Jack's Blog

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Understanding Financial Risk....

noreply@blogger.com (Jack) — Wed, 17 Mar 2010 16:24:00 +0000

is yet another portion of the Risk Management "pie".

Financial Risk has 3 basic parts:

- the cost and availability of debt capital
- the ability to meet cash flow needs in a timely manner
- the ability to maintain and grow equity

Cash flow is very important because of so many ongoing farm obligations, i.e. cash input costs, cash lease payments, tax payments, debt repayment, and family living expenses. Often, off-farm employment can be a financial risk strategy. It ensures that living costs are met, raises the standard of living and may reduce the need to liquidate farm assets.

Financial risk should be managed through sound planning and financial control. Monitor your ability to bear financial risk continuously.

A set of well-maintained financial records is critical to maintaining financial control of a farm or ranch. This helps in evaluating past performance and planning for the future. Some essential financial documents include the balance sheet and statement of equity, income statement, and project and actual cash flows. As the operation grows, more records will be needed – ratios such as debt-to-asset, debt-to-equity, and asset turnover are important monitoring tools.

There isn’t much anyone can do about interest rate risk; however, by lowering your debt-to-asset ratio and having crop insurance as well as a sound marketing plan, you can sometimes influence your interest rate. Add maintaining accurate financial records and a consistent record of timely repayment of loans and you can expect continued access to debt capital when you need it.

Marketing Risks

noreply@blogger.com (Jack) — Sat, 06 Mar 2010 20:24:00 +0000

Continuing our Risk Management discussion, I want to comment on Marketing Risks. Marketing is the part of farming operations that transforms productions activities into financial success. Often unexpected circumstances, like weather or government action, can impact major changes in crop and livestock prices. With agriculture becoming an ever growing global market, these changes can come from world factors – other farmers’ weather and other countries’ governments can affect your prices.

Marketing plans and strategies should be developed with your operation in mind. Keep these items in mind as you develop your plan:

Know the level of risk you are comfortable with. Marketing is not an exact science, so you must understand your level of risk tolerance and have a strong understanding of your current financial position.

Be willing to learn; you may need help developing your marketing plan. Find a reputable futures broker, elevator operator, financial planner or farm consultant.

Develop an integrated management approach to your business. Farm business decisions should be made taking every aspect of the operation into account: production, financial, legal and human resources. Marketing decisions often involve contract agreements that can significantly affect financial plans.

To manage your marketing risk you need a marketing plan. The goals and objectives of your operation should drive the marketing plan. Understand production costs, know your break-even price, develop targets for your plan by analyzing supply and demand projections, be aware of prices received in your area in previous years and know your cash flow requirements – including family living needs.

It is important to remember that the numbers and plan that works for your neighbor may not be the most appropriate plan for you. Know your goals and know your needs. And be ready!

Production Risk

noreply@blogger.com (Jack) — Mon, 01 Mar 2010 21:45:00 +0000

In my previous blog, I mentioned five primary sources of risk I mentioned previously, today I’m going to cover Production Risks. Agricultural production suggests an expected yield or outcome. When variations in those expected outcomes occur your ability to achieve the financial goals you set are at risk.

There are five major sources of production risk: weather, pests, diseases, the interaction of technology with other farm and management characteristics, genetics, machinery efficiency and the quality of inputs. With these in mind, read the strategies listed below and see if any can be implemented for your operation.

Crop insurance is a risk management tool that protects against losses and also offers the opportunity for more consistent gains. It provides two important benefits: ensures a reliable level of cash flow and allows more flexibility in your marketing plans. There are a wide variety of crop insurance programs and coverage levels available. Crop insurance is available on more than 60 crops but must be purchased through a private crop insurance agent. More information regarding crop insurance is available on the ArborOne website.

An effective way to counter income variability is through diversification. The combining of different production processes is diversification. It is effectively implemented when the low income from one enterprise is simultaneously offset by satisfactory or high income from other enterprises. Diversification can be different crop types, combination of crops and livestock, different endpoints in the same production process or different types of the same crop.

Contract production is when an agribusiness firm commits the producer, through a contract, to deliver a specific quality and quantity of final product. Common in poultry and livestock, it is not unheard of for specific row crops such as tobacco or peanuts.

