Farm Business Management Resource

We’re Open!

Farm Visits are Available!

 by CAAHP Farm Business Management Educator, Dayton Maxwell

from the Capital Area Agriculture & Horticulture E-News, June 26, 2020

Before I discuss re-opening plans, I want to thank my one true fan. As some of you are aware, since I’ve been sequestered working from home, I’ve tried to reach the CAAHP team’s audience by writing short blurbs for Friday’s E-News, in addition to providing an accompanying video. Last week, I got brave and asked the person who posts my videos about how many views my videos have been getting. She suggested 19 as my highest number of views with some weeks garnering only one view.

I was a little discouraged by this, since I think my videos are getting better each week. Consequently, I was considering discontinuing my videos, until I had a conversation with my one true fan.

My one true fan is a real farmer (not my wife since I know that’s what you were thinking). This farmer said he reads my column and watches my videos and finds them useful and enjoyable. So, since it only takes one or two people to start a movement, I’m going to stick with my videos. At least for this week.

Back to re-opening plans. This week, Albany County Cornell Cooperative Extension and Washington County Cornell Cooperative Extension rolled out re-opening plans. As you might expect, there are lots of social distancing guidelines, personal protective equipment requirements, and many other protocols. And, at least for me, it’s going to be a gradual transition back to the situation where I work from home a few days per week and attend the office a few days per week, since workplace office space must, at least for now, maintain limited capacity.

The good news is that I can conduct farm visits on a limited basis, as long as social distancing and the other suggested COVID-19 procedures are implemented.

Given this, please call me! I am itching to get out of the house and would enjoy meeting you and seeing your farm, especially farmers in Albany, Columbia, and Greene Counties. Because of my relative newness to the job, I am still getting to know people in these areas.

Please make sure you’re working on your business re-opening plans. The following web link is a great place to start: https://agworkforce.cals.cornell.edu/ny-forward-business-safety-plan/.

Until next time!

You can reach me at 518-380-1498 or dtm4@cornell.edu.

Thank you and be well!

Bent, But Not Broken

by Dayton Maxwell, CAAHP Farm Business Management Educator

I love studying economics! I wouldn’t call myself a true economist, but rather an armchair economist.  Even so, when the minutes of the Federal Open Market Committee meeting are posted, I can give them a read and formulate some pretty good analysis.  Federal Open Market Committee meetings convene when members of the United States Federal Reserve Banking System get together to determine which combination of monetary policy will be applied to guide and direct the U.S. economy. Interest rates and money supply are two typical topics of conversation.

On May 24, 2020 Federal Reserve Chairman Jerome Powell stated on public television, “The US economy is going through an unprecedented recession and a recovery will take time.  Even so, you don’t want to bet against America’s economy.”  In, short what Chairman Powell means is the US economy will recover from the COVID-19 pandemic.  The next question to consider is, “how long will the recovery take?”

With regard to U.S. Gross Domestic Product or the total monetary value of goods and services produced within the U.S. economy for a specific period of time, most economists indicate the first quarter (first three months) of 2020 decreased four to six percent from the fourth quarter (last three months) of 2019, which overall doesn’t seem too bad in consideration of the impact of COVID-19. It is important to remember full lockdown didn’t happen until the last two weeks of March, so the first quarter was nearly over.  Basically, first quarter GDP was only slightly scathed by the pandemic; however, a large number of economists expect second quarter 2020 (second three months of 2020) GDP growth to decrease by close to 40 percent from the prior quarter. 

This is serious!  In fact, the U.S. has very little history of such a significant GDP decrease from one quarter to the next as the result of a forced downturn in the U.S. economy due to stay-at-home mandates associated with COVID-19.

Don’t be too afraid; there’s a lot of good news!  This group of economists (or at least most of them) expect GDP losses experienced in the first two quarters of 2020 to be recovered in the second two quarters of 2020.  In other words, it’s possible the U.S. economy will be back to a similarity of full function by the end of 2020 or early 2021 as people return to work and sort-of-usual consumption patterns. Of course, certain industries will be influenced more than others.

