Farming Podcast | Farm Financial Stress Test Tips | XtremeAg

00:00:00 Can your farm pass this financial stress test? We're talking about the numbers and we're talking about keeping your farm viable 00:00:07 and in operation for the next year or decade. Got a great one for you today, and it's very timely. This special episode of Extreme Ag cutting 00:00:14 the curve. Welcome To extreme Ag Cutting the Curve podcast, where real farmers share real insights 00:00:21 and real results to help you improve your farming operation. And now here's your host, Damien Mason. 00:00:29 Hey there. Welcome to another fantastic episode of Extreme Ice Cutting the curve. This is a good one. This is not the 00:00:33 stuff that we love talking about. I get it. We like talking about bushels and we like digging in and getting our hands dirty 00:00:37 and agronomics and you know what? All that cool stuff and soil and the farm. Well, you know what? There's none of that stuff. 00:00:44 If your books don't work stat that we just talked about before we hit record, 40% of farming operations are likely to not get approval from their lender 00:00:55 for an operating note in 2026. This is tragic, this is bad. But you know what? This is also business, and maybe we can address this. 00:01:03 That's why I've got Jeff Janssen. He is with JC Ag Financial Services out of Dunlap, Iowa. He's joined by extreme AG patriarch founder Kelly Garrett. 00:01:14 Kelly uses Jeff Jansen for his financial consult consultation for his farming operation. 00:01:20 We know things are a little bit tight right now. We know things are snug. We're talking about a financial stress test 00:01:24 that any business would have to do in times of declining revenue and say persistent expense. So, Mr. Janssen, did I set that up right? 00:01:34 Yes. Yes, you have. All right, before we get into the numbers, uh, Kelly, by way of introduction, we had him on a webinar. 00:01:40 Jeff Jansen was on the December Extreme Ag webinar. If you're an extreme Ag member, you can watch the replay. If you're not for seven $50 a year, 00:01:47 you can be an extreme Ag member. You get to watch the replays of our webinars. You go to Commodity Classic for free, 00:01:52 and you can also attend our data conference January 25th and 26th in Davenport, Iowa for free. 00:01:57 And you really should consider doing that. But anyway, Jeff was on there and we did financial stuff, and I said, let's do a, uh, a podcast episode. 00:02:04 Also, to take this step further, Jeff is your guy that keeps you solvent. Uh, Jeff is a great financial 00:02:12 analyst, you know, works with Jared. Um, when I started with Jared, you could either take just his marketing advice 00:02:17 or you could add in, uh, the small per acre charge for Jeff services as well. We, we took both of those at that time. 00:02:24 And, uh, I jokingly say with some truth to it, but I jokingly say Jeff is way more important than Jared because of the information we get 00:02:32 and the aggressive nature I have. The data I get from Jeff is, is second to none. And Jeff is more now than a financial analyst. 00:02:41 He is a, uh, he's my therapist and, you know, our, our balance sheet is doing fine, but I can't hardly spell the words cash flow. 00:02:48 And Jeff has to talk me off the ledge about two times a week because I get worried about cash flow in this economy. 00:02:54 Yeah. So that, that's the big thing. And we hear about this, and we're gonna get into all that, Jeff. 00:02:58 So to set the show, we're, we're gonna go through specific examples that you do with your clients, farmers that are, here's the stress test. 00:03:06 And we go through and we go, just look at this. Let's look at this. So that's what we're gonna do. So if you're listening or watching, get your pen 00:03:11 and paper out, because again, this, this episode might save your farm. I'm not being, I'm not being dramatic. 00:03:16 This episode might save your farm. We all know what the financial numbers look like. We've heard about this. We just got the $12 billion 00:03:20 announced from the federal government, and that's the fourth payment. I think that's been announced in 2025. 00:03:25 We're heading into 2026. It's a true story. You said that you heard 40, I heard 50% of farms that may not get their operation loan renewed. 00:03:32 That's a real number, right, Jeff? Yes, it is. And I think, you know, it's not so much, you know, focusing on that 40%, 00:03:39 but that 40% you need to be aware. You cannot show up and to your banker and say, boy, I hope things work out for me this year. 00:03:46 It's, it's too late at that time. So I think kind of our point of doing this is you need to be prepared in these lean years 00:03:52 to make sure you are aware of your financial situation so you can make the right moves during the year to bit yourself in the best position at the end of the year. 00:04:00 So it's, it's planning ahead and not just showing up and finding out at the end of the year. So let's go ahead and start with the beginning. 00:04:06 Kelly went ahead and said something about balance sheet. Okay? Most farms are like, uh, 00:04:09 and I heard a saying, I was at the Kansas Ag Bankers Conference a decade ago. Uh, if you got the dirt, you can't get hurt. 00:04:15 Meaning the banker says, well, it's okay. I'm not gonna lose anything because I've got a, you know, collateral here in the soil. 00:04:21 And too many farm operations sort of thought that way. Well, I've got good assets. I own, you know, 100 acres, 00:04:27 1000 acres, whatever that number should be. The problem is those are balance sheet items. Balance sheets don't pay bills. 00:04:33 And I think we talked about that in our webinar. Cash flow pays bills. So let's just kind of start there, 00:04:39 and then you can start going through your stress test, because I think it's important. Big picture. Yeah. My farm's, okay, well, your farm's okay, 00:04:45 in terms of the holdings, but what about the revenue versus expenses? And I think that's an important one, right? 