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Keep up with what's happening at SFB and in the surrounding community. We care about making a difference.

Benchmarking Can Improve Your Profit Margins

Friday, June 25

by Kristin Woodard

How do you know if you're doing the best you can on your farm operation?  A tool frequently used to answer this question is benchmarking. But what exactly is benchmarking?

Benchmarking is a method of analysis that compares your operation's performance to similar size and/or type of operations that may be performing well in different areas of their businesses. It is like a report card of how you are doing compared to your peers of the same size operation as yours. This analysis can be helpful to dive into areas of improvement to what you may be currently doing, in order to improve your profit margins.  For example, a dairy operation can utilize benchmarking to compare specific expenses, such as feed, labor, or repair costs to other operations of similar size.  On the benchmarking report, there are no names or locations with the benchmarking information, just the income and expenses based on size (i.e. number of cows or number of acres) and/or type.

Benchmarks are typically derived by averag­ing actual performance data from a large group of farms. The high-profit benchmarks come from the top third of the farms that are the most profitable after averaging the financial performance measures. Farm Business Associations are the sources of this data (i.e. FINBIN | The Farm Financial Management Database (umn.edu)). 

Benchmarks also help to establish performance goals or targets.  In general, it is important to have your business' current cash flow performance and prior years for the consultant.  Overall the analysis can lead to insights into trends in your operation's normal business performance.  To find out more, ask to hear more about benchmarking with your banker. 

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Kristin Woodard is a commercial/agricultural loan officer for Jackson County Bank, which will merge into Security Financial Bank in August of 2021. She can be reached at 715.284.5341 ext. 1355.

Transfer Tax Can Be Worse Than Estate Tax

Wednesday, June 23

by Paul Neiffer, CliftonLarsonAllen

This morning I gave a 20 minute talk on President Biden's tax proposals for the Washington Potato and Onion Association in Leavenworth, Washington before driving to Seattle to catch a flight to Cedar Rapids, Iowa.  Tomorrow, I will be part of the team for the Farm Futures Ag Boot Camp.  I think this is about my 7th year of being part of this program.

As part of my talk this morning I gave an example of how farmland worth $30 million with a basis of $1 million since Grandpa purchased the property in 1960.  At the time of his death, he had a mortgage on the land of $20 million and owned no other property.  Since the lifetime exemption is $11.7 million, his heirs will not owe any estate tax.  However, his final income tax return will report a gain of $29 million and the estate will owe about $14 million of combined federal and state income tax.  

The result is instead of having an asset worth $10 million, the heirs are now upside down by $4 million.

Although this is an extreme example, many situations could be very similar to this.  We will keep you posted.

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Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen (CLA) in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.

This article was shared with permission from CLA's Agribusiness Blog, Farm CPA Today. For more information, contact Pat Sturz, principal at CliftonLarsonAllen's Eau Claire office, at 715.852.1120.

Is Your Farm Protected from a Cyberattack?

Wednesday, June 23

by Randy Yeast

Often security of the technology used within agricultural systems, such as off-road equipment and machinery, food and grain processing, radio-frequency identification tags and numerous other information systems that run behind the scenes is often overlooked or not given much consideration. Focus is generally on crop progressions, milk outputs, or other efficiency numbers that generate income and sustain the farming community. These oversights can cause operational interruptions thus leading to lost profitability in a competitive marketplace and leaving the future of your operation at risk. 

In 2010, the USDA and FDA both classified cybersecurity as a low priority; however, in 2015, both agencies reversed course, and each has been tasked since 2019 with increasing their agencies' cybersecurity strength prioritizing those with working relationships with those agencies.  Recently the cyberattack on JBS, which process 25 percent the nation's beef and 20 percent of its pork, has increased the spotlight on the strength of systems controls in place to prevent a disruption to the U.S. supply chain that feeds both restaurants and direct consumers. 

Regardless if these are programmable logic controllers or supervisory control and data acquisition based systems running milking parlor controls, automated temperature control systems in grain operations, or simply the billing or shipping systems, these need to be considered as part of your operational risk as these can have the same effect on your farm operation as drought, flood, or other natural disasters. 

Some of the largest hurdles posed to farmers within cybersecurity of their operations are a lack of awareness, resources, expertise in IT, and connections to outside experts who could help. None of these are insurmountable and there are some solid practical ways that can be used as a starting point to work on improving cybersecurity regardless of what your operation entails.  

Reviewing cybersecurity risk can seem like an impossible task but the knowledge gained can be a solid tool to help future proof your ag business for upcoming generations as technology continues to transform farming operations. 

For more information on cybersecurity, Randy can be reached at 715-568-6310 or ryeast@sfbank.com.
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Randy Yeast is the chief technology officer at Security Financial Bank. Randy is professional member and is certified by ISC2 and ISACA as an Information Systems Security Professional, Information Security Manager, Information Systems Auditor, and is also an FBI InfraGard program partner and a cyber liaison officer for the state of Wisconsin.  For more information on cybersecurity, Randy can be reached at 715-568-6310 or ryeast@sfbank.com.

Will Your Farm Business Beat the Odds?

Thursday, March 25

by Michael Wildeck, Ruder Ware, LLSC

Sustaining a farm business over generations is something to be celebrated, but at the same time can be an enormous challenge. Studies have shown that 78% of families intend to pass their business to their children, and yet only 34% have created a formal succession plan. Even fewer have an up-to-date plan.  

Unfortunately for many farm owners, a successful transition of business ownership to the next generation may be more of a dream than reality. The consequence of failing to plan can be severe. For example: potential farm heirs may leave the farm because they do not see a path to own and control the business; farm heirs may not have the necessary management skills or be unprepared to manage when they have not increased those responsibilities over time; and farm heirs may find that they are unable to buy out non-farm heirs.