Keep in mind, there’s a lot of good stuff going on to make this recovery happen.  Through government spending, The Cares Act has injected over 2.3 trillion in economic stimulus into the economy. The Federal Reserve Bank reduced the targeted prime rate to range between zero and a quarter percent interest.  This combination of efforts is designed to get money flowing between people and businesses, people and people, and businesses to businesses.

Dayton Maxwell, CAAHP Farm Business Management Educator

Non-Stop!

by Dayton Maxwell, CAAHP Farm Business Management Educator

This week’s title is indicative of another wild week, but since I used that title for a previous writing Non-Stop is fitting for this week.  Since last week, I’ve been engaged in three items worthy of mention.  Not that the numerous other things I’ve been working on are less than worthy, it’s just that these are the Big three.

1- It’s been very interesting for me to witness supply-demand economics at work with regard to dairy farmers buying and selling base production. In case you aren’t familiar with the situation, here is some background.  Due to COVID-19, away-from-home sales for dairy products took a severe header because of stay at home restrictions for consumers. Because of this, short-term demand for dairy products declined significantly.  Some estimates indicate 50 to 60 percent of away-from-home dairy consumption disappeared, although it’s coming back as states re-open.  This quick and sudden demand decrease created a tremendous excess supply of milk, resulting in a rocketing downward spiral of short-term milk prices.  Though already working on supply control mechanisms, COVID-19 facilitated a speeding up of dairy cooperatives’ supply control policies, resulting in the option for farmers electing to go out of business to sell their historical annual production or a portion of this to a farmer intending to grow production output.  The cooperatives said farmers would figure out purchase and sale prices – and they certainly did!  In my conversations with dairy farmers, I learned the breadth of different purchase and sale prices is staggering.

2- Last Friday, New York Governor Cuomo announced Phase One of re-opening New York State, New York Forward, though many essential agricultural businesses remained open during the shutdown. As part of the New York Forward plan, all businesses, including farms and agri-businesses are required to prepare a safety plan with strategies to prevent the transmission of COVID-19 in place, and in the case of an outbreak, a plan to manage COVID-19 at their business. Even if businesses never closed due to COVID-19, a plan is still required. 

New York State offers a plan template, which is available at: https://tinyurl.com/NYSCOVIDPLAN.  Business owners/employers are not required to submit business safety plans to the state, but they must kept on site in the event of a New York State Department of Health Inspection. I, along with other members of the CAAHP team, are working with Cornell faculty and staff across New York State to provide example outlines for plans. These should be available on Cornell’s Workforce Development website by next Friday: https://agworkforce.cals.cornell.edu/.

3- This week, the USDA announced details for the Corona Virus Food Assistance Program, also known as CFAP.  This program provides direct payments to farmers impacted by GPT, including specialty crops such as fruits, vegetables, and nuts.  Specialty crops are often excluded from USDA programs, so, this is a big deal! On May 26, USDA’s Farm Service Agency will begin accepting CFAP applications.  Please visit https://www.farmers.gov/cfap for further details.

That’s all for this week!  If you have less than ten minutes of idle time please go ahead and give my video a look.  Many thanks!

Another Wild Week!

From the Capital Area Agriculture & Horticulture E-News, May 8, 2020

by CAAHP Farm Business Management Educator, Dayton Maxwell

Happy Friday! Similar to a few weeks ago there’s no specific subject for me to write about , so I’ll address a combination of topics.

You may or may not know that as a result of the Global Pandemic Thing (GPT), the commodity dairy industry is like the Wild West. Due to extreme oversupply, dairy farm cooperatives are implementing supply control polices including allowing farmers to purchase production base from dairy farmers electing to exit the industry. By purchasing production base, dairy farmers remaining in business can increase the amount of milk they sell in the market place. I’ve had numerous conversations this week with dairy farmers relative to the value of production base. Production base has become tradable. Who knew!

A second point of interest this week is the Small Business Administration’s (SBA) Economic Injury Disaster Loan Advance (EIDL). At the start of this week, SBA announced agricultural businesses eligible for EIDL loans and the EIDL loan advance. The EIDL loan advance maximum amount is $10,000, and may be used for specifically defined business operating expenses.

The neat thing is this $10,000 loan advance does not require repayment and even crazier is this: I worked with an agricultural business to apply on-line for the EIDL loan advance on Monday, May 4, and the company received the $10,000 EIDL loan advance on Wednesday, May 6. I’ve never experienced a government agency responding this fast!

