Moe Russell presented on Growth, Transition & Succession Strategies for Multi-Generational Farms at the 2011 FCS Financial Commercial Farmer Symposium held in Kansas City, Mo.

1. Multi-Generational Growth Strategies
Welcome

2. Tremendous Opportunities in the years
ahead
• Increasing demand
• More middle class
consumers
• Ingenuity, Innovati
on and Appetite
• New Fortunes
made in Heartland
• Entrepreneurs will
emerge world wide

3. Increased demand

4. World grain inventories are tight

5. Your greatest asset
•Your entrepreneurial Skills
•The Empires of the Future are the
Empires of the Mind
•Multigenerational opportunities
•Mapping the DNA of successful
farmers
•Commitment
•More money to be made farming
than any other industry

6. Profitability Not a Function of Size,
Type of Operation, or Location
Operation ROA ROE
860 acres & custom feeds 9% 14.0%
2,206 head pig space, 12 yr aver
3160 acre corn & soybeans 10 year 14.0% 21.1%
average
12,000 acres corn and soybeans 15% 21%
33 year average
650 sow farrow to finish 10.5% 14.5%
10 year average
900 acres & 4,800 pigs spaces 16% 28.8 %
6 year average 297M – 1,571M
ROA (Return on Assets) ROE (Return on equity)

7. Growth in Net Worth
• $500,000 NW • $500,000
• Grow 7% for 10 years • Grow at 17% for 10
• $983,000 • $2,403,000

8. A Look at History
Historical Net Farm Income
90
80
70
60
NFI $ (Billions)
50
40
30
20
10
0
1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
NFI (Current Dollars) Average Adjusted NFI (1915-2004)

9. Hog Industry Returns

13. Bullet Proof your balance sheet
• Working Capital
• 50% of revenue
• Overall equity > 60%
• Keep fixed costs low
• Take a profit

14. Land Value Trends
• 1850 to 1900
– Land values rose from $6.09/acre to $43.31
– 4% Average annual increase
– Four depression periods of low prices and foreclosures
– 1858-60, 1871-72, 1876-79, 1894-98
1900-1950
– Land Values rose from $43.31 to $218
– 3.29% average annual increase
– Two depression periods of low prices and foreclosures
– 1921-25,1931-35

15. Land Value Trends
• 1950 to 2000
– Land values rose from $218/acre to $1,857
– 4.38% Average annual increase
– One depression period of low prices and foreclosures
– 1982-87
2000-09
Land values rose from $1,857 to $4,371
10% average annual appreciation 2010 15.9%
1850-2010
4.20% average annual appreciation

16. Risk Management Trends
• The attitude, skills, knowledge, and profit gap
among producers is getting farther apart, by the
day.
• We are entering a whole new wave of
consolidation in production agriculture.
– No Safety Net
– Volatility
– Technology
– Demographics
– 40% of production from 2% producers

17. Risk Management Observations
• Good times do not last long (cycles occur)
• Increased volatility and risk
• Very wide profit gap
$33 to $220 acre
U of I $100
• Everyone is down loading risk to the farmer

18. Risk Management
Recommendations
• Contingency Plan w/o Government
Payments
• Partnering With Input Suppliers
• Seek, Hire, Train, & Retain Top People
DITH, SITG
• Get Green, Stay Green, Grow Green
• Have a PR Plan
• Bullet Proof Your Balance Sheet

19. Have a Plan
• Determine the gross dollars per acre you need
for:
– Term Debt payments
– Operating Expenses
– Living
– Depreciation
– Profit
The problem is tracking
www.russellconsultinggroup.net GrainBridge

20. Having a Plan
• Makes farming easier and more fun
• Reduces stress
• Worry less about competition
– John Wooden- won 10 NCAA
championships
– Never had opposing team scouted

21. New Breed in Production Ag
Old New
• People are a cost • People are assets
• Do everything yourself • Know what you don’t know and
so its done right hire it done.
• Own equipment • Lease equipment
• Valuations based on asset • Business value based on
values multiples of net earnings.
• Overhead a necessary evil • Overhead reduction as a
• Limited working capital source of capital
• Get things done • Working capital > 50% of
• Source Scott Hazlett Machinery Link, Inc. revenue
• Manage relationships