00:04:51 Yes. So I, I'll take a look at just say for 2025 and, and we have our numbers for cost of production from JC AG Financial Services, 00:04:59 but I thought I would just grab some numbers that were industry standards. Iowa State University cost of production 00:05:05 for corn crop is 1015. Do dollars per acre for 2025. Well, if you take a look at across the board, what we would do on a stress test to say, 00:05:16 what yield do you think that you can can generate this year, 1 75 up to 2 40, 2 50, well, you start looking at that cost 00:05:24 to production standard. If you look at, if a low yield 1 75, your cost of production's five 80, Kelly, 00:05:31 can you get five 80 for your corn today? We, we cannot get anywhere near five 80, you know, 200, 200 bushels an acre. 00:05:36 Cost of production's 5 0 7, we still aren't reaching that cost of production. If you can grow 225 bushels, an acres 4 51, 00:05:44 now we're getting closer. So at the end of the day, it's matching up what your costs are, with what your yields are, 00:05:51 and determining what that cost to production is, and what that revenue is needed to cover your costs. While we're talking about cost, 00:05:58 because this is the, uh, a mistake, and we're not making, we're not throwing barbs at anybody. Kelly made the mistake. 00:06:04 Farmers are notoriously bad at calculating cost of production. Um, and, uh, this is something we've, we've joked about, 00:06:16 you know, gene Fa Kelly's father, who's no longer with us, said, uh, how the hell did you get $900 in a soybean crop 00:06:22 when Kelly says it's $900 to grow a crop of soybeans? So, go through what those cost, cost of productions really need to entail, 00:06:28 because I'm sure that there's somewhere and it says it's $1,015 from Iowa State, but I'm over here farming in, uh, you know, whatever, 00:06:35 Kansas, and there's no, uh, we only $500 to grow a, a crop of corn here. Well, is it really? So let's talk about 00:06:43 what is factored into cost of production that farmers notoriously do not calculate. Yep. So, like I said, so this is based on 00:06:50 what I like about this is they're using a bushel per acre that you can yield. So a farmer, yes, a farmer that your, 00:06:57 your yield is maybe only 150 bushels an acre in your region. Your cost of production is not gonna be this high. 00:07:03 But here in western Iowa, 210 bushels an acre, pretty standard. I'm looking at this. Their land cost on here are th 00:07:09 $322 an acre. That's all in, that's a com combined rent and, and what you own. So when we look at Kelly's, we look at both what he rents, 00:07:17 what he owns, and comes up with an all in land cost on there. Machinery on here is about $110 an acre. 00:07:23 I think that's a little bit light, but again, this is an Iowa State average inputs, you know, they're, they're variable depending on where, where you are. 00:07:31 Um, you know, so I, I guess there's not a lot that we can move there, but the bigger part where I feel a lot of these get missed are, you know, 00:07:37 Kelly's family's growing now, but you know, the family living often gets missed is there's somebody working off the farm. 00:07:43 So there's a lot of additional expenses outside of what I say. The direct costs are your, your land cost, machinery costs, 00:07:51 input, crop insurance. Now, that's your standard direct cost where a lot of these other costs come in, 00:07:57 are your indirect cost, your family living? Do you travel? What, what, how do you want to live? What kind of house are you living in? So there's a lot 00:08:03 of other, um, considerations, And you can see where those, you can see where I would, I would factor those out of cost of, of per acre production, 00:08:11 because I would, I would call those lifestyle issues, et cetera, or, or maybe just set aside a certain amount that I need to exist. 00:08:17 I, but I think that's, that's the, the challenge with that. That's why that one gets scoffed at a little bit. 00:08:22 Yes. Yep. So, I, I think, you know, if you look at the situation, so let's just say you're a 3000 acre farmer 00:08:29 and you're going into 2026 and you have a 210, um, average yield that you might generate this year, 00:08:36 and just looking at what we can get for a December price down the street here, about 4 35, you're gonna generate $2.7 million of revenue with 00:08:45 that standard cost to production. 1,015, that's over $3 million a cost of production. That's a shortfall of $300,000 on, on, on this year, 00:08:54 or about a hundred dollars per acre using an average yield. Now, I asked this question to our o other finance girl in 00:09:00 the office before I came, and I'm asked Kelly, this, this, this question to see what his answer is. 00:09:04 Kelly, if you could, if you're gonna grow 210 bushels per acre and lose $300,000 next year, 00:09:11 what are you gonna address first? Revenue or expense? I'm gonna try to address expense because I don't know if I can address revenue. 00:09:19 You have to address expense. Yeah. Yep. So, so then, yeah, because the point is, otherwise, you're, you're so locked into having 00:09:27 to achieve a certain yield that you're gonna be chewing your fingernails off saying, oh, holy s**t, the rain didn't come, 00:09:32 or whatever that thing should be. So the first thing you can address is expense. Yes. Now, I had a bet, I said, I bet you Kelly says, 00:09:40 why I, I'm gonna outgrow that. I'm gonna grow 225 bushels next year. He's gonna, he's gonna do whatever he can 00:09:45 to outgrow that shortfall. Well, I, I, but, and you're, you're laughing about it, but I think that's the farmer sentiment. 