Here’s the EIDL website for your review: https://tinyurl.com/EIDL-loans

Per my usual spiel, I invite you to check out this week’s video (it’s short) and as always please contact me if you’d like. Thank you!

Demand for Local Foods and The Global Pandemic Thing

by CAAHP Farm Business Management Educator, Dayton Maxwell,

from The Capital Area Agriculture & Horticulture E-News, May 1, 2020

Earlier this week I was fortunate to participate in an online panel discussion organized by Agriculture Business Professor Kim London at SUNY Adirondack. The purpose of the panel group was discussion of how the current pandemic situation has influenced agriculture and changed the focus of the immediate agricultural landscape.

I discussed how my work with farmers has shifted from medium and long-range planning to short term monthly budgeting to stave off cash losses due to recent market downturns. However, what I was most impressed with were my fellow panelists; Marissa Peck, Food Assessment Coordinator at Capital Roots in Troy, New York and Robert Arnold of Pleasant Valley Farm in Argyle, New York.

Capital Roots works to improve public health through proper nutrition by organizing community gardens, providing healthy food access, and offering nutritional and horticultural education as well as urban greening programs.

Pleasant Valley Farm provides over 40 types of organic vegetables, herbs, and fruits year-round to local communities through farmers’ markets in Glens Falls and Saratoga, numerous local restaurants, and various local retail outlets.

Check out Marissa and Robert’s web sites: https://www.capitalroots.org/ and http://pvfproduce.com/.

As you may recall from my writing last week, the market economy dictates winners and losers for every situation. This Global Pandemic Thing (GPT) offers no exceptions. What I was delighted to hear from Marissa and Robert is that demand for local foods is booming! Both indicated how requests for products and services offered by their businesses has grown substantially. So, basically, what we’re saying is, the GPT is causing demand for local foods to jump like jumping beans.

My video this week focuses on demand shifts, very exciting! Maybe not, but it’s short, so please take some time to review.

Stay tuned next week for another article and hopefully a video. As always, many thanks to my one fan!

Various Stuff and Whatever Else

from the Capital Area Agriculture & Horticulture E-News, April 24, 2020

by CAAHP Farm Business Management Educator, Dayton Maxwell

Basically, this week’s title says I don’t have a clear idea for a topic. In previous weeks, my topics have been based in very apparent educational needs. 

As you know, the United States economy is a capitalist market economy. This means trade and industry are controlled by private individuals in a marketplace that offers unrestricted competition, driven by price signals associated with supply and demand. The professor who taught one of my college classes once described the market economy as “creating winners and losers”. 

As wild example I thought I would never witness happened this week; the price of a barrel of oil fell below zero! I thought only things like outdoor temperatures fell below zero, not oil prices! 

The reason for this: there’s no place to store all the oil being produced. Sellers are paying buyers to take oil off their hands. Of course, this is due to the economic slowdown in the United States and global economies, due to the COVID-19 situation. 

According to market economy definitions, oil buyers (including farmers) are winning and oil sellers are losing. This is correct from a financial perspective. It may not be fully correct from a non-financial perspective, however. You can bet oil suppliers are finding innovative ways to store and manage oil supplies in order to stave off more financial losses. This forced innovation is a positive, driven by negative financial losses. I guess, what I am trying to say is, “every cloud has a silver lining.”

I contend the current world situation is creating a lot of “silver linings.” Personally, I’ve had the tremendous luxury of spending days with my wife and children, ages 13, 10, and 7. Under normal circumstances, my wife and I work long days and regularly bring work home. Our kids are busier than we, with homework, sports, and other extra-curricular activities. As a family, we usually see each other in the morning and evening, often distractedly while attached to electronic devices. For the last month we’ve been working, conducting school work, and living in a confined space. It’s been my great joy to “get to know,” my wife and children again and to realize there will probably never be another time in my life when I get to spend this much time with my family. I love these guys!

Another favorable outcome – these current circumstances are encouraging people to improve their technology skills in order to communicate. For example, many people are conducting online meetings and programs.