Having retired from UW-Extension as an agricultural agent, I had the opportunity to be involved in succession planning for a variety of farm operations. After gaining a better understanding of each farm's financial condition and business profitability, one of the most frequent barriers to moving ahead were family issues. Facilitating communication and discussion on those issues was often difficult and certainly took additional time, but when successful, the results were profound. To see the current size and complexity of some of these farms today, and to know my contribution to that team effort, has been very satisfying. I can only imagine the pride that the farm owners and family members must feel.

I am sometimes asked, "How do we get started in getting a farm succession plan?" My short reply is "Congratulations, you just completed Step 1." I genuinely enjoy talking with farmers about planning for the future. That may include some highlights of the farm operation and family members involved/not involved in the operation. We may also have some discussion about anticipated legal needs, but I have come to appreciate that in most instances it helps to get the attorney involved early in the process. They are like your "coach" through the process. When they have done this dozens of times before, they become exceptionally good at doing this complex work efficiently and effectively.

The main thing is to be proactive and get it done. Be part of the 34% of family businesses that have created a formal succession plan. It is too important to put off.

For more information on farm succession planning, Michael can be reached at 715-370-0894 or at mwildeck@ruderware.com. Visit ruderware.com for staff bios and general information on legal topics.

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Michael Wildeck, agriculture consultant, is co-leader of the Agriculture Focus Team at Ruder Ware, LLSC. He is also an emeritus professor, UW-Extension. Ruder Ware, LLSC has locations in Wausau, Eau Claire, and Green Bay.

How Well Do You Know Your Financials?

Wednesday, March 24

by Kristin Woodard

The commodity market rallies have been a source of hope over the last 10 months for some agricultural commodity producers. But, how long will it last? The improvement in some commodity prices and COVID assistance in 2020 has helped farmers to catch up or stay afloat financially, but the price improvement has historically been short lived.

When the market conditions provide higher prices, it can be tempting to be optimistic about your finances and purchasing power.  But, can you weather the storm if income drops but your inputs stay the same or increase? To answer that question, it is important to understand your financials (break even, cost of production, etc.) and what they mean for strategic decision making and survival. 

Ideally, a financial analysis is recommended to be reviewed on a quarterly basis with the insertion of actual receipts (income and expenses) followed by adjusting a projection for the rest of the year based on the results of actual receipts. This will provide analysis on how the year is shaping out to be financially compared to how the year was planned to be. With this information, you can determine where you may need to make adjustments.

This exercise may seem daunting, but the knowledge and perspective to be gained can be a tool to guide making sound decisions.  It will help you determine if something is a good purchase. It also can help you determine where you can make adjustments in order to have enough money to pay bills without impacting your production.

For a list of terms frequently used by bankers and financial advisors when they analyze your operation's financials, click here. (These terms were part of the paper Measuring and Analyzing Farm Financial Performance; Purdue Extension & Department of Ag Economics; May 2012.)

If you would like to talk about your financials or have questions, feel free to contact us or your financial consultant.

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Kristin Woodard is a commercial/agricultural loan officer for Jackson County Bank, which will merge into Security Financial Bank in the summer of 2021. She can be reached at 715.284.5341 ext. 1355.

USDA Did Give Us a Few Surprises

Tuesday, December 22

By Rich Morrison, NAU Country

Some of the changes in the December WASDE Report were anticipated, while a few were surprises. All eyes were on the soybean balance sheet. USDA did increase the domestic crush forecasts by 15 million bushels, which dropped ending stocks to just 175 million bushels. This would be the tightest US stocks since 2014, when carryout fell to only 92 million bushels, with a stocks/use ration of just 2.6%. We're not nearly that tight yet, but so much will ride on South American production over the coming months. USDA did leave Brazilian production unchanged at 133.0 mmt, close to many other analyst estimates. But USDA did cut Argentina's soybean crop 1 mmt to 50.0 mmt. USDA lowered its world ending stocks by 1 mmt. Back in the US, USDA also raised its Average Farm Price estimate for soybeans 15 cents to $10.55.

USDA didn't make any changes to its US corn balance sheet, when the trade was expected a drop in stocks. They also kept their MYA price estimate at $4.00. USDA raided its wheat demand and dropped its ending stocks estimate by 15 million bushels to 862 million bushels. That's the tightest US carryout since 2009! World stocks were also reduced nearly 4 mmt to 316.5 mmt, but that's still a record number. So while the US balance sheet seems friendly, world numbers remain bearish. USDA kept its MYA price estimate unchanged at $4.70.

The crop with the BIG changes this month was cotton. Cotton is the one crop that USDA does update production on in December, and USDA cut yield dramatically to 850 million pounds, a cut of 61 lbs or 6.7%. States with the biggest yield cuts were:

  • Louisiana -    dn 146 lbs
  • Texas - dn 113 lbs
  • Florida - dn 73 lbs
  • New Mexico - dn 69 lbs
  • Oklahoma - dn 52 lbs

USDA also increased cotton demand, bumping exports up to 15 million bales. The reason for that is reduced production in both India and Pakistan, which has brought a bit of Chinese demand to the U.S. Ending stocks were cut 1.5 million bales, and if forecasts for less planted acres in 2021 come true, the cotton market could be much more interesting in 2021!

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About the Author

NAU Country's Rich Morrison offers insightful daily analysis on commodity market fluctuations and pricing trends. To sign up for his daily analysis on commodity fluctuations, visit NAU Country.

How Soil Sampling Can Help Take Your Yield to the Next Level in 2021

Tuesday, December 22

By Cyndi Heath and Trevor Black, Black's Valley Ag

As the 2020 crop year comes to a close with winter on our doorstep, now is a great time to take a look at how you can improve your operation for the coming season. With a good crop year and rising commodity prices, now is a great time to think about how to invest in your operation to maximize your efficiency, yield, and return on investment.