00:09:51 That's the farmer optimism and, you know, good for them. It's, you know, uh, hey, uh, you know, you got, you gotta, 00:09:58 you gotta ring the bell to, to justify this. Well, by God, I'm gonna ring the bell. And I think that's, that's not, 00:10:04 that's not an uncommon sentiment among a producer. I, I would like to think that I could ring the bell. The reason I said I'm gonna address expense is 00:10:12 because that's a known quantity. We don't know what the weather's gonna be. Things like that. We can't guarantee the yield. 00:10:18 I would have some optimism that I can, but if, when we're addressing a $300,000 shortfall, let's see how much we can carve out 00:10:25 of those expenses to do that. That's what, uh, Vern and I are doing for this year on our farm. Yep. So the first thing we did, uh, Jeff, just to clarify, 00:10:34 was we looked at the first thing you did was looked at cost of production. Is that the first, very first thing? Okay. Yes. Okay. 00:10:39 So the very first step on the financial stress test is look at cost of production and, 00:10:44 and don't just count, don't just count cash, rent and, uh, crop inputs. And, uh, what else would it be? Uh, that's it. 00:10:57 Because remember machinery Yeah. Farmers don't count machinery. Well, that tractors paid for. Uh, yeah, but, right. 00:11:03 So go address that, because I hear that all the time. Well, I don't have an expense. I don't have an expense because you know 00:11:08 what my machine was paid for. I don't think enough fuel gets put in there, and I don't think enough repairs gets put in there. 00:11:13 I don't think enough insurance gets put in there. Things like all of those things, the depreciation, And Yes. 00:11:19 At, at the end, you know, at the end of the day, uh, like there's not, there's not a transaction that goes through our checking accounts that he doesn't put somewhere. 00:11:27 And you have to do that. You have to do that because if, if the farm is generating all of your living, 00:11:33 if the farm is generating all of your income, how's that ev everything that gets spent needs to be attributed back to an acre somewhere. 00:11:40 Is it really a cost of production, uh, driving my pickup down the road or, or going on vacation? No, that's, that's not really a cost of production, 00:11:48 but that acre has to produce that cash flow to do that, and it's gotta be figured in there. So I, I would say when we're figuring cost of production, 00:11:59 most farm operations are probably guilty of not putting in enough on machinery, or like I said, they, they say to themselves, well, 00:12:06 my combine's paid for, or whatever that thing is my, and so that dynamic expense, and that's not an accurate statement 00:12:10 because there's still an expense to something that's paid for. Right. Jeff, would you address 00:12:13 maintenance? Would you address That? Yeah. Maintenance and, and eventually you're gonna have 00:12:16 to make some sort of, you know, trade on there. So if you're operating on the, the, you know, fact that you think that you can just go without ever having 00:12:23 to replace something that you have on the farm, when that time comes to replace it, you're not gonna have the funds available 00:12:28 to replace that. Yeah. So that's a depreciation or degradation of value. Yeah. Of the piece of equipment. Right. Okay. 00:12:35 What about, um, okay, so figuring out cost of production. Oh, and then labor, uh, 00:12:39 farm folks are pretty bad usually about, uh, attributing to labor. But you think that that's, do you count labor 00:12:43 or do you just say no, that's your return? No, we, uh, it's the, so like with Kelly, you know, they pay themselves a, a wage. 00:12:51 So we, we like to do that. So we see that money. A lot of times guys are like, well, I don't pay myself a wage, but like Kelly said, 00:12:57 we're looking at every transaction that comes through, and I'm seeing a check that gets written either to a personal account or to a credit card. 00:13:03 And, you know, those transactions may not show up here, but I said that just automatically becomes family living until you show me that that's a farm expense on there. 00:13:11 Either way, it's a check that's been written from the farm to cover an expense that needs to be, 00:13:16 you know, covered by the farm revenue. So my first step on my financial stress test is analyzing my cost of production and 00:13:21 to be honest about what the actually things are. So the person's listening to this that needs to know, like the things they might be missing. 00:13:26 You just pulled the Iowa State thing, that's all public information. I can pull that up, right? Yep. And say, yep, 00:13:30 Iowa State University cost per, okay, next thought. Next thought on this financial stress test. Yep. So you have to know your cost of production, 00:13:38 and then you have to know what your average yields are. You know, you have to know what hurdle that you have to clear, and then you look at what your average yields are, 00:13:45 and, and now you know what, what income that you need to sell that crop for to cover that expense. Now with these shortfalls, a lot of time, you know, 00:13:54 we'll talk to guys, you know, even Kelly completely outta this, with his multiple entities. 00:13:58 I'm like, what are some other things other than just grain sales that you can do to offset this? 00:14:04 You know, we talk about this quite a bit. Are you using a sprayer on these 3000 acres? Yes. Can you go spray for somebody? 00:14:09 Can you generate some more revenue with the equipment that you have? 'cause then now you're spreading out your expenses over more 00:14:16 revenue streams, which then reduces that cost of production on your actual corn acres or your soybean acres. 00:14:21 Okay. So, so we always tell guys if there's other ways to make money with the machinery line that you have, find it, you know, that's a good way to offset some 00:14:30 of these shortfalls in these years. Okay. So spread expense. This is obviously the entire theory of, of, uh, expansion. 