How to read that tag

Written by Dr. Cathy Bandyk on .

Quests for information may take us to the internet, reference books, electronic media or someone with the right expertise. But when it comes to livestock feed, almost all the information we need can be found in one handy place: the feed tag.

The basics by law
Any commercial feed sold in the U.S. must be accompanied by a tag that gives:
•    The product name or brand name
•    A purpose statement—the class(es) of animals and feeding situation(s) the feed is appropriate for
•    Feeding and/or mixing directions
•    Guaranteed analysis, or chemical composition, stating the levels of specific nutrients guaranteed by the company
•    Ingredient listing
•    Appropriate cautions or warnings
•    Net
•    Manufacturer or distributor name and address
•    For medicated feeds: specific purpose, directions, name and concentration of active ingredients, and relevant warnings regarding withdrawal periods and misuse.

Why do some tags list more guarantees than others?
The only legal requirements for dry feeds are crude protein (if the feed is intended to supply protein), minimum crude fat and maximum crude fiber. Liquid supplements must also give percent dry matter. If a feed consists of more than 6.5 percent added mineral sources, beef feed tags must also guarantee minimum and maximum calcium, minimum phosphorus, minimum and maximum added salt (NaCl), and minimums for magnesium (Mn) and potassium (K). Other minerals and vitamins are

Hold and miss

Written by compiled by staff on .

Tight stocks have commodity prices on the rise. For many producers, that means shooting to sell at market peak.

“Rethink that!” said crops analyst Melvin Brees at the Food and Agricultural Policy Research Institute (FAPRI). “Hitting the high depends mainly on luck and is nearly impossible.”

Grain owners should have plans in place now for marketing both the old crop and new crop.

“No one wants to sell when prices are going up,” Brees said. “But expecting these price levels to last until harvest time might be asking a lot!”

In other words, if prices can go up fast, they can come down faster.
“We are in a complicated marketing situation, but it can be managed,” Brees said. Brees outlined several plans in his University of Missouri “Decisive Marketing” newsletter.

“Current prices offer profit opportunities that are well above typical break-even prices. Don’t let profitable prices slip away. It is one thing to pass up a good price on the way up, but don’t miss it on the way down.”

Growers can set upside and downside price objectives to target sales. Brees admits that upside price is difficult to set in an uptrend. But with prices at historic levels, targeting a higher price is almost sure to lock in a “good sale.”
Downside prices are easier to set, but more difficult to execute. Set a trigger price that will stop losses as prices drop.

“If the market moves higher, increase the downside price. This is called a ‘trailing stop.’”
As prices go up, you avoid making a sale and the downside price continues higher. If the price drops, you are out of the market at the highest downside price objective.

Another strategy is to use futures options. Options cost money for premiums, but they are flexible and can protect a very profitable price while allowing retained ownership of the grain. Then the producer can sell the grain at a higher price later. The combination can bring a high average price.

The third option is more traditional. Spread the sales through the year.
If prices continue up after making the first sale, the season average price goes up with subsequent sales. If prices reverse, at least part of the crop was sold at those historic highs.

Some grain marketers follow technical chart prices to guide sales. Until the uptrend line is broken on the chart, technical signals remain for continued upward prices. Sales are made when the chart line breaks.

For now, that trend line remains bullish, with prices pointed higher.
But Brees notes that records for the past 40 years show that downtrends follow major uptrends within 12 months—or less. The current uptrend has run almost seven months.

“Many factors, from energy prices to foreign markets, can change a booming market,” Brees said. Having a plan helps prevent selling all at the low.

To read the marketing newsletters, go to “Farmers Corner” on the MU FAPRI website at www.fapri.missouri.edu.
“You many not want to sell yet, but remember you have to sell sometime,” Brees said. “Be ready.”
Compiled by staff.

How to manage debt

Written by Nancy Jorgensen on .

Are you borrowing money to operate your farm? If you’re a commercial-sized producer, the answer is probably yes. Especially if a new generation is interested in carrying on the family business.

“If you’re planning to transition to the next generation, you’re trying to grow,” said Keith Bodenhausen, community president of the Bank of Gower in northwestern Missouri. “Expansion usually requires that you borrow.”