Well, that’s all I have this week. Until next time. This week’s video is short, really short, so take a few seconds and give it a look!

What Is Your Lender Looking For?

from the Capital Area Agriculture & Horticulture E-News, April 17, 2020

by CAAHP Farm Business Management Educator, Dayton Maxwell

Once all the dust settles, and the Agricultural Industry understands how the U.S. government will respond to the unique societal situation we find ourselves in, many businesses will need financial assistance from a lending institution.

As you know or might expect, the lending institution you’re working with has specific criteria they consider prior to loan approval. The criteria are typically based on the Five Cs of Credit, which are briefly discussed below in order of priority.

Character – the first C, Character, refers to your credit history and it usually involves your credit score. Like most things, except golf, a higher score is preferable. Some lenders, however, may acquiesce to a slightly lower than preferred credit score if you can demonstrate how hardship beyond your control caused a minor decline in your rating. This first C of credit can also be thought of as the “cleanliness” of your business – your reputation for conducting business within the community, and your overall personal brand of doing what you say you’ll do. Integrity is a word that fits in well here.

Capacity – this second C of credit refers to your business’ ability to repay through the generation of favorable earnings, since earnings represent income generated through sales of a good or service. Remember, earnings must fund everything, over time, although there’ll likely be periods of time where business earnings fall short (like the immediate future).

Lenders will usually ask for:

  • three years of earnings history (usually tax returns)
  • three years of production history
  • year to date production, income and expense records
  • an income, expense, and production projection for the next operating season.

Your lender will compile this information in the context of your new loan request to determine your business’ capacity to repay not only the new loan, but all previously existing loans, operating expenses, accounts payable, regular family living draws, and any possible reinvestment of capital in the business.

I suggest (highly, highly, highly recommend) developing the best plan you can for Capacity prior to visiting your lender, rather than simply showing up and asking for a loan. Your preparation in this area can really assist the lender in making a well-informed decision and is an indicator of the first C of credit, Character. For this C, think enough income generation from normal business operations to meet all obligations as such obligations become due.

Capital – the third C of credit references your financial statement, also known as your balance sheet. As the cornerstone of existence for all businesses, the balance sheet holds the sacred accounting equation:

Assets = Liabilities + Owner’s Equity

Essentially, this is the market valuation of all assets invested in a business, minus what the bank has invested and what remains as the owner’s share of the business. Nearly all lenders on the planet would like you to have a certain percent equity when entering into a new loan agreement. This means you’ve got some, “skin in the game,” a genuine interest in the success or failure of the business because you own part of the business.

A decent level of owned capital, also known as owner’s equity is useful as leverage for future borrowing when Capacity falls short, as is expected in the coming months/years. Due to lack of Capacity, owner’s equity in intermediate or long-term assets may be leveraged to refinance debt. This is a regular practice, utilized by lenders to ease cashflow and restore Capacity. This is ideal, because its cause is lack of adequate earnings or Capacity which in turn causes erosion of owner’s equity. Having fun yet?

Collateral – As you’re likely already aware the fourth C is necessary in the event Capacity falls on its face, repayment through earnings is not possible and/or additional refinancing options are exhausted. Most agricultural lenders prefer $1.50 of collateral for each $1.00 of loan funds (although one or two planetary lenders might allow $1.00 of collateral for $1.00 of loan funds in special cases such as start up businesses).

I know this seems like very high level of Collateral, but you must remember, by the time a loan gets to the point of collateral retrieval, loan Bollateral is usually well-used and worth less than its valuation when the loan was made. So, this seemingly excessive amount of Collateral is necessary to make the bank whole, in case of loan default. Don’t take this too personally; after all this is a business relationship!

Conditions – not quite as self-explanatory as Collateral, the final C, Conditions, are additional requirements a lender might need to help ensure the borrower operates their business in an appropriate manner, or to assist in ensuring loan repayment. Standard loan conditions might include prescribing to required environmental regulations through development of an environmental plan, as required by state or national authority; borrower submission of financial information in a timely manne; or hazard insurance on bank owned collateral. There are innumerable Conditions that might be used for each specific and unique loan situation, but the previously mentioned Conditions are just a few per the standard course of business. If you want the money you’ve got to agree to the Conditions!

