Creating a Competitive Advantage with Improved Management and Marketing

1. Creating a Competitive Advantage with Improved Management and Marketing Bret Oelke - Farm Management Coach

2. Innovus Agra, LLC • We are: • Farm management coaches • Mission: • “To search forand develop opportunities that allow our customers to achieve their goals”

3. Objectives • Identify management activities that can improve profitability • Overview of current market • Review strategies that can help achieve or maintain profitability

4. Areas of Farm Management • FOR THE FEW, NOT THE MANY. NO DILLY DILLY • Production Management • Financial and Business Management • Risk and Margin Management • Some management tasks fall into more than one category

5. High Value Management Activities • Cost management • Production and business management • Efficiency improvement • Business management • Revenue management • Risk and margin management

6. Production Management • Be an outstanding producer of what you grow • Become an elite grower • Average • Above average • Elite growers

7. Cost Management • Costs (expenses) • Overhead • Buildings, storage, P&C and liability insurance, utilities, professional (consultants, advisors) • What can be done here? • Operational • Machinery, labor, crop and livestock inputs

8. Cost Management Costs (expenses) • Operational • Machinery, labor, crop and livestock inputs What can be done here? Buy better (be opportunistic), maximize input discounts Minimize transaction costs, extract costs from the value chain

9. Cost Management • What other factors are involved? • Input purchasing decisions • Product types and rates • Bundling or not bundling • Impact and cost of “timeliness'”

10. Efficiency Improvement • “Right sizing” • Are you fully utilizing your machinery and labor resources? • How can we improve in this area? • What can I outsource?

11. Efficiency Improvement • If you are not currently “right sized” it will be a difficult journey to get there • Optimal use of available labor, machinery and overhead • Scale, unit size, crops (livestock) grown, geographic footprint

12. Planning • If you do a good job of planning and utilizing planning tools, you can make better decisions in a shorter period of time • “It is not the big fish that eats the small fish, it is the fast fish that eats the slow fish”

13. Planning • Develop crop and livestock production budgets • Make them interactive so you can quickly do “what if” scenarios • Have risk and margin management plans in place in order to take advantage of profitable opportunities

14. Risk and Margin Management • Cash, cash forward and HTA (traditional) grain marketers are at a significant competitive disadvantage • Understand how you can use all of the tools available to improve revenue • REQUIRES CAPITAL (refer to financial management)

15. Current Marketing Situation –Spring Wheat

16. Current Marketing Situation –Spring Wheat December 2019 MGEX Wheat chart Well below cost of production Quality issues in some cases with falling numbers problems in later harvested wheat Poor exports due to trade issues and a strong US dollar

17. Current Marketing Situation –Spring Wheat • Strategies • Sell poor quality wheat, store good quality wheat if possible • Buy March 2020 futures and set sell targets

18. Current Marketing Situation –Spring Wheat Retracements 1/3 = $5.58 ½ = $5.87 2/3 = $6.14 Full = $6.73 How achievable are these targets? It depends on quality wheat supplies, value of dollar, soybean and corn price movement

19. Current Marketing Situation –Soybean

20. Current Marketing Situation –Soybean We have not gotten a technical buy signal at this point in time We should all be aware of potentially poor soybean yields nationwide As of last week we had 10.4 million acres that had not flowered yet Very late planting

21. Current Marketing Situation –Soybean • Strategies • Sell poor quality soybeans • Store old and new crop leftovers if possible • Buy January or March futures when we get a buy signal (or ramp into buying if you believe early harvest will result in a rally) • Sell in increments at pre-specified targets

22. Current Marketing Situation –Corn

23. Current Marketing Situation –Corn Near normal trading range for December corn Watch the gap (sell?) Set price targets and be aware of basis opportunities Yields and harvested acres are very much uncertain at this point Poorest crop conditions since 2011, 2012, 2013 average yields those 3 years = 143 Very late planting

24. Risk and Margin Management • Understand and utilize all of the tools available to manage price risk and to extract as much as you can (while taking calculated risks) from the market place • Become a better than above average price risk manager

25. Risk Management, Margin Management, Marketing Plan • How many of you have a WRITTEN marketing plan for old crop and new crop production? • IF you do NOT, how do you make decisions on when to market? • Lenders, how many of you REQUIRE your customers to present a written marketing plan along with their other financial documents?

26. Types of Risk Management (Marketing) Plans • Inactive • Reactive • Overactive • Proactive

27. Types of Risk Management (Marketing) Plans • Inactive • This is a completely emotion driven lack of a plan • Greed, Fear, Frustration, • Very difficult to explain to providers of capital • From late 2006 until the middle of 2014 this worked just fine • If this is your strategy today your business is at risk

28. Types of Risk Management (Marketing) Plans • Reactive • There is still some emotion involved in this type of marketing • Generally the reactive marketers react to negative situations and miss some of the positive • We utilize some reactive components in our proactive plans (more on this later)

29. Types of Risk Management (Marketing) Plans • Overactive • In and out of futures positions • More of a trader, less of a hedger • 7 brokerage accounts?

30. Types of Risk Management (Marketing) Plans • Proactive Risk Management Plans • Helps remove some of the emotion in managing price risk • Allows providers of capital to have more confidence in your business probability of success • Is easier to implement because a decision making process is in place prior to price movement that can cloud judgement

31. A Proactive Risk Management Plan • Action Steps • Know your cost of production of the crop(s) that you will be marketing • Decide which price risk management tools you are willing to use in your plans • Understand seasonality in futures prices and in basis • Set price targets that take into consideration your costs and expected market prices • Build in some flexibility in order to allow for some upside price movement

32. A Proactive Risk Management Plan • Action Steps • Plans must be written and shared in order to assure implementation • Make sure there is adequate capital available in order to implement the plans • EXECUTE THE PLAN

33. A Proactive Risk Management Plan • Price Increments – Survey the landscape, what are your expectations • Price Targets – How do you arrive at these? • Decision Dates – Reports, crop insurance, futures seasonality • Minimum Price – Your cost of production • Tools Utilized – Exchange based and buyer contracts

34. A Proactive Risk Management Plan • Adequate risk management capital is required to fully implement your risk management plans • We operate in a three crop year at a time risk management time frame – Old crop (2019) New crop (2020) New crop (2021) • In most cases we rely heavily on end user contract for old crop and the current year new crop but use futures contracts exclusively when hedging a year or more ahead. • We encourage growers to separate production and risk management capital

35. A Proactive Risk Management Plan • Please remember that all of these plans should be actively managed, constantly reviewed, modified and improved upon in order for you to meet your risk management and business management goals • Risk management (as well as production and business management) are team activities! Make sure you build a great team!

36. Bringing It All Together • What are you willing to do (change) to achieve or maintain success? • Be a planner – • Operational plans; production plans; financial plans; risk management (marketing) plans

37. Bringing It All Together • Innovation does not come from a place of comfort • Calculate, critically think and communicate • Flexibility, speed and process now trumps scale – still need to be operationally efficient, scale still needs to be balanced, and your operation needs to be right sized

38. Bringing It All Together • Understand your financial strengths and weaknesses, continually drive for improved efficiency, benchmark, compare, and improve • Develop a long term vision, look forward for opportunities

39. Thank You! • Please thank the sponsors for this professional development opportunity! • Bret Oelke – Innovus Agra, LLC • boelke@innovusagra.com • 218.770.2428