We called on Bodenhausen and other farm lenders and economists to outline farm debt in our region. We also asked for tips on how you can manage debt to help your farm succeed.

How much debt do you need?

According to USDA, U.S. farm debt fell to $240 billion in 2010, down from $245 billion the previous year. What does that mean to the average farmer?
To get a handle on farm debt, it’s tempting to take the total U.S. farm debt of $240 billion, and divide it by the number of farmers in the U.S., 2.2 million. That gives you $109,090 as the average farmer’s debt. But you might have to look long and hard to find that average farmer.

Our experts suggest that credit needs vary depending on your position within four basic groups. 
•    Farmers who work full-time off the farm don’t usually require much debt.
•    Older farmers with no one in line to take over are winding down. They usually don’t borrow much.
•    Older farmers bringing in the next generation need debt to expand.
•    Young, beginning farmers need financing, but often can’t qualify for loans on their own.

A December 2009 USDA Amber Waves magazine article titled Debt Landscape for U.S. Farms Has Shifted explains that your operation’s size may also determine your credit needs: “Larger farms, with a greater asset base and higher revenues, are now much more likely to use debt than are smaller farms. The majority of smaller farms surveyed indicated that they have sufficient funds to finance their operations.”

Daryl Oldvader, CEO of FCS Financial, a Farm Credit association that provides financing to Missouri farmers, added to the demographic portrait. “About one-half of the farms in the U.S. are debt-free,” he said. “Most are owned by absentee landowners, retirees or investors.”

The Amber Waves article went on to say that farmers in intensively farmed areas including the Corn Belt, Northern Plains and the Southeast have relatively high debt levels compared to other regions.
Mike Duffy, an agricultural Extension economist at Iowa State University, offers a simple explanation for these trends. “A larger operation will borrow more because they have greater expense to cover.”

The case for borrowing
If you subtract out all the retiring, small and absentee landlords who don’t borrow, you end up with a relatively small number of producers borrowing the lion’s share of the $240 billion in farm debt. It’s common for these operations to owe a million dollars or more.

As Oldvader said, “It’s difficult to imagine a growing and profitable commercial-sized farm in today’s environment without some debt.” Doug Hofbauer, CEO of Frontier Farm Credit in eastern Kansas, agreed: “If you’re bringing on another generation, growth to generate additional revenue is likely to be necessary.”

Kevin Dhuyvetter, professor and Extension specialist in farm management at Kansas State University, said debt makes sense for expanding operators. “If your goal is to run an ongoing business, why would you desire to be debt-free?” he asks. “If managed properly, debt is often one of the lowest-cost sources of capital.” 
Dhuyvetter and his fellow K-State economist, Michael Langemeier, work with the Farm Management Association, which provides accounting and economic analysis services for 2,300 Kansas farmers. Langemeier sees more farms moving from one operator to two or three operators as younger generations return to the farm.

“There’s more opportunity these days for more family members to be involved,” Langemeier said. “Being debt-free is not meaningful to these operators. It takes a lot of cash today to buy land and equipment, and you have to incur debt to grow.” 
He worries more about farmers who don’t borrow. “Some farmers have expanded aggressively in the last five years. If they’ve been good managers, their returns are even higher today, so they have all this cash on hand that they can leverage to expand even more. Unfortunately, there’s a group that hasn’t expanded at all, and I’m a little concerned about their future.” 
Farming takes big bucks

No doubt about it, farming is a capital-intensive business. And hold on to your tractor seat—land prices are trending up.
With its rich, productive soil, Iowa land brings some of the highest prices in the nation, and Iowa can be a bellwether for other farm states. Duffy conducts an annual farmland value survey at Iowa State. His most recent findings, released in December, reveal an average 2010 sale price of $5,064 per acre, an increase of $693 per acre over 2009. 
The other experts don’t see that much increase in their areas, but they report that land values remain strong and sales activity steady, with more buyers than sellers available. In addition, land rent prices appear to be rising. 
Dan Coons, executive vice president of the Macon-Atlanta State Bank in northeastern Missouri, holds strong views on renting versus purchasing: “While we consider cash rents to be high, the cost to amortize a loan on the same land at high sales prices costs significantly more.”

