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In a downward commodity cycle, a common discussion is the “should I sell something” discussion. If it is determined that a sale is the best way to fill a cash flow hole in the operation, let’s discuss how to analyze the decision on what to sell.
When we are talking about assets on the farm there are 3 types:

  • Productive Assets – Provide support and generate revenue to fund operations and debt payments
  • Essential Assets – Needed assets, but are low revenue producers
  • Non-Productive Assets – Not used or are expensive to use relative to the little or no income they contribute (Lazy Assets)

Clearly, the first asset category to consider is the lazy asset category. So, let’s chat about that. Why did you acquire the asset? Let’s say it is under productive farm ground. Was it acquired -spontaneously (it was available), for tax purposes, for growth, because it was family ground, etc…?

Now that the reason is identified – was it a justified purchase? Does it still make sense? What changed? Now that we have the fundamental reasons behind the purchase understood, let’s talk about real numbers. How much has that asset MADE your business? Pull out all the numbers. How does that piece of ground stack up against others? Does it make you money? Or is it creating a hole that other productive tracts have to fill?

Selling assets does not equate to weakness. You are the asset manager of the farm, it is your job to make your assets work for you! Assets are not children, you can sell them if they are lazy and don’t pull their weight. Being profitable is more important than how many acres you farm. Someone that farms 1,000 acres can have a higher net income than someone that farms 10,000 acres. Management is key. Manage your assets and make them work for you (not be lazy.)

ARM Strategic Alliance – June 24

 

This is the second installment of our newly launched blog. What we hope to do with this is give
guidance on pertinent issues in both the short and long term. Not all discussions/topics will be
of use for all our customers, but we ask you consider and apply as needed.

Crop Status and Market Outlook

The crop is hopefully planted and off to a great start. 2024 holds solid potential at this time for a good
to great crop. What if that happens…..? The amount of marketing you have done between January 1st
and the moment CBOT discovers we have a good crop could be critical to your success this year. How
much 24 crop have you sold? 50% sold is a respectable place to be today. If we are fortunate to have a
big crop this year we could see significant decline in current prices of corn and soy.

Global Competition

Consider the competition overseas. The $USD is currently very strong and still gaining on SA currency.
Until this changes look for China and other fair weather trading partners to go elsewhere for their purchases.

Selling the 23 Crop

Do you have 23 crop left to sell? The window is quickly closing on the rally seen over the past 6 weeks.
Hopefully, you were able to deliver and take advantage of the opportunity. If not, do so at once! When
considering interest cost and reputational risk, holding on any longer is not advisable.

Prevent Plant Acres

Did you prevent plant any acres? If so, contact your agent today if you haven’t already. It is very
important that you do the math beforehand when considering prevent planting options. If you need
to know how to calculate the various options, contact your ARM representative. We should be able to assist.

Equipment Inventory Challenges

You have probably seen the headlines regarding the equipment manufacturers’ current challenges with
inventory. There have been multiple layoffs due to lack of interest in new equipment. Conversely, many
farmers are simply passing on fleet upgrades and even opting to cash out equity on their current equipment
lines to raise operating capital. Crop marketing challenges from last year have created the need for equipment
secured equity lines of credit in some instances. If this is something you are considering, get that done sooner
rather than later. Once equipment inventory reductions start there is a fair chance that values will contract
and equipment equity may not be as appealing to lenders as it is today.

Wise Words

“Crop volume can overcome the lack of price more easily than price can overcome the lack of volume.
“That was said by a late farmer many years ago that was known by his peers as a cut above the rest. If he
were here today, he would encourage getting the most out of each invested dollar put into the crop. Forego
extras this year and hope the good Lord’s favor shines upon you!

In closing, you are encouraged to write in topics you would like to learn more about. We don’t claim to have
all the answers but we know where to look to find them…

I will leave you with a quote from General George S. Patton:

“A good plan violently executed now, is better than a perfect plan executed next week”

Sell some crop! See you next month!

 

ARM Strategic Alliance – May 2024

 

As you read this, you are likely focused on planting the 2024 crop. Yes, it is that time of year and
everyone is hoping to get off to a good start. Speaking of new starts, we at ARM are going to start a
new wrinkle to some degree. The objective is to create a monthly digest around crop marketing and other
pertinent news from our perspective in hopes of creating better communication and a more productive
and profitable relationship for all of us. Our success is mutual, when you are successful so are we. We
appreciate the opportunity to serve by providing the financing you need.

Building a Strategic Alliance

We sincerely desire you to be successful in every way this crop season. These are
challenging times and additional pressure is created on you and those around you. ARM is here to
build a Strategic Alliance with each of our customers. We are successful when you are successful
and want nothing but the best for you, your family and your farming operation. Reach out to your
trusted advisor at ARM. That may be the local Area Manager, Loan Officer or Crop insurance Agent.
We are invested in you and encourage you to depend on us to help make strong financial decisions
to navigate these current challenges. The goal for this Strategic Alliance is simply navigating the
current economic situation while waiting for demand to return. We are committed to being your
ally in this. We look forward to your success!

The Elephant in the Room: Growing Stocks

For our first visit, let’s start with the elephant in the room. It has been here since this time last year.
Stocks of corn and soybeans have been growing for the past 12 months or longer. This trend may
well continue for the 24 crop year. Marketing through this downward trend may not be a short-term
exercise. Reducing production costs are the only way to stay competitive and remain in the game.
The truth is if your marketing plan was without error last year, you are in a great position. From
where we stand, that was a small fraction of our customer base. For the rest, what can we do to
improve?

What is done is done, the old crop needs to be sold on rallies and improved basis opportunities if
they can be found. Our biggest concern is that the possibility exists for the same thing this year….
Yes, current conditions are favorable to increase ending stocks again in 2024 and that could make
today’s $4.70 corn look very attractive. A big crop this year and we could be looking at $3.70 for the
corn we are planting today. Soybeans are in much the same boat just maybe for different reasons.
Larger supplies, lack of demand from key importers as well as $USD strength has our soy at a
disadvantage for the time being. A good planting period and average summer weather should
create more than enough beans to build stocks.

Proactive Marketing: A Crucial Step

It may surprise you that some of the active marketing agencies already have as much as 50% of
new crops marketed in corn and soy in some form or fashion. Do you? This year does not appear
to have the weather phenomenon we had last year. We look to be starting off with much better
subsoil moisture in most corn and soy states, which bodes well for a good crop. This time last
season, that was not the occurrence, and prices were supported through the planting season due
to a drought. That does not appear to be the case this season. I would encourage keeping an eye
on the markets while planting. The trade likely believes an average crop is possible once planting is
complete. When that belief changes from average to good, prices will diminish accordingly.
Let us not get caught up in what is in the back yard. Small geographic areas have minimal impact
on our major crops today. As a nation, we influence corn more than any other crop and that is
slipping with increased planting in South America.

Strategic Selling: A Prudent Approach

Let us not get caught up in what is in the back yard. Small geographic areas have minimal impact on our major crops today. As a nation, we influence corn more than any other crop and that is slipping with increased planting in South America. We would urge selling 25% of your 2024 crop on any rallies between now and June 1st. That goes a long way toward meeting your obligations to landlords, vendors and lenders. Again, our current view is corn and soybean prices having more downside with good planting conditions. There is plenty of time to get the crop planted and moisture is much better than this time last season.