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August 2013 Archive for Fiscal Fitness

RSS By: Dairy Today: Fiscal Fitness, Dairy Today

Financial management experts, lenders and accountants share ways for dairy producers to improve money and credit management. Look for help on budgets, taxes, loans, financial performance and even bankruptcy.

2013’s Volatility Should Spur a Fourth-Quarter Checkup on Your Dairy

Aug 30, 2013

It’s a good time to analyze your operation’s performance and planning for 2014.

By Lori Teigen, AgStar Financial Services

2013 has proven to be another volatile year for the dairy industry. In fact, volatility is the new normal it would seem. Producers have been left wondering what Class III milk prices will do, which margin and risk management strategies will work best for their operation, and how best to manage feed inventories and quality for milk production.

All of these factors not only affect your farm’s profitability for 2013 but will play an important a factor in 2014. With the fourth quarter right around the corner, it is a good time to take a step back and do a checkup on where your farm is performing and planning for the 2014. These are just a few things you may want to consider.

Feed Quality and Inventories

Crop conditions throughout the country are extremely varied. Areas will have some of their best crops, while some producers may have one of their worst. The lack of rainfall could be too late for some crops while it will help alleviate further yield loss for others. Therefore, now is a good time to double check your feed inventories and make sure you have the inventory on hand that your balance sheet is reflecting.

Clearly, this is important for herd performance to ensure you have adequate feed inventories but also financially. Having to correct feed inventories at the end of the year can negatively affect your equity and earnings. If you find you will need to purchase feed, do you have control of the feed and at what price? Lastly, there may be corn silage to purchase if there is any early frost. Have you talked with your neighbors that may have acres to sell? If it is feasible for your operation, consider feeding forage alternatives.

Risk Management

Risk management on dairies is a crucial key for success. There are many things to consider for a comprehensive risk management strategy ranging from life insurance, crop insurance, LGM (Livestock Gross Margin) Insurance and interest rate risk, to contracting milk and feed.

One of the key factors to managing your risk is margin management. Margin management will be vital to long-term success of your operation. Simply cutting costs today to reduce expenses can be a short term fix; however, it may not be a long-term solution. Remember that margin management requires discipline and consistency as markets are constantly changing. Key for margin management is knowing both your cost of production and cash flow requirements but also understanding the markets to be able to take advantage of margins at the right times. Utilize your team of advisors to help with marketing decisions.

Financial Performance

How is your dairy performing not only year to date but compared to budget? It can be very easy to get caught up in day-to-day activities and fail to stop and see how your farm is performing. Things to consider when evaluating financial performance can be the following:

• IOFC (Income Over Feed Costs) and evaluating feed efficiency
• Managing net herd replacement cost. Net herd replacement cost per cwt. is the difference between the cost of a replacement heifer and the value of the replaced cull cow.
• How strong is your working capital position? Working capital is king. Working capital will give you the flexibility to manage your cash flow and be proactive rather than reactive when faced with potential adversity.
• Know your cost of production with the biggest drivers being feed and labor.
• Evaluate capital expenditures. With the end of the year quickly approaching, evaluate if the capital expenditure is a need vs. a want, and make sure it is a realistic capital expenditure you can handle for the next 12-18 months.
• Look for improved efficiencies and competitive advantages. Benchmarking not only against your own performance but others as well will allow you to look for additional ways to increase your profitability.

Fall crop production is a very busy time for farmers. Taking a time out to evaluate feed inventories, risk and margin management and financial performance will help set your operation up for continued success and long-term profitability.

Lori Teigen is a Dairy Industry Specialist with AgStar Financial Services in Baldwin, Wis. She has been with AgStar since December 2003. Email her at

Six Ways to Safeguard Your Dairy’s Profits

Aug 19, 2013

With a profitable year emerging for many dairies, make sure your financial barnyard is in order.

Gary Sipiorski VPBy Gary Sipiorski, Vita Plus Corporation

It is an understatement to say that dairy producers endured a lot in 2012. It did not matter what part of the country you milked cows in, feed ingredients of all kinds were affected by the drought.

Western dairies and other dairies -- no matter where they were located -- that historically bought all of their feed felt the sting the most. Some were still paying back loans from 2009 and now they were into their lender’s office again asking for operating money. Even Midwest dairy producers that have a land base suffered forage storages or at least high protein prices.

2012 is still going to haunt many farms until the fall of this year. Seeing new forage growing helps to calm the nerves. There is reason for continued optimism for those who milk cows. If you have not noticed, the business of exporting dairy product is still running at an annual rate of 13.5% of U.S. production. We have a little more cheese in storage, but pizza still ranks high as a consumer preference. And has anyone been watching the yogurt consumption skyrocketing? It may not be all Greek-style yogurts, but that has been the best advertisement in years for the dairy industry. The best part about it is that yogurt ranks right up there as a "healthy food."