00:14:38 Uh, the entire theory of expansion is I'm covering more acres with, yeah, I had to buy one new tractor, but I I, I got, you know, 00:14:47 a 1.5 return on that kind of thing. So that's, that's what we're talking about is the theory of expansion is you're spreading expense on more acres. 00:14:56 Yeah, that's, that's exactly right. We did that this year. You know, we, we rented a, a sizable chunk of land, 00:15:02 and we didn't get any machinery. Uh, we didn't need any additional machinery to do it, and we, so we lowered our machinery cost 25 or $30 an acre. 00:15:12 Yeah. So, and then the, then the considerations there, from a financial stress test to expand, you are still paying more rent, 00:15:19 you're paying more inputs, et cetera. So go through that, Jeff, if you will. When you're sitting with someone, it's neat to say, yeah, 00:15:25 you're spreading the expense, your fixed expenses. Yep. Your fixed expenses of your green bins, your tool shed, your shop, your tractors, et cetera. 00:15:35 Yep. I've also gotta pick up an another. I, I've grabbed the 80 acres or whatever that thing should be, 160 whatever of new land 00:15:42 I've gotta put, I've gotta put all the crop out and I've gotta come up with all that. Yep. So the first thing to look at when, 00:15:49 when Kelly approaches this with something like this to say, your land costs today, Kelly are X, 00:15:54 so we're just gonna say $300 per acre is for easy math. Now you're gonna pick up another sizable chunk of acres, and you're gonna pay, let's 00:16:01 just say you're gonna pay more than that. Now your land costs are up to $310 on the entire farm. Well, you're already losing money here, 00:16:09 you know, on, on these numbers. You know, why are you picking up an additional, you know, $10 an acre on land cost? 00:16:15 Well, now we have to take that the next step. Kelly said, well, I could, I could cover this new ground with the same amount of machinery that I have. 00:16:22 Well, now those machinery, the fixed costs on those start coming down, because now that machinery's running over more acres, 00:16:28 then you start looking at some of the other fixed costs around, you know, the office around here, you know, cell phones right here, your cell phone bill. 00:16:34 This is very small. It, it's not gonna cost you more, you know, to, to farm these more acres. 00:16:39 So your fixed cost then slide down not directly as they would on the land costs. So we say you might increase your land costs 00:16:46 to pick up this additional ground, but by doing so, you're decreasing other fixed costs, which will hopefully kind of make the overall cost 00:16:54 of production not take such a hit. Understood. All right. The, the client that comes in, potential, potential client, 00:17:01 then you've talked about, uh, obviously really knowing your cost of production, then knowing your average yield, 00:17:06 and then that way you understand what the hurdle you have to clear and being realistic. 00:17:09 Not the whole thing of, ah, well I just out, I'll just out produce it. It's very tough to out, it's, 00:17:14 you're outproducing a a loss is very difficult, I think is your big point there. Yep, Yep. And I think, you 00:17:19 know, the other point that we're going to, that we'll get to, and obviously this is, you know, Jared and, and our insurance team is, is, you know, look at 00:17:25 that price I just grabbed, you know what a cash price thing I thought that we could get at the ethanol facility or, 00:17:31 or whatever around here for next fall would be, well, there's items that you can do during the year, whether it's, you know, the type of crop insurance that you're using, 00:17:39 the type of marketing plan that you have now, you wanna make sure that you are, at least if you are at a break, even at this, at this cost 00:17:46 and at these, at this, uh, yield, you wanna make sure that you're protecting what that dollar is that you're gonna gen that you're 00:17:52 gonna generate for that crop. Right. So that's where it, it incorporates our marketing plan. 00:17:56 It incorporates insurance plans, kind of the whole facet to make sure that your risk mitigation is there 00:18:02 to prevent you a, a drop in your price. Yeah. I Wanna hear more about that from Kelly also. But for our, do I want 00:18:07 to remind you about our friends over at Earth optics farmers. Imagine that knowing your soil as well as you know, 00:18:12 your fields, maybe you already do or you think you do, but maybe there's a lot of stuff happening out there in 00:18:17 your fields you're not sure of. With earth optics, you can get the most precise soil insights in the industry. Clear, accurate data on fertility, biology and compaction. 00:18:25 No more guessing just the information you need to make smarter decisions, optimize your input costs and boost your yields. 00:18:32 Earth optics puts the full picture of your soil right in your hands, so you can farm con confidently 00:18:37 and profitably, unlock healthier soils, stronger harvest, and a better bottom line. 00:18:43 Go to earth optics.com to learn more. Um, okay, here's what I wanna know. This is all like, okay, that's fine. That's fine. 00:18:54 That's fine. We haven't really still talked about the, the stress test. Do you, do you just start now looking these things like 00:19:01 Kelly says, well, I'm okay with my numbers. Tell me the test that you actually do. Okay. We analyze cost of production. Go. 00:19:08 Yep. Well, I, I, I'll back this up because, uh, ironically, I think we're, we are in the stress test zone right now. 00:19:14 You know, I was, you know, looking, going back and looking at, uh, some numbers here. You know, you mentioned, you know, in 2020 1, 22, when, 00:19:21 when things were looking better. So if you look at $6 corn, you know, back, you know, a few years ago now on that same 3000 acres, 00:19:28 you're generating $3.8 million in, in revenue against $3 million in expenses. That's a $700,000 gain on this same, on the same 3000 acres 00:19:39 that today you're losing $300,000 on. So it is not the time today to say, wow, what happens? So back in 21, 22, 23, when we're doing budgets with Kelly 00:19:48 and our other customers, we're saying, now let's just say the floor falls onto this. Let's, you know, even back then, I can show you 00:19:54 what we had been doing. What if prices go to four 50? What if your yield goes from two 10 to 180? You know, what are these, what if scenarios? 