Evaluating new technologies is a valuable practice for today’s farmer. Two of the newest are genetically altered seeds (herbicide, disease and insect resistant) and precision farming (technology that controls the rate of application of crop inputs such as seed, fertilizer and pesticides on each acre of land). Farmers who adopt these innovations are trying to reap the benefits of lower input costs and environmental quality, as well as higher crop yields due to improved pest control and cost effective use of crop inputs.

See anything that interests you? Something that may help? Don’t hesitate to contact the relationship managers at ArborOne Farm Credit. We are the agricultural finance experts. We have answers.
Next time… Marketing Risks

Risk Management

noreply@blogger.com (Jack) — Wed, 24 Feb 2010 20:30:00 +0000

Let’s be frank, the economy hasn’t exactly been stable the last 18 months. Although it is not possible to plan for instability, having a plan in place helps a business prepare for the coming year – stable or not. Risk has always been a part of agriculture, but farming in America has changed dramatically in the last few years. And with these changes, our farmers are looking at new ways to approach Risk Management. There have been many changes in producers’ business environment. Thanks to these changes, there are increased opportunities, but also increased risk.

Some of these risks are:

Changing governmental role – with policy makers placing greater confidence in the ability of producers to make sound business decisions, market-oriented farm legislation and crop insurance reforms have been passed allowing producers to be more active in managing their profit opportunities and risks.

Outside forces – increased global competition, rapid changes in the structure of production agriculture, changes in the marketing of ag products in the farm supply sector, new technology and volatile weather.

Risk connections – decisions in certain risk areas are affecting the riskiness and profitability of other aspects of farming.

An illustration of these risk connections would be lenders requiring a sound business plan before approving credit. Showing the good management of marketing risks can lower borrowing costs and result in long-term financial stability. As farmers note this connection, and others, the need for effective risk management will grow.

There are five primary sources of risk for a farmer: production, marketing, finance, legal and human resources. Each of these five have major sources of risk (i.e. production/weather) and strategies (i.e. crop insurance) that can be considered to lower risks. I encourage you to learn the basics, employ strategies and never hesitate to ask questions. Your ArborOne Relationship Manager, local extension agent or local USDA office is more than willing to help.

Check back. Over the next few days I will outline the five primary sources of risk and the strategies that can be used to counter these risks.

The 5 "C's" of Credit

noreply@blogger.com (Jack) — Wed, 16 Dec 2009 20:52:00 +0000

Farm Credit was chartered for the specific purpose of serving agriculture both short-term and long-term needs. We are well versed in the needs of operating loans such as fertilizer, seeds, chemicals, for the purchase of equipment or land to farm. ArborOne understands the intricacies of agriculture and also realizes it is a cyclical business.

Broadly, lending decisions are based on what we term the 5 "Cs" of credit. They are:
- Character - which includes not only the ability to pay, but also the desire to pay
- Capacity - the ability to repay the debt
- Conditions - basic conditions under which the loan would be made which includes terms, rates, and special requirements
- Capital - which is the financial condition of the customer including debt to net worth ratios and working capital ratios, etc.
- Collateral - it is our intent to be a "cash flow" lender and not depend on collateral to repay the loan.

Things to be Thankful For...

noreply@blogger.com (Jack) — Tue, 24 Nov 2009 21:09:00 +0000

As the Thanksgiving holiday approaches, it's hard not to reflect on the many things we have to be thankful for. Our economy, though not fully recovered, is showing signs of life and moving slowly in a positive direction.

Although unemployment is still high and shelters and charity organizations are busier than ever - Americans have responded by giving even more generously than during recent prosperous times, giving of their time, talents and money.

We have had rain, thankfully not too much, so crops have prospered. And in South Carolina we have experienced no hurricanes this year.

For these reasons and so many more I am proud to be a citizen of this great Country; thankful to be a resident of this beautiful State; and blessed to be a part of ArborOne Farm Credit - your trusted partner for rural financing and a member of the Farm Credit System, a system created to provide credit for farmers, ranchers and rural America.

Happy Thanksgiving!

Interest Rates Expected to Rise

noreply@blogger.com (Jack) — Tue, 03 Nov 2009 21:02:00 +0000

Interest rates are expected to rise in the coming years. Now is the time to prepare. Just as farmers prepare the soil for future planting, they should also prepare for rising rates.

Input costs are also expected to rise, perhaps quickly. With this in mind, farmers should review their present debt, how rate fluctuations will affect their bottom line and what, if anything, they need to do about it.

Is the operation highly leveraged with debt? If so, is it refinanced at the lowest possible rate? Should short-term debt be converted to long-term debt? Is a fixed rate better now?

