All right. Good morning, everyone. Welcome back. Vca today, right at nine o'clock on this Thursday, September 17th, 2020. We're pleased to be joined again by Dr. Alix white in the dairy science department at Virginia Tech. For those of you who do know, doctor, why? He's referred to as dark like several times. So we're really fortunate to have him with us this more. I thank you for coming back. Dr. White, topic of discussion this morning is Gombe 2021, what EKG lenders want to know. So will go had dark like give us a little bit of insight and advice on record keeping and getting things ready is as we finish up one production season here and 20-20 and looking forward to the next growing season in 2021 and production. So thank you for those that are able to join us this morning for those that were not. Hopefully you'll get this recording in and still be able to get that valuable information. So without further, do appreciate you joining us, Dr. White. Certainly, Robin. Thanks for the introduction. They're looking forward to talking to everybody today. Hopefully you can see my intro screen there. I'm getting better with zoom after all these years. But hope everybody stay in safe, staying well, avoiding the brain that's going to become an engineer over the next couple of days. But they asked me to talk about what's going on with the egg lending arena right now as far I guess the conversation started, might broadest asked me what I've been hearing about the availability of credit for the upcoming year. So I kind of tailor my comments to what I see happening, what I'm hearing happening, and how to prepare for your lender. Basically what the what information the lender's going to want to see, how you want to communicate to them to make things happen. Alright, so first big question here is, will lenders have money to when this alum and the upcoming production year? From all that I've heard. The answer is yes. Mike's or different things. I have not heard anything negative or adverse about the amount of money that lenders have available to lend your commercial banks out there, they have a lot of cash right now. The US savings rate has spiked. It's gone up its last I looked, it was over 25%. So there's an awful lot of money in the savings accounts, checking accounts, and so on. Lenders and in turn, take that cash and lend it back out so they can make profits off the interest margin. So we're seeing a lot of the commercial banks have a lot of cash avail. And since they have cash, they are looking to make loans to good borrowers. And so anyway, he's in good financial condition or has their, their act together should not have too much trouble getting along. As far as which banks are making loans to agriculture, the commercial banks that have long-term commitments agriculture. I think you're going to continue to see that the larger regional banks or national banks that you might see popping in and out of agriculture. I wouldn't be surprised that they pulled back a little bit because eggs bent a little bit. We haven't had in the last couple of years been very good for us. So we've got the commercial banks should be good with having cash. As far as farm credit in the Farm Service Agency, I have not heard anything to the negative side. Their farm credit gets its funds primarily through the bond market with the uncertainty and investments right now, I can see where the bond market is. Probably people are running to safety there. So I don't see any problems with farm credit, having cash the land, and with FSA, that just depends on the government budget. I would not be surprised if that was maybe cut back a little bit. So beginning farmers, young farmers or emergency situations, you might want to get it and talk to your FSA agent as early as you can. So you're good shape, should have money available if you're not in great shape because the last several years, last few years have been tough. You can still get the loans as long as you go in your prepared. Okay. So here's my tips for you. I'm getting ready to meet with your lender or what they want to know. The first tip, and this is personal versus business. I'm going to say check your credit history and check your credit score. Now, you want to do it at least three to six months before the loan renewal season. This way, if you find mistakes than it has time, give time to clean them up and hopefully it'll wash out. What I've heard is that I guess CNN has reported, is that 75% of credit histories have an error on them in some way, shape, or form. So you can go into annualcreditreport.com, which will lead you to the credit bureaus, TransUnion, Equifax, Experian. And on their websites you can go ahead and clean up any mistakes that might be on there. You can also go to Credit Karma.com. There's no cost for this. This provides you with your TransUnion Equifax credit scores and credit histories. It updates pretty much every two weeks. So you can check this, check your credit history, see what's on there, see if all the accounts are proper. See that though. There's nothing negative. Pretty much every every other year that I check my credit history. There's a mistake. It's got the credit card on there. That's not mine. Or for years there there