Edition #9

September 2, 2023

Good morning and welcome to the Braintrust Ag newsletter. We’re like the local farmer coffee hour — but with less gossip & more practical tips.

A few notes to begin:

• Thank you to everyone who joined on the first ever SOIL Gathering! ‘Twas very fun.

  • For those who are curious: we had an incredible virtual meet-up for paid members where we shared our stories, opportunities, insight, and lessons on a specific topic — this time it was Expansion Strategies (prospecting, buying, and leasing new farmground)

  • We’ll host another SOIL Gathering on September 14. Announcement & topic to come shortly.

• Your humble author was recently asked to be a guest on the Herd Quitter podcast. Take a listen as we discuss ag business & succession/transition planning:

  

  Episode 134: Clint Fischer - Farm Succession

• If you haven’t done so, check out our Braintrust Ag community homepage for more info on what we’re all about.

Alright, let’s get to the topics that will help you build a strong, sustainable agri-business.

-Clint

Here’s what we have this week:

• 📃 Business Plan Wrap-Up

• 🌱 Seeds

• 💣 Insurance State of the Union

• 📜 Transition Terminology

• and more…

BUSINESS PLAN SERIES

We’re closing out our series on building out a farm business plan. As a refresher, successful farms and ranches don’t just happen by mistake.

They are the result of a well thought out plan that allows for growth and flexibility designed to reach a distant goal.

Whether you have been running a farm for years, are looking to start one from scratch, or are somewhere in between, you ought to have a business plan.

To get everyone up to speed, here’s the previous installments of the series:

• Here’s Part 1: Business Description

• Here’s Part 2: Products & Services

• Here’s Part 3: Marketing & SWOT Analysis

• Here’s Part 4: Operational Plan

• Here’s Part 5: Operating Proforma (Sources & Uses)

• Here’s Part 6: Operating Proforma (Cash Flow Summary)

Finally, we’re reaching an end to our business plan.

But, before we wrap it all up neatly with a bow… we need to address the issue that we came across last week — we were losing money on our cash flow summary. (to the tune of ~$180K per year)

There’s a couple ways to adjust our plan to correct this issue.

1. Adjust our Uses or Sources (start-up costs & capitalization)

2. Adjust our cropping plan

Most of the time it takes a combination of both, through many iterations, to settle on a reasonable strategy.

As an example, for our plan we looked at eliminating the up front costs of purchasing all our equipment. Instead, we’ll plan on leasing/custom hiring the equipment.

Eliminating the debt service on $690,000 worth of equipment goes a long way to solving our cash flow issue. But, it’s important to remember that your operating cost per acre will increase with lease payments and custom hired work.

So, factor that in on the Cash Flow Summary.

Also, we evaluated our crop pricing on the income side of the Cash Flow Summary. Small adjustments to yield or price make a large impact to whether or not we cash-flow.

To sum up the proforma: it will take multiple attempts to strike a balance of necessary start-up expenses, with reasonable yield, price, and production cost projections, that meet loan covenants and cash flow needs.

In other words, trial and error until you hit the right combination for your operation.

Executive Summary

The last piece to the puzzle of building out your comprehensive business plan is to write the Executive Summary.

This is the first thing lenders, investors, business partners, employees, and any other stakeholders will read. Keep it concise and create a brief summary so they understand what your business will offer and make them want to read more.

Here’s Sample Farm’s Executive Summary:

And that’s it. Now your business plan is complete & you can use it as a roadmap for your operation and to present to lenders, investors, and employees.

Reminder to access the full Business Plan Template and Operational Proforma by clicking on the Resources Space & navigating to: Business Plans folder.

RESOURCES UPDATE

Here’s some resources I’d like to highlight that are available to download on the community webpage:

Equipment Buy vs Lease Checklist

A detailed list of considerations to think about when evaluating whether it’s better to purchase or lease certain equipment.

Located: Resources > Farm Machinery Resources > Equipment Buy vs Lease Checklist

Succession/Transition: Worksheet #1 Assets & Title

We can’t give away/sell what we do not own. This worksheet breaks down all your assets, debts, ownership percentages, and how they’re legally titled to assist in the first step of a transition plan: taking an inventory.

Located: Resources > Succession/Transition > Worksheet #1 Assets & Title

I’d encourage you to look at the other resources available on the site, and check back from time to time as new tools get uploaded.

SEEDS

• 🌽 Corn Exports: Brazil is on track to overtake the US for the first time ever as the #1 corn exporter in the world. This is due in part to an $8 billion investment in infrastructure, a bumper crop, logistical improvements, and a new supply deal with China.

• 💵 Grants: Conservation grants get a shot in the arm with $65 million of additional funding. NRCS is deploying this money for irrigation management, nutrient management, feeding management, methane reduction, grazing management, soil health initiatives, and habitat management projects. USDA is accepting applications now through Oct. 30.