One of the best investments you can make as a farmer is to get current soil tests for your ground.  These tests should be the foundation on which your fertilizer and lime applications should be built. Without them, there is a very real possibility that you are wasting precious time and money and are limiting your profitability and yield. Here are a few very important things that you can learn from your soil tests to help you next year:

1.      Your Soil pH Levels

Perhaps the most important thing you can do to maximize yields is to make sure that your pH levels are in the correct range for the crop that you are planting.  Having a pH that is too low or too high can severely limit the plant's capacity to take up certain nutrients from the soil, causing the plant to be malnourished and your fertilizer to be wasted.

Fall and winter are good times to get your ag lime spread on your fields while the crops are off and the soil is firm.  Applying lime is a great way to help maximize the return on your investment for next year's crop.

 

2.      Your Phosphorus (P) Levels

Phosphorus is an essential nutrient as it helps move and store energy in the plant to help it grow and reproduce, aids it in root production, and helps increase test weight in grain. P is critical especially in cool soils to help get the plant emerged and the roots growing early.  If your P levels are too low, you are severely limiting your yield by hurting the plant in its infancy as well as test weight later on.

Phosphorus does not move in the soil so it can be applied year-round, which helps you take advantage of price breaks. Generally, fall can be a great time to spread as nutrient pricing tends to be cheaper, application fees tend to be lower, and you can save precious time and money in the spring.

3.      Your Potassium (K) Levels

Perhaps the most undervalued and under applied nutrient, potassium is typically extremely deficient in the majority of farms in our area. This is unfortunate, as potassium is so immensely important for crop yields. Potassium helps move nutrients and water through the plant and is critical for plant health and grain production.

Most growers know that legumes, such as alfalfa and soybeans, require a lot of K in order to gain yield, but it is just as important in corn. In corn production we tend to focus primarily on nitrogen, but potassium is just as important. If your K levels are too low the corn plant has difficulty absorbing water, gaining energy from photosynthesis, getting nutrients from the roots to the ear, and has poor stalk strength and health. In short, the corn has drastically less drought tolerance, poor plant health, less food from sunlight, more nutrient deficiencies, weak stalks, lower digestibility, and more plant diseases and rots.

We cannot stress enough the importance of potassium for all of our crops.  The good thing is that K generally does not move in the soil and, like phosphorus, can be applied in the fall.

Soil testing is so important to helping you know how to invest your money into next year's crop so you can maximize your return at the end of the year.  Not knowing what your soil needs is like trying to cook a meal with your eyes closed: you are blindly throwing ingredients into the pan and hoping that it will turn out in the end. Soil sampling is the recipe you follow to help you be more efficient with your fertilizer, money, and time.  Now is the time to try and invest in your soils and build them up to where they need to be so you can reap the rewards in the future.

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About the Authors

Cyndi Heath and Trevor Black are with Black's Valley Ag, a full-service agricultural retailer specializing in field seed, fertilizer, chemicals, agronomy, precision ag, nutrient management and more. For additional information, visit www.blacksvalleyag.com or call 715.672.4255.

Preparing for Your Annual Review: What You Need and Why It Matters

Monday, December 21

by Cathy Asher, SFB Relationship Manager

With the end of the year fast approaching, now is the prime time to start planning for the annual review for your lending relationship with your banker. Understanding what information the bank needs and why can reduce some of the anxiety you may be feeling. 

There are three key pieces of information needed for your review. They are collected in stages and per your loan agreement, need to be submitted within 120 days of the prior year-end. SFB generally sends out notifications requesting the information, but you are welcome to provide them at any point after they're completed. In order to provide a meaningful review, it is important that the information be accurate and timely. Your balance sheet, tax return and cash flow projection are all key in positioning your farm business favorably in the coming year. 

The first piece of information submitted to the bank is your balance sheet.  We generally send you a request as well as copy of the previous balance sheet provided to us, during the last few weeks of the year. The goal is for our clients to update the balance sheet with current figures as of 12/31. Timing is everything; reporting figures outside this timeline can create errors in the analysis. Cash balances and prepaid expenses are examples of common reporting mistakes.  Clients will often report their cash balances based off of what is in their account per their online banking. However, there are times where checks are written prior to year-end for prepayment of next year's expenses in order to reduce tax liability for the current year. These checks may not have cleared the bank yet. The cash balance you report on your balance sheet should be reported as if they had cleared. Likewise, please include any prepaid expense such as seed, fertilizer, etc. that have been paid for the coming year along with any deferred financing arrangement used to make those purchases. Please submit your balance sheet by mid-January if at all possible. 

The last two key reporting components involve the tax return.  When submitting this information, we need the complete Federal return along with the depreciation schedule. We review the return not only for farm related income and expense but also personal income. There are sources of income not include on the Schedule F such as cull cow sales or timber sales that could impact your operations income that we want to account for in our review. SFB utilizes an income detail sheet that is sent with the reminder to submit your tax return. The detail sheet allows us to better understand Schedule F income sources as many times income from grain and milk are commingled. This detail sheet also requests information for the coming year related to livestock numbers, cropping plan, and any planned purchases. Having this information allows us to assists with creating a cash flow projection for your business for the coming year. You can bring your return to the bank for copying or request that your tax preparer provide it to us on your behalf. Please submit your return and projection not later than April 30th.

Collection of the financials for your business allows your lender to analyze trends in your business as well identify future opportunities. Providing this information timely allows us to react more quickly when you have a lending need.  Our loan policy and the bank examiners requires us to collect these financials on an annual basis.  We thank you in advance for working with us to ensure the best possible review of your operation. 

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Cathy Asher is a relationship manager and serves on the Agriculture Banking Team for Security Financial Bank. She can be reached at casher@sfbank.com or at 715.672.2410 .

Farm Tax Planning Likely a Good Idea for Most in 2020

Thursday, September 24

by Jeff Poeschel, Sundstrom & Company, Inc.