was a collection agency kept coming after me. And I kept saying What do I oh, yeah. And they said nothing. So I'm not real sure why I was on their list, but that was adverse. So just go ahead and clean these things up three to six months before renewal season. So that means now's a good time to do it. Your lenders are typical and look at your fico score. The credit scores you'll see from TransUnion, Equifax Experian are different. They're not exactly your fico score. They should be relatively close, but chances are the official fight goes for your lenders are going to use is going to be lower. But the magic number, if you're above 700, you should be in good shape. If you're above 650, you're going to have to work a little bit harder. But it's possible if you're in the 606 that the range you're really going to have to go in prepared with a good, solid plan when you're working with your lender. So go check credit history, make sure that everything's working or everything's clean, and make sure your credit scores in good shape. Next thing, get your sheet together. With this one. Go into your lender. If you go in prepared every time, every time you go, you go in especially at low renewal time. Take then the balance sheet. And every year if you take them and end of year balance sheet. Now they can go ahead and make a cruel adjustments to your financial statements, which gives you much better accurate, much more accurate information. It's going to be a much better indicator of your true profitability. It's going to wash out the tax moves that you make at the end of the year. You know, we've fallen into the trap. I have I'm going to show a profit, so I need to spend money so I don't have to pay taxes. Please remember you've got a paid three to $5 to someone else to save yourself $1 in taxes. Would if you paid that $1 and taxes and you took that remaining funds, the other three to $5, and you put a side into your checking, into your savings account or you prepaid some of your loans. We need to have a tax strategy rather than just minimizing taxes. So go in there with the end-of-year balance sheet. Use your net market value. So when you're putting a value on your assets, try to stay consistent from one year to the next, as far as land, buildings, breeding livestock, machinery, and so on. But try and use a bed net market value rather than the purchase price. And again, be consistent in the way you classify your ad sets from year to year. This just makes the analysis of the balance sheet so much easier. So go in there with the balance sheet every year, if at the end of a year around December again, December, early January, put your balance sheet together at that same time every year. That's going to make your lender smile. Okay? And if you go in with it and they don't have to ask, that just makes you look a lot better. The other records you're going to need to take with you obviously want to see your income statement. So this will be your schedule F4 u 1065. I would be wary of walking in there with a quick inward QuickBooks income statement because depending on how they're set up, they may not be true indicators of your profit. They may include loan payments, they may not include depreciation. But just that you walk in there prepared, have your schedule F U 1065, with that end-of-year balance sheet. Now we can make the accrual adjustments and get a really good picture of your profitability. The next thing I do want to make your lenders jump up and down and smile, or with the cash flow budget. And if you want a copy of one that's got just email me or email Rabi or Mike or somebody and we'll get one to yet. But all it is is I do it on a quarterly basis or monthly basis. In this just lists how much cash is coming in each period, where it's coming from, how much cash is leaving each period, and where it's going. And then the bottom lines is, okay, what's my cash surplus or deficit each month? This is going to help you figure out your, your operating loan needs, okay? And so you can walk into the lender and say I'm going to need a $100 thousand for my operating loan to cover my expenses. So this is going to help you figure out exactly how much you're going to need. And again, build in a fudge factor, 2010 to 20% just in case there's my unexpected expenses. But cash flow budget is also going to help you prepare for when you have cash to make down payments or capital purchases. It's going to help you figure out when you should schedule any new loan payments or if you should refinance and reschedule your existing loan payments to periods when you have more cash available. So the cashflow budget of the three statements I've mentioned so far, it balance sheet, income statement and the cash flow budget. A cash flow budget is by far and away the most powerful one for any manager. But unfortunately, talking with bank lenders, I think that probably less than 5% of managers actually use one or actually come in to their lender with one. So if you want to copy one of those, let me know. All you're doing is looking at cash coming in than cash going out throughout the year. Next record I'd say to include to be enterprise budgets. Your enterprise budget is a look at the profitability of each