economic Insights, LLC
• www.ageconomists.com