That’s a brief summary of the 5 Cs of Credit a lender ponders in making a lending decision. As previously mentioned, it is in the best interest of the borrower to be prepared with:

  • a plan for repayment through earnings
  • three years of historical earnings and production information
  • and a current balance sheet

In instances where a lending relationship already exists, the plan for repayment through earnings along with a current balance sheet may be all that’s necessary to secure a loan. If you arrive at your first meeting with your lender prepared with this information, you’ll be off to a good start and leading the way with the first and foremost C of credit, Character.

If you’re gearing up to work with your lender please give me a call. I would enjoy assisting you in the process!

Back to Basics – Short Term Budgeting

from the Capital Area Agriculture & Horticulture E-News, April 10, 2020

by CAAHP Farm Business Management Educator, Dayton Maxwell

At this point in the operating year, business owners are truly uncertain regarding the income side of the business. The U.S. economy has received a blindside tackle from a vicious inside linebacker. As the economy stumbles to its feet and tries to regain balanced footing, business owners need to get back to the basic concept of budgeting. If you’re not a fan of American Football, a linebacker is a defensive player whose primary job description is tackling the offensive player in possession of the football.

Many of the businesses I work with manage from the checkbook. This means, basically, “If there’s money in the checkbook, we’re doing good.” Other than being similar to driving a car blindfolded, checkbook management provides little in the way of short-term planning, with “short term” meaning the current operating year.

Given the pressing circumstances at hand, business owners would be well served to implement that basic financial tool, budgeting. Budgeting means developing a financial plan for a certain time frame. In my work with regional agriculture businesses, I am encouraging managers to develop monthly cash flow budgets for the remainder of this year.

Cash flow budgets address all cash inflows and cash outflows. Cash inflows include income from normal operations, capital asset sales, loan proceeds, non-farm income, and proceeds from savings. Cash outflow categories encompass usual operating expenses, capital asset purchases, loan payments, family living draws, and reserve savings.

As businesses develop monthly cash flow budgets, in many cases budgets that indicate an impending future deficient, it is imperative for managers to determine how the deficient will be resolved; whether through reduced operating expenses, loan proceeds entering the business, capital asset sales, non-farm income, or even supplier credit.

The good news is that fuel prices and interest rates should certainly be lower than in previous operating years. Some businesses may receive Paycheck Protection Proceeds from the recently legislated CARES Act.

Please feel free to call or email me for assistance. Be sure to give this week’s video a look, since my one fan has given me a lot of feedback relative to improving my screen appeal. As always, it will be my pleasure to work with you.

Agriculture Cares about the CARES Act

From the Capital Area Agriculture & Horticulture Program E-News, April 3, 2020

Dayton Maxwell, CAAHP Farm Business Management Educator

One week ago, the President of the United States signed the CARES Act into law. I’ve spent most of this week helping farm producers navigate this legislation. This $2 trillion economic stimulus bill provides $349 billion for the Paycheck Protection Program, which includes agriculture in its list of industries eligible for assistance. The United States Small Business Administration (SBA) will administer the program.

The Paycheck Protection Program provides cashflow assistance for businesses that maintain payroll, basically, keeping staff employed and working. If payroll is maintained, loan funds may be used to cover payroll costs, mortgage interest, rent, and utilities and there’s a pretty good chance these loans may be forgiven if funds are utilized for these specified expenses and the farmer can demonstrate maintenance of staff with the prior year as a comparison. Re-hiring of workers already laid off due to the current situation is highly encouraged to assist the farmer in maximum loan forgiveness.

What’s crucially important in applying for this loan is for the farm business to be able to demonstrate through payroll records that payroll (staff) was maintained. Payroll records are paramount!

Another key component of the Paycheck Protection Program is that farmers and farm businesses are encouraged to work directly with the financial institution with which they have a primary relationship. I.e. – Farm Credit East customers work with Farm Credit East. It appears that all Agricultural lenders are gearing up to provide these loans. The message here is that beginning this process directly with your lender or financial institution is likely a better option than starting with the Small Business Administration.

Also, for some useful leadership skills that are applicable during this uncertain time, please give my video for this week a look. You’ll be glad you did!

Thank you and be well!

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