specific portion of your farm or your business. So we have a cow-calf operation. We run some soccer's, we Grossman pay. We've got some pasture. And well, there's four enterprises right there. You've got your pasture is one. Your Hey enterprises another when you're soccer's is one and your cow calf enterprise is going to be one. What we do is list out the expenses and the revenues that are directly related to those specific enterprises. And we can figure out the profit ability by enterprise. So by doing this, it helps us figure out what resources you're going to need. This helps you with the cashflow budge. So when do you need to buy your See, when you need to buy fertilizer when you're going to be selling your calves. So it helps you plan etch cashflow. It's going to help you with the old dreaded, should I buy my feeds or should I grow my feeds? Decision? We can look at the profitability. What is my cost of production for producing hay or corn silage or whatever your homeroom feed is going to allow us, would I geek out on is break evens and sensitivity analysis. Let's see a couple of former students out there. They're probably cringing right now because I preach, break IV, convince sensitivity. Bin enterprise budget helps us figure out our cost of production by enterprise, as well as our break even selling price. Or I break-even yield. Or it helps us figure out the maximum price we can pay for our main inputs. Sensitivity analysis is nothing more than getting on your spreadsheet or getting on your budget and changing some of the key factors by ten to 20%. So let's increase our input prices by ten or 15 or ten to 20%. To see what the impact is, let's decrease our yield by 20% because of bad, bad weather. At harvest. Let's decrease our selling price because nationwide prices are going down. So this is going to help you figure out how sensitive your each enterprises to changes in the, in the main assumptions that you make. But folks, this helps you plan your business and helps you figure out, maybe I should get rid of this one enterprise completely. An example there I was working with a dairy farmer bunch of years ago. And boy, he was making decisions based off of the Schedule F Well, sketch left lumps, everything together. When I said, let's break this up and do enterprise budgets, we found out that in one of his enterprises he was feed not some calves, I guess a bull calves from the dairy. And by doing that over a three year period, we found that he was losing himself $30 thousand per year. He didn't realize it looking at the schedule F, But when we broken into enterprise budgets now is so much more clear. So if you walk into your lender with cash flow budget, an enterprise budgets, they are going to turn cart wheels there because this shows that you are actively, are proactively planning your operation. If you want some updated budgets. Unfortunately, the ones listed on the virginia cooperative extension site, DOD for crops are from 20072011 for livestock, I believe. But if you go to the Ag Risk farm management Library at the University of Minnesota, they've got budgets and you'll see updated budgets, I think the last years, four from virginia cooperative extension or 2014 in that that website. So that's better than 2011. So go to the balance sheet and income statement and pressured lenders with a cash flow budget and enterprise budgets. Next thing, do that sensitivity analysis, OK, if you can walk into your lender and say, you know, here's what I'm planning on doing. I've calculated my cost of production and my break-even celebrates the minimum price that I need to get a cover. My cost is $3, a bushel or a $150.100. Wait, that's going to help the lender make the decisions. Okay? So go in there, do the sensitivity analysis. Change your attitude and change one at a time. Okay, don't change everything at once because that washes out. It's hard to figure out what the actual changes or impacts are going to be. But if you look at them one at a time, that's going to help you make your decisions a lot better. So quick assumptions here. Let's look at the ten to 25% change in selling prices or yields. This has been an impact your revenues. Let's look at 2010 to 25% increase or change in your input prices. And then maybe at three to 5 change in your interest rates. So it, excuse me, a three-point change essays, if you're currently at 4% annual percentage rate, what if it goes up to 7%? So I don't expect interest rates to go up that significantly here over the next year two. But we can always do this sensitivity. And like I said, we break-even analysis. Let's figure out those minimum yields, minimum prices we need to get the cover our costs. Or what's the maximum input price we need to get? Or we can afford to pay, instill, cover our costs. If you really want to impress your lender, walk in there with a written marketing plan. Don't just walk in and say, OK, when a bison calves Anselm, if you can walk in and say here are the markets that I plan to sell or I'm going to sell through these graded sales. Here's my backup market. If I, if I can't get into that created sale for whatever reason, here's the next place that I'm going to market my animals are microbes. Go in there with