2020 is potentially shaping up to be a profitable year for many farmers.  Commodity prices in general have been up, down and everywhere in between. Several government programs like the Commodity Food Assistance Program (CFAP), the Payroll Protection Program (PPP) and the WI Farm Support Program have generated significant revenue for many.  Undoubtedly, 2020 has been a wild ride for farmers. It will make sense for most farmers to work closely with their tax accountant as 2020 winds down to be sure the farm income and expenses are managed in a way to plan and minimize taxes where possible.

Tax planning really begins after you figure out what your projected 2020 taxable income will be. Some basic ideas on ways to help manage your 2020 tax liability would be:

•  Prepay expenses.

•  Make capital expenditures and use Section 179 expense to write them off.

•  Defer income using a deferred payment contract

•  Defer crop insurance proceeds.

•  Contribute to a retirement account such as an Individual Retirement Account (IRA).

•  Contribute to a Health Savings Account (HSA).

•  Defer your Required Minimum Distribution (RMD) if over 72.

•  Make a charitable donation.

•  Delay applying for forgiveness on any PPP loan proceeds received.

Working on your tax planning strategy as the year concludes can often save a lot of unnecessary tax.  Most of the above tax planning strategies need to be implemented before year-end, which makes advanced planning critical. Several of the above strategies are often used together to produce the result that makes the most sense for the farm. 

Tax planning can happen at any time during the year. Some farmers like to get an idea on how the farm is performing before the fall harvest.  Other farms like to wait until the fall harvest is complete.  The main goal should be to complete the planning process with plenty of time left before the year concludes to implement whatever strategies that have been decided on. 

A few hours of tax planning before 2020 concludes can help your farm avoid potentially thousands of dollars of tax due by March 1, 2021.

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Jeff Poeschel is a certified public accountant with Sundstrom & Company, Inc., a team of local accountants located in Durand, WI. The firm specializes in tax preparation and business services. For more information, contact him at 715-672-4425.

Persevering Through Unprecdented Times

Wednesday, September 23

by Jenny Jereczek

As we continue to navigate yet another year of volatility in the Ag industry and move into fall harvest and the Thanksgiving holiday, I felt it was important to express my gratitude to our clients. Your unwavering commitment to the success of your operations through, what has been some trying times, has not gone unnoticed. Thank you for your perseverance during these unprecedented times in agriculture. 

Your devotion to your farm business is evident in the way you manage your operation; you have adapted your practices to the changing times and new technologies. Thank you for farming smarter. This is not your father's Oldsmobile, it's not your father's genetics or management or regulatory oversight, either. Managing a herd or land base today is not the same as fattening one steer or growing an acre of corn 40 years ago.

SFB's success depends largely on the success of each of your operations. Each and every one of you have stepped up to the challenge, made tough decisions and have made changes when necessary to ensure the success of your operations.

Thank you for trusting SFB to be part of your financial team. We are truly honored to be your lender of choice and want you to know SFB remains committed to serving you and the Ag industry for many years to come!

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Jenny Jereczek is the director of Ag Banking for Security Financial Bank. You can contact her at 715-672-2427 or jjereczek@sfbank.com.

Managing Risk in Your Farm Operation

Wednesday, September 23

The last few years have left producers feeling as if there are variables within their farming operations that are out of their control.  When we watch the markets fall almost as quickly as they rallied, it's easy to get pulled into a mindset of throwing our hands in the air.  Some of us have been caught on the wrong end of a milk or grain contract, which may make us gun shy about taking a future risk. 

There are multiple risks to consider mitigating in your operation. Most often, when we think about risk within a farming operation, we're focused on price risk. We're targeting our energy toward minimizing risk in what we will get paid when we market our milk, crops or livestock. Beyond price risk, we also need to consider yield, institutional, personal and financial risks associated with being in business while also looking for opportunities to minimize their effects on the long-term success of the farm business. 

YIELD RISK
Never has yield risk been at the forefront of farmer's mind than it was in 2019. There were a whole host of weather irregularities both locally and nationally that negatively impacted yield and thereby farm income. As we approach harvest, now is a great time to be gathering yield data and discussing both under performing and top performing hybrids with your agronomist. There is a wealth of science and data at their disposal to help select varieties better suited for your farms soil to minimize the effects of less than ideal growing conditions. Beyond seed varieties, take some time to review your crop insurance coverage levels to assess for opportunities to further minimize risk. Multi-peril crop insurance offers both yield and revenue protection at varying levels. SFB's Mark Chilson would be happy to work with you to tailor a policy to meet your individual operation's needs. 

PRICE RISK
Price risk refers to not only the price we receive when our product leaves the farm gate but also the fluctuation of the cost of inputs used to produce that product. In most cases, there are months invested in getting your product to market. Contracting and prepaying inputs can reduce risk for your operation and improve profit margin from an expense perspective during the production period. When deciding on what and when to contract in the way of inputs there are a few factors to consider:

  1. Are there potential supply concerns in the market place like we experienced in the Spring of 2019 with fertilizer?
  2. Will you be able to cover the up-front expense from cash flow or will you need to utilize financing? 
  3. If you need to finance the inputs this could create additional interest expense.  Do the math and determine whether your discount on product will really cost you in interest. 

INSTITUTIONAL RISK
Institutional risk results from changes in policies and regulations that affect agriculture. A prime example of this is our current trade situation with China. We've observed prices on soybeans remain at fairly flat levels with the exception of the last week or so. Understanding your cost of production can help you decide when is the time to sell when we experience some upward movement in prices.  

Another example of institutional risk is permitting of livestock facilities and changes in policies affecting manure disposal. Are you addressing potential concerns with improper manure disposal and working to correct them? Is your livestock facility growing to the point of needing a CAFO permit? The cost of CAFO permitting or building/improving a manure storage can seem daunting. However, the impact to income with ceasing operations due to lack of permitting or other environmental concerns could pose a much larger risk to your business. 