Coons recommends that landowners put land on the balance sheet at a conservative value and not change that value for five to ten years. “This allows a farmer to make meaningful comparisons of their debt-to-asset ratio over time,” he said. “When they show increased net worth, it is truly earned.” Coons goes further, suggesting a concept that might seem sacrilege to farmers. “Bankers and many farm economists think we may have lower land prices in our future. Why not sell some acres, reduce debt, ensure your survival and maybe make a little more profit that goes to family instead of debt service?”

Beyond long-term financing for land, farmers also need short-term loans to cover operating expenses. “We have seen operating lines of credit get larger over the past few years and we expect that trend to continue,” Coons said.
Livestock producers need funds for feed and livestock inventory. In eastern Kansas, “Livestock producers tend to carry larger operating lines due to inventory and input costs compared to crop operations,” Hofbauer said. “Of our top 10 largest loans, five are livestock and only one grows crops.” Livestock producers have been more cautious about borrowing recently, he added.
Crop growers need capital to purchase seed, fertilizer, fuel and equipment. Bodenhausen recommends caution when buying new paint. “Be careful to keep equipment investments in line with your level of production.”

While our Farm Credit sources provide loans to thousands of farmers, Bodenhausen’s and Coons’s banks serve smaller areas and fewer agricultural customers. Still, as a Nov. 30, 2010, USDA Economic Research Service (ERS) report, titled Farm Income and Costs: Assets, Debt, and Wealth, pointed out, it’s the nation’s commercial banks, like the Bank of Gower and the Macon-Atlanta State Bank, that collectively continue to be the largest lender to agricultural businesses.

Farm income looks good
No matter where you borrow, and whether you grow animals or plants, things look fairly rosy for farm income these days, making it more likely that you can repay your debt. The ERS report predicted net farm income would rise by 31 percent in 2010 compared to 2009, and total production expenses would rise by just 2 percent.
Livestock producers took a shot to the chin when feed prices shot up in recent years, but they’re catching up. The ERS forecast: “The rise in the value of livestock production (16.6 percent) is expected to be more than five times the rise in the value of crop production (3.1 percent).”

Partly due to these positive trends, farm assets continue to rise faster than farm debt. Are farmers borrowing less, or are lenders tightening credit? It’s probably a combination of both. As Oldvader said, “The current volatile economic environment has made both farmers and their lenders more conservative regarding credit.”

The ERS report offers more details. “Interest rates have declined slowly throughout 2010, while credit has remained available through major lenders. Nonetheless, farm businesses faced tightened credit requirements throughout 2010 as a consequence of increased local collateral requirements and/or shortened loan repayment time periods. While debt capital is likely to be available to highly qualified borrowers at relatively low cost, less qualified borrowers are likely to face higher interest rates.”
While U.S. farm debt declined in 2010, all of the lenders we spoke to report a slight rise in farm lending recently, even though many producers have taken the opportunity during these positive times to pay down debt. “While 2010 started relatively slow, lending activities have reached record peaks as we approach 2011,” Oldvader said. “Loan activity seems to be gaining steam as more producers reflect confidence in the economy.”

Learning from the past
We’ve established that expanding commercial farmers need loans, that credit is available, and that producers have a better chance of repaying loans than in past years. Still, a certain percentage will not make their loan payments. What’s the difference between those who succeed and those who struggle? 
To find the answer, we turn to the farm credit crisis of the 80s. Iowa became the epicenter of the crisis when lenders provided loans based on escalating land values. “People learned that what goes up can come down,” Duffy said. “It only matters that you can make debt payments.”

Both farmers and lenders learned from the crisis. “We learned that you can’t borrow your way out of debt,” Oldvader said. “Even though assets are appreciating today, sound borrowing principles should always center around adequate earnings for debt repayment—liquidity for periods of extreme price volatility and manageable debt levels relative to total assets.”
Hofbauer gets right to the point. “It might take collateral to borrow money, but it takes cash to repay it,” he said.

