Steven L. KloseFinancial And Risk Management Assistance

Department of Agricultural Economics

Texas Cooperative Extension

The Texas A&M University System

FARM Assistance: Texas Strategic Planning Services

National Farm Management ConferenceJune 2007 Rochester, MN

What is FARM Assistance? Analysis service provided by Texas

Cooperative Extension

A strategic planning tool for the farm or ranch manager, consisting of: 10-year pro-forma financial analysis Stochastic simulation risk analysis Producer specific Professional analyst

How do producers use FARM Assistance?

Long-Range Planning Tool Production planning Financial planning (feasibility and profitability) Accounting for Risk

Strategic Decision Support Tool What’s my best alternative Is a particular plan worth the trouble?

Communication Tool Family management Bank

FARM Assistance & Long-Range Planning

FARM Assistance & Strategic Decision Support

FARM Assistance & Communication

Methodology Challenges Program Flexibility

Enterprises (any crop, livestock, non-traditional production)

Multiple production locations Business Structure (types of and multiple entities) Management Decisions

Simulation Methods Spatial Correlation Stochastic Futures Prices

Illustrating Results Effectively

Figure 7. Projected Variability in Ending Cash Reserves Before Borrowing for the Base Scenario and Alternative 1.

Base Scenario

-100

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

$1,000

5% 25% Mean 75% 95%

Alternative 1

-100

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

$1,000

5% 25% Mean 75% 95%

$1,000 Percent

Figure 3. Ending Cash Reserves and Probability of Having to Refinance Operating Note for the

Base and Alternative 1.

1 1 1 1 1 1 3 39

51 3

13

40 4236 34

20

84

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

20

40

60

80

100

Base Alternative 1

Broader Program Scope Creating an Asset for Texas

Agriculture What can we learn/teach?

Benchmarking Characteristics of Success Characteristics of Failure

Policy Analysis Farm Bill School Finance/Tax Reform Water Conservation

Benchmarking a Forecast

Budget or Planning Data

ProScore Index of Financial Outlook 10 year average ROA 10 year average equity growth rate Penalty for liquidity risk

FARM Assistance Database

65 Cotton Producers

Results & Program Output

Over 1,000 Individual Analyses 150/year

Program Partnerships Annual Database Report FARM Assistance Focus Series Newsletters

Communicating Impacts Subjective

Evaluations/comments Client repeat rate can imply value

Objective People contacted Equity difference in alternatives

studied $250,000 in real net worth over 10 years $ 25,000/year equity impact Values decisions… Not Analysis

Suggestions ?????

Discussion/Questions

Steven L. KloseFinancial And Risk Management Assistance

Department of Agricultural Economics

Texas Cooperative Extension

The Texas A&M University System