PERSONAL RISK
Personal risk results from disruptions to the operation from the exit of a partner, death of family member, divorce, injury or on-going health concern. Are you covered with disability or life insurance in the event that one of these personal risks becomes a reality? In the event that one of the key people in your operation becomes unable to fulfill their role, do you have coverage in place to protect income or pay down debt? 

There are disability insurance products that farmers are eligible for depending on Schedule F income levels. Chilson also is familiar with these products as well as life insurance options and could put together a quote for you. 

As we approach winter, you may also want to take the time to review your insurance policy on your farm assets. Are you covered in the event of a catastrophic event such as a fire or building collapse? A rider for loss of use can help protect income during the rebuilding process.  Asset coverage is never stagnant but rather to be reviewed annually with your agent to ensure adequate coverage at a reasonable cost.  

FINANCIAL RISK
Financial risk refers to how a farm business obtains its capital to operate. If the capital is financed, there is potential risk to the operation with rising interest rates. If the business requires borrowing more capital in any given year under variable rates that are on the rise that exposes the business to additional interest expense, which reduces profit margins. Even if the farm is self-financed there is financial risk with potential loss of equity in the event of negative profit margins. Mitigating the aforementioned risk categories can reduce the financial risk to your farm operation.  

RISK MANAGEMENT PLAN
While this may seem like a lot to consider, it is important to remember that you do not need to have all the answers or solutions to the potential risk in your farm operation.  Your insurance agents, marketing advisor, agronomist, lender and government specialists are at your disposal to help you create a comprehensive risk management plan for your farm.  At SFB, we are here to help you in this process and we wish you all the best as we enter the harvest season. 

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Cathy Asher is a relationship manager in SFB's Ag Banking Department. You can contact her at 715.672.2410 or at casher@sfbank.com

Five Tips to Lead Your Farm Operation to Success

Friday, June 26

Up at dawn (or maybe even before) and working well into the evening - even then, the days do not seem long enough and the list of tasks does not get any shorter. Management of your operation, especially in the trying times agriculture has experienced recently, can be overwhelming. Many farmers are very successful at growing corn, soybeans and milking cows, but the struggle is often the overall leadership and management of the farm employees. Growth in your operation can be significantly impacted by your ability to lead and willingness to empower employees.

The following represent a few principles to improve your leadership skills:

1)  Model behaviors you expect from your employees.

Do you expect employees to show up on time, however you are always late? Treat employees with respect and set clear expectations not only on how work gets done but also on how people interact with each other.

2)  Share vision/goals of the farm with your team.

Employees will become more engaged if they can see the goal and how they contribute to that goal.


3)  Challenge the status quo and continually look for better ways to do things.

Encourage employees to bring ideas for consideration. Often times those directly involved in daily tasks can shed light on what is working and what isn't. New and progressive ideas can improve efficiency and the success of your operation.


4)  Avoid being a micro manager.

There simply isn't enough time in the day for you to manage every task on the farm. Take the time to coach, mentor and foster empowered employees whom you can trust to work independently. This will allow you the time needed to focus on the larger strategic plan for your farm.


5)  Appreciate, encourage and motivate!

Give compliments and recognize the hard work and dedication your employees give to your operation. Celebrating success and accomplishment will motive employees to continue to work hard and to keep contributing their time and effort to your operation.

By choosing to be a good leader, you have a competitive advantage over those who choose not to. Employees will be happier, reducing turnover and likely increasing their efficiencies and output.

Use Available Tools to Manage Through COVID

Friday, June 26

At the onset of the New Year, many producers were happy to leave the challenges of 2019 in the rearview mirror. 2020 seemed to be filled with a renewed sense of optimism and opportunity.  The farm community was hopeful; milk prices were up and trade negotiations with China were moving in the right direction. COVID-19 undoubtedly impacted agriculture in a negative way. Commodity prices appeared to drop overnight and the hopes that those tied to the agriculture community had going into the year followed that trend. Everything we thought we knew about trends went out the window in the first few months of the year.  We were left feeling like 2020 was out of our control.    

Government intervention restored some hope in the form of multiple program acronyms. Programs such as the Small Business Administrations' Paycheck Protection Program (PPP), USDA's Coronavirus Food Assistance Program (CFAP) and the Wisconsin Economic Development Corporation's (WEDC) WI Farm Support Program have provided aid to offset a portion of the impact caused by the coronavirus ripple. These programs along have helped to level the peaks and valleys we are experiencing with commodity market price volatility to some degree. 

As farm business owners, it is important to use the tools at your disposal to limit the feeling of losing control. Everyone's tool box looks a little different because every farm operation is different. Your toolbox might contain forward grain contracts or government programs such as dairy margin coverage or perhaps insurance products such as dairy revenue protection, livestock gross margin or crop revenue protection. Maybe you've waited to execute on adding tools like a financial consultant or regularly scheduled meetings with your trusted advisors. It can be daunting to use some of these tools. It takes time to research and become comfortable with their use. However, whether the tools are implemented or eliminated, most business owners would agree that they are glad they did the research and feel empowered to move their business through these trying times.  After all, doing something is always more beneficial than doing nothing. 

A Positive Perspective: Current Happenings on the Family Farm

Thursday, March 26

Last Saturday night, I helped with chores and milked cows on a family farm near where I live. It was a welcome break from my everyday life. With the current shut downs, school closings and social distancing to avoid spreading this unfathomable COVID-19 virus, it quite frankly seemed like the only activity that was acceptable.

In addition to my role at the bank, I am a hobby farmer. While I have my own chores at times with crops to plant and harvest and a few animals sprinkled around, there is nothing like doing work on a working dairy farm to keep me grounded and provide stress relief. I honestly enjoy the tasks as it makes me feel connected and more informed about the everyday struggles and rewards of being on the farm. I probably should add a disclaimer that the farmers' place that I was at might argue that "help" is not the right word, but for my lack of breaking anything (which has happened once or twice), it is the word that I will use.  