What lenders want today
Fortunately, our experts think today’s farmers are more savvy than in the past.
“The worst managers see debt as a way to cash flow—they borrow money to pay bills,” Dhuyvetter said. “The best recognize that debt is simply another input, similar to buying seed. Successful debt managers understand how leverage and interest rates relate to financial measures such as return on assets and return on equity. You can keep debt manageable by not over-extending yourself, and by managing production and market risk.”

Honing marketing skills is key. “It’s not necessarily a college degree that makes the difference.” Bodenhausen said that while some farmers might not have attended college, the ones who succeed seek continuing education. “They’re self-motivated to study how markets, contracts and futures work,” he said.

Most large operators depend on accountants to track finances. “If you know your cost of production per bushel of corn, you can make a better decision on when to sell it,” Bodenhausen said.
Beyond understanding financial principles, Oldvader said the best managers develop a business plan that addresses credit use and repayment sources. “These producers also maintain current and accurate records to support constructive dialogues with their lenders,” he said.

If ever there’s a time when you should be able to manage debt, it’s today. Interest rates hit historic lows recently, allowing you to lock in low fixed rates on longer-term debt and low variable rates on short-term operating debt.
“Managing debt today is easier than other aspects of the farm business,” Hofbauer claimed. “Managing the cost and volatility of inputs, marketing decisions and risk management are all more difficult than managing debt.” He believes farmers who fail run into problems in three areas—managing expansion, handling market volatility and controlling expenses. He suggests you ask yourself these questions:

How have you handled growth and expansion?
Have you incurred losses from a production problem or a risk management program gone awry because of extreme market volatility?

Are you living within your means?
Managing debt may be easier, but lenders still want farmers to share in lending risk. That’s why they ask you to invest your own equity capital in your operation—in other words, you must have money to borrow money. “We’re seeing operations grow more rapidly today than ever and funding that growth should come from a combination of earnings/equity and borrowed funds, not just from borrowing,” Hofbauer said. “As operations grow it is critical to maintain capacity and liquidity in the operation.”
Another important skill—working with employees and family members involved in the business. “Managing human resources is even more complex than managing production,” Hofbauer said. “Successful commercial operations focus on having the right people in the right jobs doing the right things.”

Coons believes farmers should build liquidity during good times. “Proper loan structure means keeping a significant portion of your debt long term, and paying down operating lines and machinery debt faster,” he said.
It’s a good time to be a farmer

If you need a loan, and you develop good management techniques, you can probably pay it back. Farmers are enjoying the best profits in decades.

“The mid-1970s was the last comparable period when U.S. farming enjoyed multiple years of sustained levels of high output and income,” said the ERS report. Soybean farmers are benefiting from record exports, especially to China, and corn sales will rise with expected increases in bio-energy demand.

If it’s a good time to be a farmer, it’s also a good time to be a farm lender. Most ag lenders weren’t involved in the worldwide banking crisis a couple of years ago, and they’re well-positioned to provide debt financing.

But Dhuyvetter reminds everyone to stay grounded. “This is a great time to be a farmer—but it’s no time for the faint of heart. There is tremendous variability in markets for both inputs and outputs, and the dollar amounts being managed today are larger. The need to treat the farm operation like a business is more important than ever.”

Bodenhausen throws in a final piece of advice. “Keep costs in line with revenue—and keep on top of it,” he said. “We’ve enjoyed positive commodity prices for a while now, but use more conservative pricing forecasts in your budget. Today, demand is strong and supplies are low, but world events could change that. The market won’t support these prices forever. Use these times of good prices to get your financial house in order.”

Where to get help
The Extension service offers courses on debt management. Contact your local agent, or, in Missouri, visit extension.missouri.edu and click on agriculture. In Iowa, extension.iastate.edu/farmmanagement. In Kansas, agmanager.info.
Farm Credit University offers an online course featuring David Kohl, a nationally respected farm economist. Visit their Web site, fcuniversity.com, or contact your local Farm Credit association. Your community bank can also help.

How do you measure up?