00:20:01 What are the things then that you will need to adjust to, to make sure that you can get through those lean years? 00:20:09 Kelly, what is, uh, what was, tell me the big ahas when you go and meet with Janssen, you know, you didn't used 00:20:15 to use his services, now you completely are bought into it when you're like, oh, crap, didn't think of that. 00:20:22 What, which things, because you're, you're more financial minded than, uh, many business operators. 00:20:27 So I don't know that any of this stuff was a big surprise. But then again, sometimes, sometimes you're like, 00:20:34 oh, I didn't even think of that. I'll tell you, I thought we were making money on soybeans and I felt like my dad failed fed the cattle too well, 00:20:43 and I wondered if we were just breaking even on cattle. Uh, so we went through all of that and it, it, it, it really took us a couple years dame to, 00:20:52 to get really dialed in because you need good data. You need to be able to track it. It isn't, you know, we didn't have good enough data, 00:20:57 especially on the cattle, um, to, to go backwards to do it. So it took a couple years to get through it all, 00:21:03 but it, it was a worthwhile project. And I learned we were making a lot of money on cattle. Mm-hmm. E even before this up, you know, 00:21:11 going back into 21, 22, things like that. We were making a lot of money on cattle and soybeans were pretty tough. 00:21:17 Um, I'll tell you, I felt like winter wheat was a break even. Uh, uh, and, and so we, we kind of transitioned our farm 00:21:24 and, and now, you know, we don't have many beans. My corn yield has suffered because of that. And so now we're probably gonna add back in a few more 00:21:31 beans, but we added in some wheat. We've added in some oats. We've added more cows, and the wheat 00:21:38 and the oats of course come off in July. And then we can have a double crop scenario. You know, like you talk about, like Chad in Alabama, 00:21:45 he double crops soybeans behind wheat, and he says he makes a lot of money doing that. We don't have the opportunity here. 00:21:51 So we've tried to get creative. So, so again, the cattle are making money, let's add cattle, but what's the biggest expense on the cattle? 00:21:58 The land? So we added in some wheat. We've added in these oats. We're gonna do things like that. The, the ground where we added the wheat 00:22:05 and the oats, we took soybeans out, now we're gonna double crop the cows. Those cows are gonna go on 00:22:11 that wheat stubble on that oats stubble. The, these are the aha moments that I have had. We're working with Jeff on the stress test. 00:22:17 How do we do more with less? And that's what we're trying to do. Jeff will tell you that my machinery cost is too high. 00:22:24 Uh, sometimes I don't think we attribute enough maybe to what KSX does with the spraying of the plant food. 00:22:29 But then also because I have to go spray the plant food. I need more machinery. I need to get the crop out 00:22:34 of the field faster because I need to go spray the plant food. So some of it is sacrifice, things like that. 00:22:41 You know, we, we have attributed more labor costs now to the cattle and things like that, really trying to drill down and have it become accurate. 00:22:50 Jeff, there the, you can continue 'cause there's gotta be more tests than what we just talked about. 00:22:55 You just went through cost of production, average yield spread expenses, et cetera, et cetera. And the big one obviously is cost of production. 00:23:00 What, where else are we going? Which, where else do you take the operator Storage? 00:23:05 Uh, if I could, you know, so like this year, this year we put grain in bags for the first time, and you wanna talk about an aha moment. 00:23:12 We made 50 to 75 cents on basis and carry. So like Jeff's looking at the 20, 26 numbers here, and he looked at 4 37 corn right? 00:23:21 Now, I, I would be confident or optimistic in saying so I think, 'cause December 26 corn right now is like 4 57 on the board 00:23:30 probably, and he's showing a 20 cent basis there. I bet I could improve that at least 15 cents right now, just by putting that corn in the bag and 15 cents isn't a lot. 00:23:41 But then when I look at the, uh, labor cost and, and the bottleneck and things like that, and the difficulty it is to get 00:23:46 that corn into the ethanol plant or into the market in the fall. Mm-hmm. It, there, there's an add. 00:23:52 I could add some revenue that way. Now it, it, but it changes the cash flow. We're having a little trouble with that right now. 00:23:58 There we have 600,000 bushel of corn, uh, Damien in bags. Well take that times four, take that times four. 00:24:07 Uh, you're talking two and a half million dollars of corn in bags, and I don't have the cash right now, and I need to get it to tap, to turn the bushels into cash. 00:24:13 Uhhuh, it's caused a little bit of a crunch. Uhhuh, You know, that's another aha moment where I'm like, boy, Kelly, you should have foreseen 00:24:19 that coming there just a little bit. And, and I did for c chairman, You're, you're picking up money. 