As we went about the farm chores, there were many comments regarding everything from memes that were viewed on social media over the last couple of days to the state of the global markets and speculation about what and where would be affected next. While we were all aware of different messages on the news, the farm chores still needed to be done, and it made me feel good to be a part of it.

During unprecedented time like this, it's important that we remind ourselves of the positive things that are going on in our life and take care of what we can control. There are many ways to look at the bright side of what is happening around the farm, such as a new calf being born - because we all know how cute they can be. Even in the midst of markets, we can find things like fuel for spring planting at prices I didn't think we would see return. And before I get hate mail, I do know the correlation between corn prices and fuel cost. I just chose to focus on the upside of the low fuel price.    

So many farms were built around the family farm concept. With schools not in session at this time, it leads to an extra chance for those who have kids or even grandkids to help around the farm. Additionally, there may be friends that are willing to help if they suddenly find themselves with extra time. And with all those extra hands, you just might have a chance to complete that project that has been on your to do list but you never seemed to have the time or help to accomplish.

A short time spent on all of the day's chores reminds me that if we look hard enough, we can find good in any situation. And in the meantime, we continue to focus on our daily farm chores and relish the extra time and help.


Randy Ptacek has been an ag lender since 2004. Before his career in finance, he spent many years in agronomy and crop production. In addition to banking, Randy also raises hay, corn, soybeans and a few stears. He can be reached at SFB's Ladysmith office at 715-609-1508 or at rptacek@sfbank.com.

What Does COVID-19 Mean for 2020 Planting Season?

Tuesday, March 24

As spring approaches, producers may be wondering how the COVID-19 virus and the recent Safer at Home order may impact their operation. There are a number of factors to consider to effectively manage through this period of uncertainty depending on your business enterprise.

First, we know that based on Emergency Order #12 issued by the State of Wisconsin Department of Health Services, part 13C, that production agriculture, farm and agriculture equipment, supplies and repair services are exempt from this order. While businesses that fall under this umbrella are exempt, all citizens/employees are required to maintain social distancing with those individuals not residing within their household. This is imperative not only to prevent the spread of the disease but also to insure appropriate staffing levels for your farm business. The work still needs to be done; let's do our best to keep our distance, maintain our health and reduce the impact to our operations during a season of long days with less than ideal sleep.

A second concern with this virus is what the impact might be to your operation in timeliness of delivery of product or services. As it stands currently, Safer at Home will be in effect until Friday, April 24th. Based on weather conditions in our area, growers may very well be actively completing field prep in anticipation of planting during that time frame. Communication with your vendors and service providers is critical. A phone call to discuss expectations on both sides will reduce stress and assist with planning for completion of other tasks should you need to wait for product. At this time, it does not appear that COVID has had a direct impact on supply or pricing. A call to your supplier can confirm this and hopefully provide you with peace of mind.

To view the entire Emergency Order #12, CLICK HERE.

Tips to Prepare for a Better Year

Friday, January 3

Many have welcomed 2020 with open arms and are glad to see 2019 in the rear view mirror. 2019 certainly had it challenges! We had significant cold and snow in February and March leading to building collapses, a cool wet spring resulting in late planting, and a record year for prevent plant acres. Fall harvest did not come without its own challenges from wet fields to wet crops. Throw in global trade disputes and continual changes in technology, it is no wonder that many farmers were left feeling overwhelmed.  

The New Year brings opportunities to learn and grow from all of the experiences of 2019.  Taking the time to review your challenges experienced in 2019 and planning for 2020 can help reduce stress and help us feel more prepared. Here are a few ideas:

1.      Develop viable plans and options for the future.

•  Preparing projections and cash flows will allow you to scenario-plan and anticipate possible curve-balls.

•  Monitoring actual performance with the plan also can allow for pro-active steps vs being reactionary.

•  Creating a plan can aid in looking for ways to be efficient and competitive.

2.      Mitigate risks when possible.

•  Utilizing insurance is one way to mitigate the risk of loss. An example would be DRP for milk and MPCI for crops.

•  Marketing/contracting prices - know your operation's cost of production and look to limit the downside risk.

3.      Stay current with industry trends and take advantage of educational opportunities.

•  Consider how precision tools may increase your ability to be efficient, reduce costs, and reduce your operation's impact on the environment.

•  Consider advances in cow comfort and nutrition and how these changes could impact your bottom line.

•  Be willing to try new methods. Not every new process, piece of technology or trend will work for every operation. However, continuing to do the same old thing because it is what we have always done could be the demise of your operation. Having an open mind and being willing to consider new methods is important.  

What Does 2020 Look like for Farming - Hope for Improvement or More of the Same?

Friday, January 3

While most of us would like to have a crystal ball and be in a position to capture the market swings, we all know no one can totally predict agricultural futures with any certainty. The buzz seems to be "cautiously optimistic" for much of the ag industry for the year ahead. As of now we, are sitting on low commodity prices since about 2014. That means we have had nearly five consecutive years of low prices on most commodities, which this in itself hopefully means it's time for a turnaround!

Most of the focus for cautious optimism in the year ahead revolves around trade markets. Progress on the trade agreements of the USMCA (U.S. Mexico Canada) trade deal, an expected phase one of the trade deal with China and the US-Japan trade deal all boast well for possible upswings in demand for our export market. While these seem to provide hope of a more positive year, best practice for producers is to utilize risk management strategies that can reduce losses or provide protection in times of volatile markets and unpredictable weathers. 

Buying New vs Used Farm Equipment

Thursday, October 3

As commodity prices continue to stress profit margins for producers, thorough analysis of equipment purchases is a must. This means producers should ask a lot more questions, both of themselves and of the dealers with whom they work to purchase new or used machinery. Factors to consider prior to a purchase:

Reliability
In most cases, new equipment is more reliable than used equipment. Consider the cost of breakdowns not only in regards to cost of parts and labor, but also the cost of down time and the potential results to quality of the harvest.