• ⬇️ Net Income Drop: US net farm income is expected to drop 23% from a year ago, mainly due to livestock (other than cattle & turkeys) receipts being much lower than 2022. This equals a $41.7 billion decrease from 2022’s $183 billion net farm income amount.

• 🥩 Beef Eaters: The demand for beef is softer in most global markets (except the US). For instance, compared to a year ago, Australian cattle prices are down 30% while US prices are up 30% in that same timeframe.

• 🚜 For Fun: Here's a list of someone, somewhere’s opinion on their favorite products from the recent Farm Progress Show last week.

LEGAL

When buying or selling equipment always have a bill of sale & purchase agreement.

The Purchase Agreement covers all negotiated terms, timeframes, payment methods, etc.

The Bill of Sale shows the ownership transfer.

These can be in the form of one document.

And always make sure that:

• It’s detailed

• It’s in writing

• It’s signed by both parties

This makes for a more harmonious outcome for all involved.

INSURANCE

A Macro-Look at P&C Insurance: Part 1

Provided By Endorsed Service Provider — Steve Hasche

The insurance marketplace is tightening up and it's happening fast. It’s happening especially fast for home and auto insurance companies.

This is regardless of what state you are in, however California, Florida, Louisiana and Texas are being hit especially hard. Carriers are pulling a full hard stop on issuing any new policies across the country, and carriers that have NOT put a moratorium on binding new coverage, are actually just leaving the market or they are selling to other carriers/merging. They simply can't operate profitably in this inflationary market.

EVERY DAY we are hearing about a pause on new business, or a carrier putting a full stop on writing new policies. Some carriers are requiring full premium payment up front for new business or requiring a 20 to 30 day hold on new applications. Carriers may shift underwriting guidelines, so they only want preferred business…no claims within 5 years (not 3 anymore), home and auto bundles, etc. Some carriers will NOT reinstate coverage if it lapses, no matter the reason.

The market is disrupted and it WILL affect you. If it hasn’t yet, it will. I have personally seen premiums double and triple what they were the year before.

The cost of claims has risen exponentially in the past 2 years, thus resulting in the carriers having to raise premiums or pull out of some markets. In some states, carriers have applied for rate increases, but have not been able to get them approved, so they simply shut down for new business.

If you have an auto or home insurance policy, your rates have gone up, and if they haven’t, they will. This isn't personal, it’s not based on a claim you may or may have not had, it’s simply the cost of doing business. If you have not gotten a rate increase, be prepared for one at your next renewal, if you get renewal terms at all.

Want more? Discuss directly with Steve: [email protected]

SUCCESSION/TRANSITION

The Great Wealth Transfer is upon us. Over the next two decades, Baby Boomers are set to pass on $68 trillion of wealth.

A large percentage of that will be in agricultural assets like land, facilities, livestock, and equipment. After all, the average age of US farmers is approaching 60 years old.

So how do you prepare for the next generation taking over your labor of love?

You create a farm succession plan. This involves more than a simple estate plan, as it encompasses the transition of an ongoing, operating business.

Resources abound for farm succession planning. There’s seminars, one-on-one consulting, webinars, books, essays, and more. As you research, learn more, and begin creating your plan, here are some frequent terms you will encounter:

• Last will and testament: A legal document that outlines how a person's assets and property will be distributed after their death.

• Trust: A legal arrangement in which property is held by one party (the trustee) for the benefit of another party (the beneficiary).

• Power of attorney: A legal document that authorizes one person to act on behalf of another person in legal and financial matters.

• Probate: The legal process of administering an estate after a person's death, which includes distributing assets and paying debts.

• Estate tax: A tax on the transfer of property and assets after a person's death.

• Gift tax: A tax on gifts of property or assets made during a person's lifetime.

• Capital gains tax: A tax on the profit made from the sale of an asset, such as land or equipment.

• Partnership agreement: A legal agreement between two or more parties who agree to operate a business together.

• Operating agreement: A legal agreement that outlines how a business will be run and managed.

• Buy-sell agreement: A legal agreement that outlines how ownership of a business will be transferred in the event of death, disability, or retirement of one of the owners.

Farm succession planning is a vital process that can help to ensure the long-term success and sustainability of a farm. By taking the time to plan and prepare for the future, individuals can help to ensure a smooth and successful transition to the next generation and ensure that their farm continues to thrive for generations to come.

Disclaimer

This is not legal advice. This is in the nature of general information, not specific advice. For estate matters, always seek legal advice from an attorney within your jurisdiction.

MEME OF THE WEEK

That’s a wrap, folks.

Until next week, thank you to everyone involved in ag. Come engage on the new platform & let’s grow profitable ag businesses together.

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DISCLAIMER: All content, communications, and resources provided by Braintrust Ag, its principals, operators, or members is intended to merely be educational and entertaining. Nothing published by Braintrust Ag should be relied on as legal, financial, investment, or other professional advice. Investments and legal matters involve substantial risk and are not suitable for all individuals. It is recommended to enter into a client relationship with an ESP for obtaining professional advice.