Many farm lenders use three main ratios to measure a customer’s financial health, but in today’s environment, liquidity is the critical measure. Lending on assets that are not easily converted to cash doesn’t work like it used to. Your ratio may vary based on your type of operation, your size and scale, and your long-term business plan. Ask your lender where you stand. 

Liquidity (Working Capital): This compares current assets or capital on hand to debt. Strive for a ratio of 1.25 to 1 or better. For every $1 of current liabilities, you should maintain $1.25 or more in liquid assets. If you owe $1 million in current liabilities, you should maintain $1.25 million in current assets. Current assets include cash, crop or livestock inventories, accounts receivable, and marketable securities such as CDs, stocks and bonds. Current liabilities include obligations due in the next 12 months.

Repayment Ability: The Capital Debt Repayment Capacity Ratio measures your ability to repay loans. Lenders like to see this at 1.25 to 1, where for every dollar you owe in term loan payments, you should earn at least $1.25 in net income for the year. If you owe $100,000, you should make $125,000 or more. Net income is the amount of earnings remaining after you subtract expenses such as labor, fuel, feed, seed, fertilizer, family living costs, taxes and rent.

Debt to Equity: This measures your leverage by comparing your debt to equity levels. At least 55 percent of your assets should be in the form of equity. If you have $1 million in real estate, you should maintain $550,000 in equity or net worth, and owe no more than $450,000.


MFA Incorporated Annual report for August 31 2010

Written by Bill Streeter and Don Mills on .

MFA Incorporated’s fiscal year, which ended Aug. 31, 2010, reflected a sound recovery from the world-wide market volatility of 2009. Our profitability of $9.7 million reflected an acceptable level given last year’s operating environment.

Last year’s wet fall delayed harvest and field activity. Continued wet weather through the winter months and into spring kept farmers inside and delayed spring fieldwork. Nature relented in mid-April and MFA’s employees busily did what they do best.

They moved record amounts of seed, crop protection and plant foods. In a record-setting timeframe for April, MFA achieved a $14.7 million profit. Never before has your cooperative moved so much in so short a period. MFA has a loyal and dedicated employee workforce. Employees are the backbone of this organization. No one in our trade territory has a better group of individuals.

This past fiscal year we focused on what we know best: grain origination and sales of agronomy and livestock products. We set in motion a constant review of risk management. We divested ourselves of much of our pork production. We focused on improving our balance sheet and reducing capital requirements. We renegotiated our loan agreements.

We are now positioned almost two years ahead of realistic internal targets set in July of 2009. What’s more, we have excellent lender relations. We also have very good bond sales and outstanding customer confidence. In fact, pre-pay at calendar year end 2009-10 was a record $69 million. Furthermore, farmers delivered a near record $431 million of grain to MFA locations.

As shown by our customers’ actions, MFA enjoys strong customer confidence in addition to strong supplier support and excellent support from our corporate board of directors. MFA continues expanding, although at a slower pace. The budget announced for fiscal year 2010-11 reflects profitability of $12.4 million, which is a very achievable goal.

Many positives were reflected in our trade territory as we entered this new fiscal year. An excellent fall saw farmers complete corn harvest well ahead of normal. Soybean harvest followed suit, and winter wheat plantings were 90 percent complete, 22 days ahead of normal. Prices for grain, beef and milk spurred the agricultural economy.

Today, MFA has high ownership of grain with very good margin potential, favorable plant-food movement compared to the five-year average and excellent marketing programs in place (both macro and micro). We have customer faith, strong bondholder faith, excellent employee morale and attitude, and favorable interest rates. The future holds promise. We have the policies in place, the confidence of all involved and the determination that the company’s best days are ahead.

In a few months, MFA will celebrate its 97th anniversary. Our success will continue because we enjoy an interested membership, an involved and engaged corporate board, and loyal and dedicated employees.

Cattle produceers fight one mean 'Trich'

Written by James D. Ritchie on .

About 35 years ago, the buzz in cow country was the bull-of-the-year, as calf producers rounded up European and other “exotic” bloodlines to add to their herds. More recently, a chief concern has been the disease-of-the-year, as first one then another malady plagued the industry.