Latest Technology
For those who value the high-tech equipment, buying new will allow for continual upgrades to the latest technology. This could mean trading more frequently. If you are financing your purchase, you may be trading prior to the completion of the financing contract. Considerations should be made to adjust the terms if possible to avoid negative trade equity.

Cost
Used equipment on the other hand typically comes with a lower cost and many times one can still find models with low hours and often times with high-end functionality.

Length of Use
Used equipment is often times a more economical choice for the seasonally-needed pieces. Determine whether an item can be owned for less than the cost of renting or leasing on a short-term basis. If you choose to own, consider whether the equipment could be rented/leased to another producer to help cover the cost of ownership.

Ownership
Consider depreciation, insurance and repairs. Determining the cost of ownership can be difficult. This article from the Iowa State University Extension offers good insight to estimating the cost of ownership.

Are You Ready for Winter?

Thursday, October 3

With the Farmer's Almanac predicting this winter to mirror last winter's snow fall, producers may want to take some extra time to evaluate structural integrity and insurance coverage yet this fall before the snow flies.

While you may not have experienced a collapse last winter, the soundness of your farm buildings may have been compromised with the excess snow load we experienced.  Carefully assess the roof components for existing cracks or breaks. There may be an opportunity to reinforce these components and avoid a more costly repair later or worse, loss of livestock or use of equipment. 

Now also is the time to review your farm insurance coverage. Your agent would likely welcome the opportunity to discuss your policy and how you can minimize risk of loss to your operation. Take some time to review not only deductibles but whether your policy is written to cover the following:

  1. Collapse due to snow load and/or wind.
  2. Loss of production due to structural failure.
  3. Loss of contents - fans, animals, equipment, waterers, stalls and other fixtures.
  4. Structural age restrictions - Is the building too old to be covered?
  5. Modification of structures - If you add a lean-to or other addition, is the original structure covered?
  6. Type of coverage:

    * Actual cash value
    * Replacement cost value
    * Functional replacement value

Special thanks to Carl Duley of Buffalo County UW-Extension for presenting the information on insurance considerations recently at the Farm Building Structural Failures Workshop.

Why It is More Important Than Ever for Ag Producers to Create a Marketing Plan

Friday, July 12

Between the sustained lows in commodity prices and recent volatility with international trade, many agriculture producers are left feeling as if they are at the mercy of the marketplace and have little control over what they receive for their commodities.

That is why it is more critical than ever that producers develop and execute a marketing plan, according to Cathy Asher, a relationship manager for Security Financial Bank (SFB) in Durand. Asher, who specializes in agri-business lending, provided a few tips for farmers to consider when developing an operation's marketing plan. They included:

  1. Understand Your Operation's Break-Event Cost
    "Once you know this cost, you can remove the emotion from deciding when to sell," Asher said. "Your lender would be happy to assist you with calculating your break-even costs or there are several online tools available to assist you with performing the calculation. The key to arriving at an accurate break-even cost is to use complete and current financial information." 

  2. Include Pricing Objectives
    Pricing objectives should consider market rallies and incorporate both futures and current pricing, she said.  

  1. Set a Marketing Timeline
    "Your timeline should consider the seasonality of production and supply," Asher said. "In other words, examine when you usually see more product in the marketplace, which would generally mean lower prices for your commodities." 

  1. Consider Marketing Tools
    There are several tools available to assist growers with marketing, thereby limiting price risk to the operation. These tools include (but are not limited to) basis and hedge-to-arrive contracts, puts and calls. These tools can be used in conjunction with SFB's in-house risk management tools of Multi-Peril Crop Insurance (which includes revenue protection coverage) as well as Dairy Revenue Protection. 

  1. Reasons for Your Strategy
    "Don't forget to include the reasoning behind your strategy," Asher cautioned. "This final component of your plan should be included to reduce second-guessing that can sometimes come with decision making." 
     
  1. It's Time to Execute!
    "Execution of the marketing plan is critically important.  You may not perfect your marketing plan for the first cycle.  Just as with production agriculture, there are tweaks that can and may need to be made from year to year," she said. "What is certain is that you will have an improved understanding of your farm's marketing gaps and will identify opportunities for growth."

Additional marketing resources for both crop and dairy producers to assist with developing their marketing plans are available at the following sites:

Protecting Your Farm from Activitists

Friday, June 28

Farm security is not always top of mind for producers; however, activists will go to great lengths to portray production agriculture negatively, ranging from gaining employment with the intent to record misleading videos, trespassing and holding large-scale protests at farms.

Here are few tips to help to protect your farm from unwanted negative attention:

1)      Monitor Who Enters the Premises - Anyone entering your farm should have a valid reason for doing so. For those whom you do not recognize, question their reasons for entering and do not let them wander the premises unattended. Pay attention to strange vehicles and get license plate numbers if available.

2)      Carefully Evaluate Inquires and Information Requests - Gather as much information as possible about who is requesting the information. Do not be afraid to question the reason for the inquiry. A response in writing will provide a paper trail of what information was given to outside parties.

3)      Hiring Tips - Ask for applicant's previous farm experience and follow-up with former employers and references.  During the interview, watch for answers that seem overly rehearsed or include incorrect usage of farm terminology. Search applicant's social media profile and look for questionable content or connections to activist organizations. Provide training and oversight to make sure employees are following a pre-established standard for animal care.

What's the Difference Between DMC and DRP?