00:24:25 Let's just talk about stress test. You're picking up money on the bushel because it's, you're gonna improve the basis, 00:24:31 but you don't have it pre-sold or you do have it sold. We, we did have it, we had it hedged. Yeah. We, we had it hedged, but we did not have a de it wasn't a 00:24:37 cash sale, it was a hedge. Yeah. So we're picking up money on the bushels in December, but it sure would've been okay to have a couple 00:24:45 of dollars in October when we're really used to 'em coming in. It caused a 60 day headache. 00:24:50 And, and I, you know, what I, what I planned on doing was sealing the corn. Well, then the government shut down. 00:24:54 You wanna talk about a stick in the bicycle spokes on the cashflow perspective? Yeah. Right there. You know, 00:24:59 and that's not gonna happen every year. But these are some of the aha moments that we've had in the stress test 00:25:04 and how we're trying to do more with less. Okay. So storage and, uh, and all by the way, uh, the naysayers are gonna say, well, 00:25:12 yeah, but now you got a lot of labor getting that corn back out of those bags, and you're also gonna have 00:25:17 some, and you're also got some loss. It, it's true. Uh, I don't think that we've had any more loss, uh, 00:25:23 than we will coming out of a grain bin. Okay? And there is labor coming out of the bag, but you'd have the, that you, it's less labor than trying 00:25:31 to get it all delivered during the bottleneck and things like that. So it a net net positive all the way around. Okay. 00:25:36 But there, that, that naysayer is not totally wrong, but I still say that the positives outweigh the negatives. Yeah. So the la meaning, 00:25:43 and so if someone's listening, it's like, what's he talking about? If you're, if you got a hired man waiting for an hour 00:25:49 and a half every load to dump because it's the, the, the dump site's heavy, that's the problem. That's what you're talking about on the labor. 00:25:55 Yes. The, the labor costs go up. There's another, there's another an added expense there. Jeff, you've been ready to say something? I can tell. 00:26:03 Yeah, no, I, I think, you know, to go along with that stress test. So let's go back to that earlier example. 00:26:07 You're just gonna take the average cost of production Iowa State, take an average yield of, of two 10 and take a price of 4 37. 00:26:14 You're gonna lose $300,000 this year. That farmer, that farms 3000 acres. Part of our, our test then is if there's no way around that, 00:26:21 now, can your operation withstand that? So that's when we take a look at the balance sheet, you know, we always, you know, the cash flow, 00:26:27 that's basically your working capital. That's your top third of your balance sheet. Now, if we talk to somebody 00:26:33 and says, what if things do happen that you do lose that money this year? Well, what you don't wanna do is, 00:26:38 is start off the next year already being $300,000 in the hole and have to generate that. 00:26:43 You know, that now you just kind of compound that issue. We say, what are some things that you could do 00:26:48 with your bank or, or other, you know, um, creditors or other assets that you have in your balance sheet to pull that together. 00:26:54 So the stress test is if you do lose that money in this crop year, what do you have, you know, on your farm that can generate, 00:27:01 do you have equity in, in, in land? Do you have equity in machinery? Are there pieces of machinery that you no longer need? 00:27:07 So it's kind of taking that, you need to make that adjustment, uh, to your balance sheet to make you back to a one-to-one, uh, working capital. 00:27:15 Okay? But I'll be the outsider. That's the questioning the logic here. Um, I get rid of something that is paid for 00:27:24 and to sustain a loss on an ongoing concern. Eventually, I run out of stuff that's paid for to pay for annual losses on doing something. 00:27:33 So when do you tell me, maybe it's just smart to just be done. No, I I think that that goes back to, 00:27:39 we're talking about the 2021 year, the years that you are making money on there. Those are not the years 00:27:46 where you say, Hey, I'm gonna go out. I've, I have all this newfound money. I'm gonna go buy some things on payments. 00:27:52 I'm gonna go overspend on the farm that just so I can, in tough times. You gotta address the balance sheet to make it 00:27:59 to your advantage and the good times. That's where you have to look at the balance sheet and it says, you know, kind of that, that big savings count. 00:28:05 Where do I move this working capital to put me in a best position, you know, for a year where things aren't as good as what they are this year. 00:28:12 So it's not preparing this year to, to liquidate something. It's back in the 20 ones. 00:28:17 20 twos when there the farm was profitable, is positioning yourself then that stress test to say, if things do go down, what am I gonna need to do? 00:28:26 Move that money to where that can help you in a down year. Kelly, this is like going sometimes to the, 00:28:32 like the personal trainer that tells you you ate too many cookies at Christmas time and you're a large ass, and you need to like, you know, 00:28:37 you need to actually get it together and do some pushups. He's probably gonna say next, 00:28:41 this is the thing he's probably gonna say, oh yeah. And like, don't be one of those guys that buys a golf cart and puts your farm logo on the front of it 00:28:48 and calls it a farm expense when all you really do is drive around drink beer on your golf cart. 00:28:52 If he says that he might be talking about somebody that's on this recording, well, Jeff, Jared says those things, and Jeff shakes his head. 00:29:01 Yes. Uh, I, I might have a, I might have a farm checking golf cart that I drink beer when I drive around on it, 00:29:09 and it might have been a farm expense. Hey, what, what's the reality here? Looking forward? I'm going into my bank and 40% 00:29:16 of these guys are gonna go in there and they're saying, I don't know if I can get you renewed. What are they supposed to do? What tell, you know, gimme, 00:29:21 gimme the, okay, move some equity outta something that you got, uh, present a paradigm of expenses. Well, hopefully, you know, you know, there's, you know, 00:29:32 you don't go into your bank in December and find out that, oh my goodness, I'm not gonna make it. And that is not, you know, at that point you're, you know, 00:29:39 I hate to say it, you're again, almost too late at that point, because then all you do have left is, what can I liquidate on the balance sheet? 