Restructuring often involves fees. Be sure to weigh the cost against the overall savings over the long-term.

Every situation is different, but be sure to review yours with your lender. ArborOne Farm Credit specializes in agricultural financing. We understand what farmers are facing and are ready to help.

Call us 1.800.741.7332. We know agriculture.

ArborOne "boot camp"

noreply@blogger.com (Jack) — Fri, 09 Oct 2009 14:39:00 +0000

We have three new hires that have literally been going through ArborOne "boot camp". I use the term boot camp because these guys are learning about ArborOne and what Farm Credit means in the most hands on ways imaginable.

During their first six months on the job, they have received overviews and training in each department and followed loan applications from beginning to end. An important part of working at ArborOne is understanding our customers. We wanted Ashley, Bradley and Ryan to experience different aspects of agriculture – to be hands on.

That said they recently spent three days working with a turkey farm. On the first day they prepared the clean house for the poults. Day two involved putting the chicks into the house. Not quite as simple as it sounds on paper. On their third day, they helped clean up after the first night of the poults being in and participated in the day to day activities of the turkey farm when birds are in.

This boot camp continues to be a great learning experience for our new employees. By being on site and seeing, as well as participating, in the work necessary, they are gaining an appreciation and greater understanding of the many sectors of agriculture. But the most important thing they gained was the customer’s perspective.

SC's Tax Laws - A Competitive Advantage

noreply@blogger.com (Jack) — Tue, 08 Sep 2009 16:04:00 +0000

South Carolina is about to begin studying the state's tax laws and exemptions. With one of the lowest per capita tax rates in the country along with a below national average cost of living, South Carolina definitely a competitive advantage.

So my question to you is this: How do you stimulate business to locate in South Carolina while keeping the state's needs funded with a more equitable tax formula?

More information on South Carolina's tax laws and exemptions can be found on the Moving to South Carolina brochure.

Community

noreply@blogger.com (Jack) — Fri, 14 Aug 2009 12:21:00 +0000

A community, if you check with Webster, can be described as a group residing in a specific locality. Just down from that definition is one that reads "a group sharing common characteristics or interests and perceiving itself as different in some respect..." To that ArborOne is a community that cares about its community.

We have a deep respect for our fellow employees, our Association and the Farm Credit System. We consider ourselves different because this atmosphere of caring reaches beyond the four walls of our buildings in Florence and Conway. this caring has touched Florence County Humane Society through an association-wide food-raiser, the visit that Santa and 3 of his elves made to the Disabilities Foundation at Christmas, the volunteers that participated at the Special Olympics, the team that walked in Relay For Life in memory of long-time ArborOne employee, Cindy Sheppard, the Outreach Farm in Williamsburg county and these are just the tip of the iceberg.

Several are also involved in local community service organizations such as Kiwanis, The Salvation Army, Lions Club, Civitans, area chambers of commerce, the list continues.

This year our Talent Management group held a charity golf tournament benefiting the CARE House of the Pee Dee, a first for ArborOne, it was extremely successful and well supported by both customers and businesses in our territory. Another first is our participation in Adopt-A-Highway. ArborOne has adopted the road in front of the main branch in Florence, Woody Jones Blvd.

Each event or organization may touch different needs in our community but this outreach is vital whether it involves giving time or money. Both are valuable commodities.

The Biostar

noreply@blogger.com (Jack) — Mon, 06 Jul 2009 19:07:00 +0000

As I've mentioned previously, ArborOne is a proud member of the Farm Credit System. We share the concepts; we also share the biostar.

Almost all associations and organizations with ties to Farm Credit incorporate the biostar in some way – either in their logo or tagline.

So what exactly is a biostar and what does it represent you might wonder.

The biostar is the result of a national effort in the mid-80’s to bring all the various entities recognized as part of Farm Credit under one identifiable symbol – including all the Federal Land Banks and Production Credit Associations.

The design of the biostar is very deliberate, with each element representing something about Farm Credit.

The leaves represent the system entities including the Farm Credit associations, the Farm Credit Banks and our national support structures like the funding and services corporations.
The roots represent the grassroots support or our members and our roots in rural America and the cooperative system.
The star represents light and direction.
The color ‘green’ represents the rural nature of our business – which is a green and growing industry that we serve.

