POSITIONING YOUR BUSINESS

Transcription

1 POSITIONING YOUR BUSINESS FOR THE GLOBAL ECONOMY Dr. David M. Kohl Professor Emeritus, Agricultural and Applied Economics Virginia Tech, Blacksburg, VA (540) (Alicia Morris) (540) (Angela Meadows) January 25, 2014 Road Warrior of Agriculture: Ag Globe Trotter:

2 Emotions & Behaviors greed anxiety complacency optimism fragile fear stubbornness 2

3 Emerging Nations fast rise to moderation BRICS & KIMT nations rule 50% world growth since rule world economy is $74 trillion developed countries emerging nations The long term viability of these nations will be defined by the way they handle adversity. 3

4 Developed Rich Nations economic moderation public debt aging population entitlements 1-2% growth rate These nations are becoming a cluster of powerful economic nations. 4

5 World Economy Perspectives- Europe German elections fall 2013 zero growth debt levels Euro additions/eliminations currency/other 5

6 World Economy Perspectives- China new leadership population shift rural to urban state directed-capital growth consumer based capitalism & growth in Asian exports trade 6

7 World Economy Perspectives- India, Brazil, Russia, & others Inflation Government intervention Productivity Other 7

8 World Economy Perspectives- North America Debt levels- USA Budget issues- USA Canadian economy Mexican economy 8

9 U.S. & Global Economy on Steroids Slide 1 Quick Reads on the Economy Indicator Status Wealth Effect Stock market Real estate Price/Earnings Ratio Stock: 14 to 1 Land: 34 to 1 Japan s Stock Market Up 28% in 120 days Currency Exchange Rates 9

10 U.S. & Global Economy on Steroids Slide 2 Quick Reads on the Economy Indicator Status Metric LEI Green Increasing PMI Green 56.2 Housing Starts Red 891,000 Unemployment Yellow 7.3% Core/Headline Inflation Green Both <2.0% 10

11 Federal Reserve s Interest Rate Barometer Indicator Possible Change Definite Change Unemployment 7.0% 6.5% Core Inflation 2.0% 2.5% Headline Inflation 4.0% 5.0% GDP 2.0% 2.5% Watch List: FOMC voting FOMC minutes Federal Reserve Chairman & replacement 11

12 Supersized Super Cycle half of world growth in emerging nations BRICS & KIM-T s = U.S. economy (as a % of world GDP) ethanol & biofuels oil, gas, water, & minerals low value of dollar low interest rates minimal opportunity for investments 320/260/60 rule mother nature/production concentration 12

13 2012 Farm Real Estate Value By State Dollars per Acre and Percent Change from 2011 Source: 13

14 2013 Farm Real Estate Value By State Dollars per Acre and Percent Change from 2012 Source: 14

15 Goal Setting establish or update family, business, personal six degrees of goal setting 15

16 Two Words- Working Capital working capital: current assets minus current liabilities working capital/revenue 33% need cash to cover one year s debt payments need cash of two to three month s average expenses 16