00:29:45 The time to address that is when, you know, coming into this year, Hey, if my yields are this and prices maintain where they are with my cost 00:29:52 to production, I'm gonna commit a loss. So you need to be making those adjustments during the year or prior years to, to make sure that you can, you know, 00:30:01 take care of yourself in a, in a year like this. Jeff, do farmers, do bankers, look at right now, this infusion of money that's coming from the government 00:30:10 and say, okay, that's gonna be the reason we give you this. Or do they just say, you won't need our loan 00:30:16 that we're not gonna give you because you're gonna get this installment of cash from the government? 00:30:19 Like, what's that? I've never been behind the desk of the banker's, uh, uh, job. Yeah, it, you know, and I, 00:30:26 and I guess, you know, there's difference opinions on this. I mean, it might say, yeah, prices are low. 00:30:31 So the government's kind of helping us build up that price. But I also think, you know, in, in, in essence, you need 00:30:38 to look at your farm on a standalone. If you're gonna rely on, you know, oh my goodness, if it gets really bad, there'll probably be some 00:30:44 payments for me at the end of the year. That's not a way to get through your year. You need to make sure that your farm is viable based on 00:30:51 what you can sell the crop for and what you, what expenses you need to cover on your crops. So if I'm looking at a customer, I'm like, the only way 00:30:57 that they're surviving is by, you know, that fortunately they got a couple of timely farm pa, you know, farm payments to kinda help pay their bills. 00:31:05 You still need to look at this and says, this is not a viable operation. We need to start making some changes here so 00:31:10 that we're not just hoping for some checks to help us, you know, make ends meet at the end of the year. All right, so the person's listening 00:31:17 as Kelly is hearing it right now. And so Jeff says, well, if you're at end of the year or beginning of the year, you know, it might be too late. 00:31:23 That doesn't do the personal listen. There's a whole hell of a lot of good. So what are the things that somebody can do right now, 00:31:28 Right now, going into 26? You could try to pick up some custom work, you know, use what you have on your farm to diversify and add income. 00:31:39 Uh, you know, we do about a thousand acres of custom work. Um, the, the livestock has been, has been great for us. 00:31:45 You know, if I was just a row crop farmer right now without the livestock and without my trucking business, 00:31:50 I'd be in a world to hurt. Okay? I would be in a world to Hurt. So pick up some 00:31:53 custom work because you've already got the equipment. You probably have time and, and, uh, and now you're at least increasing revenue. 00:32:02 And so that helps in terms of yes, You know, that that customer, that customer work does two things. 00:32:06 Number one, if, well, Jeff's example here, if you're farming 3000 acres, what if you pick up 750 acres of custom work and then you're spreading your equipment cost 00:32:17 over these extra, uh, uh, 25% of acres. That's a significant, uh, advantage there, or accomplishment. 00:32:23 Plus, there should be some labor that you could be able to take out of there. Maybe your cost of living comes out 00:32:29 of the custom work instead of your farm. You know, do you have a truck? Do you have a semi that you haul grain with? 00:32:35 Uh, could you haul grain for the local elevator? Could you haul drive fertilizer for the local elevator? Things like that. Could you unhook your grain hopper and, 00:32:43 and hook onto a, a tanker for somebody and go do that? That pays very well. Those are the ways that we, those are the ways 00:32:50 that we have added to do those things. Um, and, and again, if my family didn't do that, we, we'd have a real problem here. 00:32:57 The, the livestock and the trucks are, are really, uh, carrying the water, um, the last year or two. 00:33:04 Okay? So custom work, a lot of, uh, a lot of folks could be able to do that. Diversification into, uh, livestock's gonna be a bit more 00:33:11 of a challenge depending on where you are, the assets you have, but also it could be diversification of other, this is not, again, I'm not being mean, 00:33:19 but I'm 56. I remember there was a lot of farming operations that had to figure out creative ways to diversify in the whole 00:33:25 eighties and nineties. And so it could be livestock, it could be, uh, like you said, uh, running, running trucks for whatever. 00:33:33 Anything else you got there, Jeff? No, I, I think just anything that helps you kind of close that gap. 00:33:39 I mean, any little bit of income that you can generate that doesn't come from your sold bushels reduces that cost of production. 00:33:47 Mm-hmm. Kelly, the, uh, the last thought on that one is when you walk out from your meeting with, uh, of, uh, Mr. 00:33:57 Janssen, um, when you give yourself the financial stress test, you've had a lot of big ahas, et cetera, the one 00:34:04 that now has been going for three years, four years, you're like, holy crap. I think that probably at some point, some 00:34:08 of starts paying a dividend, almost like, okay, God, I'm glad we straightened this out four years ago, because here's what it is, and it's for you. 00:34:15 You brought up cost of production being one of the big ones versus finding new ways to make revenue. 