As good as this all is, no one is going to hand over cash on a silver platter to your dairy. Others around the world will compete for a piece of the world dairy pie. So now is a time to get and keep your financial barnyard in order. Margins will stay tight on the income and expense sides of the cash flows. The future milk usage and price have all of the markings of a positive swing, so here are some things to think about.

1. When you start harvesting this year’s crop, make sure it is packed, inoculated and covered to achieve the least amount of shrink. These feeds are now far too valuable to waste. You need to have a pre-planting, or at least a pre-harvest, meeting with your crop specialist, harvest people and nutritionist to make sure the most nutrients are being captured and make it to the mangers.

2. Always keep your most current balance sheet on the front page of your mind. Know where you are and the impact each decision will have. Regardless of the small or large choices at the time, think about whether the results will add to your net worth.
3. Your cash flow is and will always be king. You must know your cost of production. If you decide to look at fixing a margin between expenses and future milk prices, your major costs must be addressed.

4. Keep talking with your lender, who is your biggest supplier of capital. The general economy is starting to show some signs of recovery. The Federal Reserve cannot keep interest rates where they are forever. There appear to be more and more discussions between the Fed Governors that the low interest rates may be coming to an end. Once interest rates start to move, today’s attractive fixed rates will be gone. The economy is still fragile, so they will probably move but move slowly.

5. Buying land is still on the minds of many. Lower grain prices may cool some of the prices. If considerations of a land purchases are on plate, make sure you stress-test your cash flow with a 15% swing in income and expenses to make sure you are not betting the farm.

6. With the opportunities in exports and domestic milk usage, it is important that your milk flow keeps moving higher. That may be a 1,400-pound creature you deal with, but she is very sensitive. Cow comfort and health are keys.

This year has all of the makings of a profitable year for many. The business of milking cows is a business you are either in or out of. There is no in-between. You will have to make sure you are thinking and planning ahead to take advantage of the investment you have.

Gary Sipiorski has a long career in the banking industry, doing business primarily with dairy producers. He has been associated with the Citizens State Bank of Loyal, the Graduate School of Banking in Austin, Texas, the Independent Community Bankers of America, the Governor’s Task Force on Growing Agriculture in Wisconsin, and the Advisory Council on Agriculture, Industry and Labor for the Federal Reserve Bank of Chicago. In 2008, he joined the Wisconsin-based nutrition firm, Vita Plus Corporation, where he is dairy development manager. Contact him at 608-250-4267 or

6 Reasons Why Estate Planning Is for Everyone

Aug 12, 2013

From inheritance taxes to probate to protecting your dairy’s assets, it’s important that you prepare – before the state does it for you.

By Matthew A. Tavrides, J.D.
Attorney & Counselor at Law

Tavridees 1With the federal gift and estate tax exemption currently at $5.25 million per person ($10.5 million for married couples), some people wonder whether they need any estate planning. There are many reasons to do estate planning other than to avoid estate taxes. Proper estate planning is important for everyone, regardless of the size of your estate.

Everyone needs a plan. The real reason: If you don’t come home today, as the result of mental disability or death, are your family and loved ones going to be okay? Something will happen; the question is, will it be what you want?

1. Avoid State Inheritance/Death Taxes

It is true that, with the larger federal estate tax exemption in place, most families will not have to pay federal estate tax. But many states have their own inheritance/death tax. And while the states’ tax rates are generally lower than the federal tax rate of 40%, they typically apply at a much lower threshold. This means an estate could be exempt from federal tax but have to pay a state "death" tax. Proper estate planning can reduce or even eliminate state inheritance/death taxes.

2. Ensure Assets Are Distributed the Way You Want

Everyone has an estate plan. It is either the one we have created or the default plan of the state in which we live. In our experience, it is very unlikely that a state’s default plan is what you would want. State laws vary, but generally they direct that property pass outright to the closest family members. Who a state considers to be your "closest" family member is often complicated in non-nuclear families. Non-family members, like in the case of an unmarried couple, will not receive any of the assets.

3. Avoid Probate

For those who don’t have a plan, their assets will probably have to go through a court process called intestate ("no will") probate. For those who have a will, the assets it controls will also have to go through probate before they can be fully distributed to the heirs. Probate proceedings vary from state to state, but many view the time, cost, and loss of privacy and especially, loss of control that come with probate as unnecessary evils that should be avoided.

Even with a will, it is unlikely that all of the assets will go through probate. Assets with a valid beneficiary designation, such as life insurance and retirement plans, pass outside probate to whomever the decedent has named as beneficiary. Property owned jointly with the right of survivorship will automatically transfer to the surviving joint owner outside of the probate process.