Wednesday, April 3

The main difference between Dairy Margin Coverage (DMC) and Dairy Revenue Protection (DRP) is that DMC offers a margin protection between milk price and feed prices, while DRP protects you if milk prices decline. With DMC, if both milk price and feed prices go down equally and you are outside the selected margin, there is no payment. Whereas with DRP, if at the end of the insured quarter the actual milk revenue is below the revenue guarantee, the insured will receive an indemnity payment for the difference between the actual revenue and the guaranteed revenue, times by the share and the protection factor. 

Dairy Revenue Protection can be used in combination with Dairy Margin Coverage, but they are available through different sources. DMC is available only at your FSA office, whereas DRP  insurance must be purchased through an insurance agent. 

Security Financial Bank has two experienced crop insurance agents that can provide you with more detail and the protection offered by DRP. For more information and to protect yourself against further declines in the milk price, see Mark or Jenny at Security Financial Bank at 715.672.4237.

What You Need to Know about the New Dairy Margin Coverage Program

Thursday, March 28

With margins remaining tight for dairy farmers, seeking out all available opportunities to support cash flow is extremely important. The new Dairy Margin Coverage (DMC) program authorized in the 2018 Farm Bill has an increased "margin" threshold to $9.50/cwt, which replaces the $8/cwt limit under the Margin Protection Program. Coverage can range from five percent to 95 percent of a farm's milk production history, but can only be covered in five percent increments.

Two tiers also were created with the new DMC:

  1. Tier 1 coverage is the first five million pounds of production covered by a farm.
  2. Tier 2 coverage remains capped at $8/cwt.

Farmers can choose to sign up for DMC coverage for just 2019, or they can make a one-time election to sign up for coverage through 2023 at the same coverage levels and be eligible to receive a 25 percent discount on the premiums.

The USDA has already released the actual margin price for January, which was $7.99/cwt. How does the payment work? Here's an example if the $9.50/cwt election was chosen:

                                                    Election Chosen                                $9.50/cwt
                                                -   Actual Margin Price                    -   $7.99/cwt
                                                    Payment Issued                               $1.51/cwt

DMC signup is scheduled to begin on June 17th at your local FSA Office. (To find your local office, a directory is available here.)  This means payment amounts for up to the first five months of the year may already be known when sign-up begins.

The 2018 Farm Bill also removed the restriction on participation in both the DMC and the LGM (Livestock Gross Margin) program. The Dairy Revenue Production (DRP) Insurance product also is available and can be used in combination with the before mentioned products. To find out more about DRP, contact Jenny Jereczek or Mark Chilson at our Durand office at 715-672-4237.

Producers should become familiar with these products and implement as appropriate.

Multi-Peril Crop Insurance Can Help Protect You

Monday, January 14

With all the uncertainties in farming today, Security Financial Bank can provide you with multi-peril crop insurance to protect yourself from a wide range of perils. This crop insurance can provide revenue protection against losses due to both yield or price decreases. The licensed crop insurance agents at Security Financial Bank have many years of experience helping farmers manage the risks in their farms' cropping operation with the use of multi-peril crop insurance and crop hail insurance. We can offer individual plans, as well as area plans.

Want to learn more about it? Contact Mark Chilson or Jenny Jereczek at Security Financial Bank or call 888.254.0615 for all your crop insurance needs.

SFB is an Equal Opportunity Provider.

Will Your Bank Be There for You?

Monday, January 14

Security Financial Bank (SFB) has supported farmers for almost 90 years - since the bank started in Durand, WI in 1934. Today, farmers are 25 percent of SFB's customer base. Throughout our history, the farm community has been a big part of who we are; and though the industry continues to experience economic difficulty, we hope to have the agricultural community continue to be a significant part of our future.

A question probably going through many farmers' minds is whether their bank will be there for them when they have a financial need. The answer to this question lies largely in the relationship that the farmer has with their advisors. During times of struggle, the honest communication between the bank and the farmer is most important. Part of the bank's role is to help a client solve problems, much like a doctor does when a patient is ill. To do so, the customer should welcome questions from the bank, so that a proper diagnosis occurs. These questions should lead to deep discovery on various issues and provide answers on cash flow, collateral and what may happen in the future, given different scenarios. It is also valuable to have the customer meet together with both the bank and accountant. When this occurs, better solutions to problems result.

At the end of the day, the bank and the farmer are partners. In any partnership, especially when there are challenges, honest communication is key. We value your business and look forward to continuing our relationship into the New Year.

Why You Should be BQA Certified

Monday, January 14

Beef packers are beginning to require all producers from whom they purchase livestock be BQA (Beef Quality Assurance) certified. BQA is a national program that raises consumer confidence through offering proper management techniques and a commitment to quality within every segment of the beef industry.

The certification can be completed easily online at www.bqa.org free of charge by simply watching a short video, answering pertinent questions and printing your certificate. Some packers have set their requirement date for January 1, 2019. It is expected eventually all packers will require this certification to accept livestock at their plants in the near future. The certification can be submitted to the marketing firm you use at any point prior to shipping livestock and will be retained in their file.

SFB is an Equal Opportunity Provider. 

Do Low Milk Prices Have You in the Dumps?

Monday, January 14

We may have a solution to help ease the problem!

Dairy Revenue Protection (DRP) is an area-based revenue product that is designed to insure against unexpected declines in the quarterly revenue from milk sales relative to a guaranteed coverage level. The quarterly insurance periods cover a three-month period and can be sold up to five quarters, with the exception of the last sales period.

What does this mean? If milk prices drop below your guaranteed coverage level, the insurance will cover the difference and limit your risk.

There are two pricing options available for each endorsement. The expected revenue is based on futures prices for milk and dairy commodities and the amount of covered milk production elected by the dairy producer. The covered milk production is indexed to the state or region where the dairy producer is located.  DRP is approved for sale in all 50 states. 

Contact Mark Chilson or Jenny Jereczek, our licensed insurance agents at Security Financial Bank, at 888.254.0615 for more details and to sign up for this highly subsidized milk insurance product.

 

SFB is an Equal Opportunity Provider.

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