something written down about how you plan to marketed this bars forward. Contracts, futures and options, niche market, it's direct sales, whatever makes you do that, your lender is going to be impressed because you're not just thinking about producing something. You're thinking about how you're going to get rid of it, how you're going to sell it and earn those revenues. So walk in there with the brief the marketing plan. Lenders are not requiring list at the moment, but it's highly recommended. So this is one of the changes I've seen over the last five years. We don't. It used to be just the, I wanted to borrow this money to grow these crops. Now lenders want to know a little bit more detail, how are you going to sell that? I would also impressed my lender by walking in with a and rewritten risk management plan. And I'm not talking about having a five-page ten page report here. Just have something written down that excuse me, that says here's how I plan to manage my risks through the different insurances as a crop insurance, liability insurance, margin, revenue protection insurance. So how are you going to use insurances to cover your main risks? What are your protocols for? How you're doing things on the farm or for safety issues or whatever. Do you have cash reserves? Do you have feed reserves for next year? And a big portion of this, when this again is another change that I'm starting to see is that lenders want to know more about your transition plan. If you were thinking about bringing in the next generation or you're thinking about getting, are coming into the operation. They, they really want to start seeing some written plans or have a serious discussion. What are your plans for making this happen? Another thing if you've had some rough years, which in the dairy industry? Yep. You've had that for a patch from class what, five years, I guess. But if you've had some tough years, you're not in the best financial shape at the moment. What I would recommend you do is being upfront and honest with your lender and identify in those main problem areas, okay. Is it simply that the market price has been too low or below your cost of production, then we need to look at your cost of production. Is it that your market is changed because the milk co-op hasn't decided they're not going to take your milk anymore. Yeah, that's that's what they've changing there. But we need to identify what are the main problems. And then again, come up with a short written plan on what is your rehab plan? How do you plan to address the problems? Basically, this shows your lender that you are aware there are issues out there and that you're being proactive, coming up with ideas or plans on how you can improve the fruit, the operation, or improve the situation. Basically what it does, it shows them that you are serious about managing your business. You're serious about being one of their customers. You're giving them another reason to want to work with? Yeah. Okay. Next big thing is go in there with a specific loan request. If you've ever worked with the lender, the one question you never ever asked them is how much will you lend me? They're going to bite their lips and politely asked you to fill out a balance sheet and income statement and come back with a request. So if you can walk in there with a very clear, detailed specific loan request saying I would like to borrow or I'm looking at these operations. I'd like to borrow money for these enterprises to cover these specific costs. I'm going to need this much money, give them a specific dollar amount. And again, I usually build in that ten to 25% fudge factor, especially for operating loans because there's just unexpected expenses. We don't know what crop prices and input prices are going to do in the lenders probably don't mind seeing you build it in a fudge factor. So this is a way to impress them again, if you can walk in there with the break-even and sensitivity analysis, this is going to help them make the decision. And then if you do a cash flow budget, that's going to help you figure out when or how you'll be able to repay the loan. Because a lender doesn't make alone just to keep you in business. They want to be repaid and earn a little profit off of you. But you need to be able to show them that you can pay back your enterprise budgets, you cashflow budgets, your sensitivity analysis is going to really help them make your case with the lender. So in, I guess summary here, when you go to talk to your lender, if you're in good shape, you should not have a problem getting alone. And the upcoming year, I don't see any problems anyway from the main lenders, but I would still recommend getting in the habit of providing them with the year-end balance sheet. A good income statement. Have that cash flow budget. Go in there with enterprise budgets and sensitivity analysis. And just be ready if you really wanted to have a good relationship with your lender, that marketing plan, that risk management plan, and your rehab plan, if you're not in a great shape, is really going to be helpful for you. And again, if you're not in good shape, go in there, prepared with all this information. A good rule of thumb and I've heard lenders tell me this is