Having just celebrated the 4th of July holiday, I would be remiss to not mention the importance of farmers, ranchers and agriculture in the forming of the United States. The tradition of the family farm and the values born in that tradition, are reflected in the founding documents that guide our Country still.

ArborOne Financial, a proud member of the Farm Credit System, always.

The "System"

noreply@blogger.com (Jack) — Fri, 05 Jun 2009 13:29:00 +0000

On the ArborOne website, and in most of our press releases, we state that ArborOne is "a proud member of the Farm Credit System". But what does that mean?

First, a little history... The Farm Credit System was created in 1916 by Congress and provides more than one third of the credit needed by those who live and work in rural America. As ArborOne, we operate as a cooperative and are an independent financial institution with our own capital and board of directors.

ArborOne, along with 21 other associations, are the owners of AgFirst Farm Credit Bank, our funding bank. As owners of AgFirst Farm Credit Bank, we utilize the same accounting and systems technology as other associations in our district. This gives us access to top of the line technology and systems that we might not otherwise be able to afford.

A benefit to our member-owners is that as a System, we are able to tap financial markets world-wide through our funding agent, the Federal Farm Credit Bank Funding Corporation. It is their responsibility to provide money for all system associations nationwide.

As a System, all associations share the same goal, to be the provider of credit for rural America. We work together through our trade organization the Farm Credit Council in lobbying and other national messaging efforts. The Council provides a positive voice for Farm Credit associations and other constituents.

We are regulated by the Farm Credit Administration and as a System we pay for this regulation.

Farm Credit Council Services provides a broad range of services for our association, including various insurance, training and development opportunities that would be much more costly if we had to foot the bill ourselves.

The Farm Credit System is working together to provide a unified look. This includes web presence and overall system branding. Stay tuned for the rollout of the new Farm Credit System website in July.

Next time… What is the bio star and what does it represent?

Agribusiness is SC's Largest Industry

noreply@blogger.com (Jack) — Sun, 17 May 2009 01:23:00 +0000

The newest Ag Study has been published for South Carolina by the Palmetto Institute and again, Agribusiness, which includes forestry, is the largest industry in South Carolina. It’s pretty impressive to be number one two years in a row. The opportunities are so great for our agricultural industries; why is South Carolina only 26th in the nation in Ag Industry? Georgia is 10th and North Carolina is ranked 13th, in the study. What is so different between SC and our neighbors that they rank higher? What resources are they utilizing? What “next step” have they taken that SC should be taking?

Our different growers/ag resources/agribusinesses from across the state should band together as an agricultural community with the legislature, the growers and workers in each industry, and with the general public to move our industry forward. Having influence within our state government and making sure our voice is heard will be a strong step in the right direction.
Coordinated efforts shouldn’t stop there. We need to push for education innovation, energy development and marketing – all of which will benefit from each industry working together developing new products and training methods.

I would be remiss not to mention the urgent need for an immediate dedicated effort to coordinate agricultural economic development for South Carolina. Think in terms of complimentary industries and companies for our current farmers and agribusiness owners.

What are your thoughts on how SC can move forward on a national level?

Welcome to my blog

noreply@blogger.com (Jack) — Fri, 24 Apr 2009 21:23:00 +0000

I’m Jack Shuler, president and CEO, of ArborOne Financial, a proud member of the Farm Credit System serving twelve counties in the Pee Dee Region of South Carolina. I’ve been with ArborOne for over 20 years, and a part of Farm Credit for more than 35 years.

With this first company blog, I hope to offer insight and open the door for questions and comments about ArborOne. We have put together a think tank of employees exploring new media opportunities for our company – so watch for us to soon be on facebook and twitter, and visit our website http://www.arborone.com/ .

This is a great place for me to mention our upcoming Annual Stockholder’s Meeting being held next Thursday, April 30th, at our main office 800 Woody Jones Blvd, in Florence. The meeting is open to stockholders of ArborOne and will begin at 10am.

ArborOne was founded to serve farmers and rural America; this remains our focus and mission. The economic situation today is tough and agriculture is not immune. Because of the economy we are being more deliberate with our credit decisions and consequently, some loans are taking longer than we like to process. That said, ArborOne continues to lend money to farmers and has a capital position greater than two times the regulatory required minimum. We are strong and will be here for our customers.

In future posts I’ll talk more about who we are, what we do - about patronage, cooperative principles and share a few thoughts on what’s going on in agriculture and the economy.

So join our blog and let me know what’s on your mind. Thanks!