17 How Did Farms Stack Up Historically? Historical information for Southwest, South Central & Southeast Minnesota Brad Schloesser & Al Brudelie (retired), Dean of the Southern Minnesota Center of Agriculture The source of the green, yellow, and red credit risk rating is from "Weighing the Variables" by David M. Kohl. He considers the six (6) color coded factors below to be key indicators of financial credit quality. Green Early Yellow Late Yellow Red The farm business enjoys a competitive position The farm business has some early caution signs The farm business has some major caution signs The farm business could face some major obstacles Current Ratio - Multiple-Enterprises Top 10 Percent High 20 Percent Average Farms Low 20 Percent Farm Debt to Asset Ratio (Market) Top 10 Percent 43% 45% 44% 47% 50% 49% 46% 54% 47% 48% 44% 40% 42% 45% 39% 42% 39% 38% High 20 Percent 43% 47% 47% 50% 50% 49% 47% 54% 48% 48% 46% 43% 43% 44% 42% 43% 40% 40% Average Farms 53% 53% 56% 59% 57% 54% 55% 56% 52% 50% 49% 48% 47% 46% 45% 45% 43% 42% Low 20 Percent 67% 65% 67% 66% 67% 66% 67% 62% 60% 57% 54% 59% 58% 51% 54% 55% 50% 51% Rate of Return on Farm Assets - Rent/Lease Majority of Assets (Cost) Top 10 Percent 12.8% 10.1% 10.4% 14.9% 21.0% 15.0% 12.4% 13.1% 12.9% 15.0% 17.9% 17.0% 20.1% 19.0% 12.7% 16.9% 16.9% 17.9% High 20 Percent 13.0% 10.1% 10.2% 12.6% 12.2% 14.2% 10.9% 12.4% 12.3% 14.2% 16.4% 15.6% 19.4% 17.6% 11.6% 15.9% 15.8% 17.3% Average Farms 8.4% 7.4% 6.3% 3.1% 6.6% 9.2% 3.6% 5.8% 7.0% 8.5% 10.9% 11.1% 14.2% 10.8% 5.3% 11.5% 11.5% 13.7% Low 20 Percent 0.5% 1.2% 0.2% -7.8% -3.0% -5.0% -5.7% -4.9% -2.3% -0.9% 0.2% 0.4% -0.9% -4.1% -7.1% 0.3% -0.6% 1.0% Term Debt Coverage Ratio Top 10 Percent 369% 341% 336% 232% 215% 269% 227% 228% 249% 250% 325% 332% 389% 443% 316% 448% 462% 540% High 20 Percent 382% 310% 283% 198% 198% 248% 182% 206% 213% 251% 300% 304% 375% 401% 285% 408% 429% 491% Average Farms 218% 183% 143% 77% 126% 156% 84% 129% 145% 170% 211% 207% 269% 245% 145% 278% 294% 363% Low 20 Percent 26% 34% 3% -30% 39% 50% -22% 21% 57% 58% 76% 64% 64% -22% -65% 66% 71% 94% Operating Expense Ratio Top 10 Percent 61.9% 66.5% 65.9% 64.2% 68.7% 70.9% 73.9% 68.9% 69.7% 72.0% 68.0% 67.0% 63.2% 62.1% 66.3% 61.6% 65.2% 57.6% High 20 Percent 62.0% 67.3% 67.0% 65.6% 68.2% 69.6% 73.4% 68.4% 70.0% 71.0% 68.2% 68.2% 63.1% 62.5% 67.2% 61.9% 65.5% 59.9% Average Farms 68.3% 70.8% 77.3% 77.9% 72.7% 71.3% 79.1% 76.5% 74.9% 73.5% 71.4% 71.0% 68.8% 71.1% 77.8% 66.9% 68.8% 64.7% Low 20 Percent 86.3% 85.6% 90.1% 97.2% 85.8% 83.9% 95.5% 93.9% 87.5% 84.5% 84.4% 85.5% 89.9% 96.3% 101.5% 86.9% 86.2% 86.6% Interest Expense Ratio Top 10 Percent 5.4% 4.9% 5.0% 6.0% 6.1% 4.9% 4.4% 5.3% 4.3% 3.6% 3.3% 3.4% 3.8% 3.6% 3.4% 3.2% 2.6% 2.5% High 20 Percent 5.8% 5.4% 5.5% 6.6% 6.3% 5.3% 5.3% 5.5% 4.6% 3.8% 3.7% 3.9% 4.1% 3.9% 3.8% 3.6% 2.8% 2.7% 17 Average Farms 7.8% 7.3% 7.9% 9.2% 8.6% 7.5% 8.3% 6.6% 5.9% 5.3% 5.0% 5.6% 5.1% 4.8% 4.9% 4.5% 3.8% 3.4% Low 20 Percent 12.0% 11.3% 10.6% 10.8% 12.6% 11.2% 12.3% 7.8% 8.1% 9.4% 9.4% 8.7% 6.4% 5.0% 5.6% 6.7% 7.0% 5.4%

18 Credit Score Credit Report 700 Rule check credit report spouse & partners steps to improve 18

19 People Plan independent vs. interdependent victims know it all s rule five steps quote 19

20 Family Living Budget $100,000 average high & low - $60,000 competitive edge non-farm capital expenditures family living rule 20

21 2012 Family Living Planner Average Family Size Average Low Cost 33% High Cost 33% Food & Meals Expense $10,037 $8,002 $11,834 Medical Care $7,060 $9,435 $7,651 Health Insurance Cash Donations Household Supplies Clothing Personal Care Child/Dependent Care Alimony/Child Support Gifts Education Recreation Household Utilities $7,506 $6,311 $9,436 $5,545 $2,305 $10,274 $8,789 $6,942 $11,598 $3,706 $3,098 $5,215 $11,792 $6,310 $8,410 $958 $1,113 $ $3,690 $3,364 $4,457 $2,439 $2,479 $4,302 $7,151 $2,755 $13,520 $2,576 $3,449 $2,412 Vehicle Operating Exp Household RE Taxes Dwelling Rent Household Repairs Non-Farm Interest Disability/LT Care Ins Life Insurance Non-Farm Property Ins. Miscellaneous $3,627 $1,151 $1,273 $4,040 $2,125 $382 $6,662 $68 $9,429 $4,384 $1,387 $262 $2,451 $1,672 $50 $2,947 0 $3,920 $3,431 $729 $2,536 $7,233 $1,849 $245 $10,885 0 $19,134 Total Cash Family Living $100,006 $72,636 $136,026 Living From Farm Income Taxes Non-Farm Vehicle Purchases Non-Farm Real Estate Purchases Other Capital Purchases Savings & Investments $43,740 $21,947 $73,536 $6,521 0 $11,560 $33,551 $24,349 $32,687 $120,159 $395 $330,169 $16,728 $6,325 $11,264 Total Cash Family Living, Investments & Capital Purchases $320,705 $125,652 $595,242 Source: Nebraska Farm Business, Inc. 21

22 Education lifelong learners 3-5 venues networking information actions 22

23 Team of Advisors lender crop/livestock mentorship peers other 23

24 Business Equation for Success P=O+C+L+M² P=people, profits, & plans O=overhead cost control C=costs- know thy cost L=liquidity-cash is king M²=marketing & management = margin 24