that they would rather have too much information than not enough. So when in doubt, give them the information that work with says, you know what, every financial statement, everything I have, I email to my lender and I give them the option to delete it. But that weighed the lender doesn't have to come to them sort of asking or trying to pry information out of you. You're making their life a little bit easier. Well, folks, that's what I see as far as working with your lender. Go in prepared, be ready to start tagging, adding some of these new pieces of information such as the marketing plan, the risk management plan, that rehab plan. Okay. How are you going to address the problem, jab, excuse me. And I think you'll be in good shape. So with that, questions, comments. Thank you, doctor. Wife cristae to join us this morning. There's always I see we got 11 question there and the checkbox, what are the major changes over the last five years? Could could you comment on that a little bit? Okay. Yeah. As far as lending that the interaction between the lender and the borrower, what I'm seeing is they'd like to see better information. So higher-quality information. I think the changes that are coming are the transition plan, the market and the written marketing plan, and the risk management plan, if they have not been asking for that now, I think that over the next couple years they will. But again, the big changes over the last five years. It's the quality of information. I'm seeing more and more lenders focusing on accrual adjusted statements. So whether you're doing the accrual adjustments or they're doing them, they want to make the decisions based off of the accrual statements because that washes out the B and the year tax moves. Again, it gives you a much clearer picture of your operation. And folks, as an extension agent, as a producer, do not make long-term decisions based off of your Schedule F, because it's artificial. This is why you need to have good, solid, a cruel adjusted statements and it's not hard to do. I need to beginning of eager and end of your balance sheet. Other than that, the big changes I guess I've seen over the last five years, some lenders have gone to more of a technology-based lending where you can get online and are your main information and then received the loan decision back within anywhere from hours to a couple of days. So they're sort of taken a little bit of the hassle of the information collection out of you there. But again, you've gotta have good information to do that. Other main changes that I've seen here over the last several years is that we're going to have or you've seen the main AG lenders getting more of their staff involved with the log. Historically, what we've seen is the loan officers, the one that has the main interaction with the borrower. What I'm seeing from the farm credits, the First Bank and Trust, the community banks and so on, is that they're starting to get the credit analysts, the folks in the back and back room that are looking at the risk associated with the loan application. They're crunching the numbers, helping make the decisions. They're getting them out there, involved there so they can see the operations. So as a borrower, you might want to have, you need that good interaction with the loan officer. But you might ask the sea or invite the credit analyst out the or operation so they can get a firsthand view learned more about Joe. I think that's a big change we're going to start seeing as well. I think those are the main changes that I've seen. I'm sure there's something else out there, but top my head. That's that's what I see. Any other questions? Oh, another let me throw another one in there. Another change that I've seen recently or over the last 34 or five years, is that lenders are increasingly impressed by seeing a complete business plan for the operation. So as a plug for a really good programs, Farm Credit University as a program has two programs, AG BUS planner and egg BUS basics. And what these programs do, they will hook you up with a mentor. They will help walk you through how to develop a business plan so you can plan out the future of your operation. They have face-to-face trainings. I think there's a cost involved with programs, but if you've completed successfully, you, I believe you get that money back. But this is a good way to develop a business plan that looks at your strategic plan, why you're in business. Look at your risk management, your labor management, your production, your financials, your marketing, and it gets a lot more. Is that transition plan coming in as well. So don't be surprised if in the over the next five years they might start to ask for a written business plan from you, besides the other information. How about that? Almost answered everybody's questions. Robbie or border Mateer is one of the other. Did an excellent job. Dr. White, a question that I did have, I know that you've been working a lot, wrote extensively with other extension agents and folks throughout the state aren't anything like do you have any presentations or recordings, Dr. White, maybe that would help some folks with some of these balance sheets and business plans, that type of thing that maybe