22. Management Traits of Growing Farms
& What Landlords Want
• Trust
• Honesty
• Transparency/Communications
• Financial Stability
• Money
• Look like you can farm it
• Stewardship
• Extra Effort
• Agronomic management

23. Mapping the DNA of Successful
Farmers
• Attitude
• Interpersonal Skills
• See the big picture
– urgent and important
• Planning
• Thirst for Knowledge
• Network with other top producers
• View Problems and Challenges as
Opportunities

24. Multi- Generational Model for Growth
Landlord 1
Landlord 2 LL A
T.J
LL 3
1000 acres Matthiesen
LL 4 KS 2010
LL B
Crop Share Rick
Acres Matthiesen
Carson & Barron
Farms Inc.
LL Z
Jason Chris
Franck Barron
LL X
LL Y

25. Trust, Shared Goals and Common Vision
• 5 years or < KS will rent to CB
• In 2009, traded equipment line for planter
and field cultivator.
• Leased purchase agreement back to CB
Farms on equipment
• CB Farms KS 1000 acres for fee with labor
offset
• KS still owner operator

26. Benefit Values on 1000 Acre Farm
Revenue enhancement Expense savings
• $.25 / Bu. Market Corn • Seed $ 70,000
• $.05 / Bu. Trucking • Chem. $ 45,000
• $ .30 / Bu. Corn Total • Fert. $ 40,000
• 160 bu./ac * .30 = $48 • NH3 $ $37,500
• 500 ac. = $24,000 • Equip. $ 30,000
• $.60 / Bu. Market Soy. • Total $ 222,500
• $ .05 / Bu. Trucking • Save 4% = $8,900
• $ .65 / Bu. Soy Total • Plus $35/ ac Agronomic
• 50 bu./ac. *.65= $32.50 • Overall Value Enhancement
• 500 ac. = $16,250 • $84 per acre
• Total Gain = $40,250

27. Win/Win
KS Advantages CB Farms Advantages
• Less Stress • Captive Growth
• More Free Time • Controlled Growth
• Better Job Farming • Less Risk
• Peace of Mind. • Quality Labor
• More Profits • Leverage Current System

28. Attitude is Key
“The world gives to those who give
The world takes from those who take
It has a perfect accounting system”
Trust, shared goals and common
vision

29. Production Ag in North America
is a Great Business
A Look at the rest of the world

30. ROE of Fortune 500 in 67 Industries
• Household & Personal 35%
• Food Services 28%
• Beverages 25%
• Pharmaceuticals 21%
• Chemicals 21%
• Information Technology 21%
• Food Consumer Products 21%
• Healthcare & Pharmacy 20%
• Medical Prod & Eq 20%
• Aerospace & Defense 20%
• Computers & office equip 19%
• Healthcare & Medical Facilities 17%
• Internet Services 17%
Source: May 3, 2010 Fortune Magazine

31. Fortune 500 Companies
• Median ROE in 2009 was 10.5%
• Walmart, Kmart and Target
all started in 1962
• Blockbuster and Netflix
• Same economy and conditions, but
• Different plans and strategies, produce
• Different results

32. The Bell Curve
14
12
10
8
6
4
2
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

33. Examples
Airline industry
Southwest Airlines is included in the top ten most respected
companies in America. Most others in the industry are
struggling
Lesson-do not benchmark your business with the average.

34. Part IV
• Leverage Points for maximizing profit
• Benchmarking your operation with the best

35. What Should Top Producers
Focus On?
What are the most
important leverage
points to reaching
income targets?

36. Leverage Points
of High Profit Farms
Marketing $0 to $315/acre Realistic
Equipment Cost Mgmt $22 to $180/acre
Labor Management $15 to $127/acre
Agronomic Mgmt $0 to $165/acre
Input cost Mgmt $0 to $85/acre
Total $/ acre $100

37. RCG Client Base
• Machinery cost/acre Range $17 to $180 Ave $61.26 $78.90
• Labor cost per acre Range $10 to $127 Ave $33.66 $39.36
• Combined average machinery & labor Ave $94.92 $118.26
• Return on Assets (2009, 2010) Ave 11.47% 8.62%
• Return on Equity (2009, 2010) Ave 18.12% 14.54%