“Five years ago, trichomoniasis was virtually unknown to Missouri cattlemen,” said Dr. Craig Payne, veterinarian with the University of Missouri Extension’s Commercial Agriculture program. “Today, the disease is a likely culprit in cattle herds with low pregnancy rates.”

Trichomoniasis foetus (trich for short) is a venereal disease caused by a single-celled protozoan parasite and transmission of this organism during breeding can cut the calf crop by as much as 50 percent due to early embryonic death or abortion. The trich organism colonizes a cow’s reproductive tract (the inside of the penal sheath in bulls) and attacks the embryo that begins to develop after a cow is successfully bred. The cow typically aborts the damaged embryo and returns to heat.

“Other things can cause cows to fail to settle or to lose their calves early, but trich may be the culprit that often gets blamed on something else,” said Eldon Cole, University of Missouri extension livestock specialist. “If you have a high percentage of cows coming back into heat 50 to 60 days after breeding, suspect trich.
“This disease can be expensive because of strung-out calf crops, poor breeding rates and the cost of getting rid of trich once your herd has it,” Cole added.

The initial trich infection in cows usually does not interfere with conception but rather results in death of the embryo or abortion at 50 to 70 days of gestation, explained Dr. Payne. “As a result, cows and heifers typically return to estrus one to three months after breeding, but a period of infertility may last two to six months as a result of the infection.”

Cows and young bulls tend to “shed” the organism and clear themselves of the infection eventually. But bulls three years of age and older may become permanent carriers. “A small percentage of cows, though themselves still able to deliver normal calves, may become permanent carriers and spread the infection to other bulls in the following breeding season,” Dr. Payne said.
There’s currently no treatment to cure trich, nor a vaccine to prevent it. Individual animals—both bulls and females—show few or no obvious signs of infection. “The main symptoms of an infected herd appear as an excessive number of open cows—40 percent to 50 percent on average—and a calving interval prolonged over several months,” the veterinarian continued.

Fortunately, there is a new quick and accurate way to diagnose trich—usually made by testing the bulls. Modern tests using polymerase chain reaction (PCR) are more sensitive than traditional methods of culturing samples and looking for the trich organism under a microscope—which typically required three tests for a firm verdict.

“One PCR test can either clear or incriminate a bull,” said Eldon Cole. “I’d suggest always testing new bulls coming into the herd.”
How widespread is trich in Missouri herds? No one seems to have a good handle on that just yet.
“Between March and August, 2010, at least 18 Missouri counties were known to have herds infected with trich,” said Dr. Payne. “Most of those counties were in southwest Missouri—that’s where the largest concentration of beef cattle is—but no part of the state appears to be immune.”

“If we were testing bulls more extensively, we might be surprised at how widespread trich is,” guessed Cole.
“Testing for trich is not widespread yet,” said Dr. Mike Bloss, Countryside Animal Clinic at Aurora, Mo., who with several colleagues, conducts two bull breeding soundness clinics each year in spring and fall. “We offer to test for trich at these clinics, if owners request it, and several do. So far, the percentage of positive tests is pretty low. But we are seeing cows that don’t settle or those that return to heat after they’ve apparently been bred. Trich is one of the more likely suspects in these cases.”
Where trich is concerned, an ounce of “keep clean” is worth a ton of “clean up.” Prevention is the goal of animal health divisions in Missouri and several other states: they require a negative trich test on all non-virgin bulls being brought into the state. Oklahoma and Texas go a step further by requiring tests on bulls transferred within the state.

Preventing trich in your herd:
•    Isolate and test all new bulls.
•    When possible, buy only young, tested bulls and virgin heifers.
•    Consider using artificial insemination and manage for a defined breeding season.
•    Be wary of using leased or borrowed bulls, and keep fences in good repair. “A neighbor who lets you use his bull may not be doing you much of a favor if the bull carries in trich,” said Eldon Cole.
•    Keep accurate records.
•    Once your herd gets trich, management of the disease can be costly, involving culling infected bulls and open cows and replacing them with tested bulls and virgin heifers. But not managing trich can be even more costly, with open cows and strung-out calf crops.


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