goes a little more in depth with some of those particular aspects that you mentioned that you think are extremely important to have in place when you go to your egg lender. Some of the other reports and things like that to give them a little bit more in depth analysis of how to prepare that or maybe some examples of some of those to, to just show the different aspects and stuff. Because I know from a personal experience looking at some of those enterprise budgets and stuff like that. Sometimes they can be a little bit daunting and it takes a little bit, a little bit of practice to make sure you can get things like they ought to be. So any advice on that as to where maybe they could find further resources for that? Well, due to this darn covert thing in online teaching and the hybrid courses, I'm putting together a whole lot of videos for my courses are for my students. So I can make them available to you. I don't think there's any legal issues have to worry about on that. But I can unsorted. I'm hoping to build a library of ten to 30 minute videos. And this is how you do an enterprise by jitter, This is how you use a spreadsheet to do your accrual adjustments and so on. So hopefully it will get those built and find a way to make them available through up to the extension folks. And I'm open to your suggestions on how to do that. Do you want the website that you click on my homepage at the dairy science program and it goes to it or if there's a separate website on Cooperate Extension. I'd love your input on that. But yeah, so I'm building a library. Those things. I just did one on economic costs, enterprise budgets, and partial budgets for a class at NC State. So after the class is over, I can make those available. I'll be doing some on balance sheets, income statements, accrual adjustments throughout the semester, especially if we go online fully online here tack. Some other sources would be the Farm Credit Knowledge Center. They have an awful lot of good programs throughout the year. I've done programs, they just finished the transition planning of Sic series. That was a year long where they had people talking about taxes and business liability and family communication. They have to recordings available for that each I think there were ten or 11 sessions. Each one was about an hour and they've got a library, those. So Farm Credit Knowledge Center with firm credit of Virginia's. Is it good source? When in doubt U2. Height, to be sound sarcastic, I'm not. Whenever I want to learn something about Excel or some other programs. I look for a little three to five minute video on YouTube. See if that's that's going to answer my question. And then just look for other programs. I'm doing a program this afternoon. I think it's at lunchtime where I'm going to walk people through Extension enterprise budgets and show them how to modify and how to do some break-even analysis with them. Show them how to turn a out Schedule F into enterprise budgets or at least the prototype of that when show him how to do accrual adjustments, how to calculate the financial ratios. It's very simple spreadsheet that put together, but I'm I'm more than happy to share them with you. Just let me know when or how and we'll make it happen. I It sounds great, doctor, why does exactly what I was what I was asking about. I think it's always helpful to have something that can walk you through step by step on that. Because I know, especially for me, it's, it's one thing to grow it or raise it, but something to the economics behind it. So you did an excellent job, Dr. White, I don't see any more questions or comments, so thank you. Thank you again for joining us as modern as always. It's a pleasure. And a few last comments I'll make. Stephanie has posted in the chat window, if your join us if you had, had not or have an opportunity, please take a few moments to complete our valuation, help us make the program better. Or if there's something that you'd want to see improvement on or just different topic of discussion that you're interested in. Let us know. We'll be glad to do it we can do to get a program on that. So thank you again for everyone that joined us as mourn and just like to take a second and thank the production team for VCA today. Lower Maxine a. Mike brought us, Trent Jones, Definitely ROM or check in myself. And thank you again for being here this morning next week. For those of you that aren't aware, next week is National Farm Safety Week. So we hope to have a presentation on farm safety next week. Really something of great concern especially has a lot of producers are in the field this time a year, a lot of busy season going on with all carrying on some operations, row crop harvest. Just a really prudent topic to telephone. So that's hopefully what we're going to have next week. So join us next Thursday morning, right? The VC ag today, same link at 09:00 AM. So thank you again for everyone. Really appreciate it. Thank you again, Dr. White. Always a pleasure. Appreciate you joining us. Certainly. Yards Be good, be Shape. And if you have questions or I can be of help. I'm an email away. Glad that up. So everybody take care. Me. Thank you, Dr. White, take care hope things a well in Blackboard.