00:34:21 Is that the one, because again, it's the old thing. Is it, is it the money out or money in That's the, the, the deal, the breaker. 00:34:30 It, it, it, it's both. And, and, and what the reason we are have flourished here lately. 00:34:37 And again, things are tight, but the reason we flourished here lately is 00:34:40 because of the things we addressed way back in 21, the things we addressed, the, the cattle were making money and, and the, the soybeans were not. 00:34:49 And let's look at what we had last year. We only had a hundred acres of beans, and we more than doubled the Calvert. 00:34:55 Mm-hmm. Look at the, look at the evolution that we've done in four years, and it's because of this. So we address the shortfalls 00:35:02 and we added in things that make money. So it become, so that's where the, like your word flourish, or your word dividend, that's where that comes from. 00:35:11 We took out the bad and we added in more of the good. And you have to be open to doing that. Um, my sons have a friend that, uh, he, they told him, 00:35:19 he said, well, why don't you use your truck? And things are tight for him. Why? Why don't you use your truck and go haul and stuff? 00:35:24 Well, he doesn't want to do that. He wants to farm. And I'm like, well, I wanna farm too, but I also need to keep the lights on. 00:35:31 You gotta be, you gotta be open and willing to doing these things that are outside the box, and they can really make a, a big difference in the end. 00:35:39 Jeff, closing thought? No, I think Kelly hit it right there. You know, we, we have guys that do have some 00:35:45 of these side businesses like Kelly mentioned, and we, we analyze those as well. And say, you're spending 30% of your time, you know, 00:35:51 maybe in a truck. Well, let's look at that. That's, you're not making much money in that truck. Can you take that 30% of your time and do something else? 00:35:59 Is it get better routes? Is it, you know, do something. So it's, it's like Kelly mentioned, it's maximizing the resources that you have, 00:36:07 eliminating the ones that are, you know, not the winners for you, and finding yourself in the position 00:36:12 to eliminate the, the items that are dragging your operation and capitalize on the items that are making you the money. 00:36:18 And when the banker says, I'm not gonna renew, uh, you do have recourse. I think that's the big one, right? 00:36:24 We we're, we hope we're giving some hope to the people listening to this. Like, all right, I'll go and retool some things 00:36:28 and come back to you in the next two weeks. Yep. A hundred percent. That's what, that would be the closing thought. 00:36:34 Don't, don't give up. Go retool some things and figure out how to eliminate some costs. Figure out how to add some revenue. 00:36:41 And I, I believe the banker wants to tell you yes, but you need to come. All he's saying is you need a better plan. Yep. 00:36:47 And show up at the banker with a plan. If you just show up and say, you know what, I, I lost money and it looks like I'm probably gonna lose money next year, 00:36:54 just looking at these industry averages. But if you go in there and say, but I have a plan to address this. 00:37:00 I am gonna start doing some things that can, you know, make some benefit to my farm. And then they say, oh, he is thinking about this. 00:37:06 They are aware of their situation. We need to, you know, kind of partner with them to get them through this. 00:37:12 I like it. We're gonna leave it there. If you wanna learn more about, uh, how to do this, 00:37:15 or if you even want to pick, uh, pick up, uh, you know, some good advice from a paid consultant, uh, if they wanna hire you, Jeff, can they do that? 00:37:24 Sure. Yep. We're always willing to talk to people and see what we can do to, to add value for them. How do they find you? They can get ahold of us, um, 00:37:31 JC Ag Financial Services. Um, they get ahold of my number through, um, Kelly, or I can give it to you here. We done 00:37:37 Extreme ag. We'll put it in the notes. JC AG Financial services. If you want to take your learning to the next level, 00:37:42 remember I already told you, you should really become an extreme Ag member. It's easy, it's $750 a year 00:37:45 and you get access to guys like this right here. Uh, Kelly will pick up the phone and actually take your calls 00:37:51 and help you with anything you have. You also get invited to our data conference, which is January 25th and 26th. 00:37:56 Kelly's gonna be there. I'm gonna be there. You're gonna hear from a lot of industry people. You're gonna hear the trials, the data, 00:38:01 the information, what worked, what didn't. You're also gonna talk to our business partners while you're there, and you'll probably have some drinks and hang out 00:38:07 and is, it'd be a great experience. You also get to go to Commodity Classic for free courtesy of our friends over at Nature's. 00:38:13 And you also get, uh, a few other benefits like, uh, again, great agronomic, uh, output from, uh, 00:38:18 people like Evans that, uh, works with them. So you can, you can learn all that. You can get all that from being a member. 00:38:23 In the meantime, share this with somebody that can benefit from it. We want you to be farming in 2026. 00:38:27 We want you to be vibrant. We want you to work. And, uh, that's why we asked you the question. Can your farm pass this financial stress test? 00:38:34 This is a very important one. I know it's not as exciting as big yields, but, uh, your future, your farm might very well depend on. 00:38:39 So next time, that's Jeff Jansen. That's Kelly Garrett. I'm Damien Mason with extreme Ag cutting the curve. That's a wrap for this episode of Cutting the Curve. 00:38:47 Make sure to check out Extreme Ag Farm for more great content to help you squeeze more profit out 00:38:52.565 --> 00:38:54.085