However, minors and mentally incapacitated individuals may not own property. Therefore, if the beneficiary or joint owner is a minor or is mentally incapacitated, the court will have to get involved to protect their interests. If the beneficiary or joint owner has died before or simultaneously with the decedent, or the designation or title is otherwise invalid, those assets will also have to go through probate. That property will be distributed according to the will or, absent a will, the default state law.

Planning Tip: Probate can often be avoided by using joint ownership and beneficiary designations, but, in our experience, it most often leads to unintended consequences and has unintended risks. A better way to avoid probate is to establish and fully fund a revocable living trust. With a living trust, the trust maker keeps control over the assets, avoids uncertainty and unintended consequences, and avoids the risks associated with joint ownership. That’s why a living trust plan is often preferred by many families and professionals alike.

4. Protect Inheritances from Creditors and Predators

Gifted or inherited assets are protected from creditors and predators of the beneficiary, divorce, remarriage, law suits and irresponsible spending only if they are held in a properly drafted trust with safeguards built into it. In a trust, the trust maker can instruct the trustee to make distributions as needed to trust beneficiaries, which can include the surviving spouse, children and grandchildren.

5. Protect a Business and Other Assets

Those engaged in agricultural and related businesses must plan to protect their assets from the possibility of lawsuits. There are substantial risks and liability associated with livestock, machinery and equipment, employees and other guests (invited and uninvited), as well as hunting and recreational use of large tracts of land. Business owners also have to contemplate and plan for for what will happen to their business when they can no longer manage it due to incapacity, retirement or death.

Planning Tip: Asset protection planning can and should be included in the estate planning of farmers and ranchers. The time to plan for asset protection is before there is any potential threat. Once the threat of a claim arises, it is probably too late.

Planning Tip: Business succession planning should also be a part of estate planning farmers and ranchers. Someday the business will pass out of this owner’s control. Planning ahead can provide the time needed to grow and develop the business, groom a successor or look for a potential buyer. If an adult child will take over the business, proper planning can also help provide equitably for any children not involved in the agricultural business.

6. Pass Down Values to Future Generations

Unfortunately, more than 90% of family businesses fail to survive to the third generation. For many people in agriculture, preservation and protection of their family’s legacy, heritage and way of life is as important, and perhaps even more important, than any other form of planning. But it does require planning. Otherwise, in the event or your mental disability or death, something is going to happen; it just won’t be what you want.


Do something! Plan for the most important things in life -- our family and loved ones. Not having a plan is not a good option.

Matt Tavrides has practiced law in Central Florida for over 20 years, and concentrates in the areas of Estate Planning, Family Business Succession and Wealth Preservation Strategies for families in agriculture. A graduate of the U.S. Military Academy at West Point, he served as a Field Artillery Officer in the Army before attending law school at Mercer University in Macon, Georgia. He is a graduate of the NCBA Masters of Beef Advocacy program, serves on the Board of the Florida Cattlemen’s Foundation and is an active member and supporter of the Florida Cattlemen’s Association, the Florida CattleWomen, and the National Cattlemen’s Beef Association. Visit Contact Tavrides at or (407) 843-8441

© 2013 Matthew A. Tavrides, MATpa Planning Solutions, WealthCounsel and The Advisors Forum. All rights reserved.

A New Trend for Dairies: Embezzlement

Aug 05, 2013

Advice on how to manage the additional risks that emerge with the return of positive cash flow.

By Mark A. Brady, CPA, CVA, Partner
Cooper Norman Certified Public Accountants

The past few months have seen some positive changes in the dairy industry. In the last six to 12 months, some dairy operations have been able to refinance with new lenders and move out of the special or troubled assets branch of their old lender. Operators have learned to manage on slimmer margins, and margins have at least opened up to offer the ability to turn a small profit with positive cash flows. We need to make sure we are planning for the future in a prudent, fiscally responsible manner.

I’m not sure why, but it appears a new interesting trend has emerged, one that indicates more than just that the owners are aware that cash flows are now generally on the positive side. For the last couple of years, we spent all our time while working with managers, working on staying afloat and in the game in regard to low cash flows. Currently, we are doing the same, only in a really different way. The issues now involve the protection of the assets, including the excess cash flows, or in other terms, the avoidance of embezzlement.

Operations have been able to use the excess positive cash flows to catch up on debt and vendor payments. It was never left lying around in bank accounts or excess inventory levels. Since cash flows have created the ability to catch up with liability payments, a few are starting to see some growth in their cash balances or reductions in their lines of credit. This positive cash flow takes on additional risks.

It does not take much time surfing the Net to find hundreds of articles about an employee being terminated and charged for misuse or misappropriation of funds. And if you look, you will find the perpetrators are not from any specific area of an organization. It can be the janitor/cleaner staff as easily as it can be the bookkeeper you have trusted for the past 15 years. Keep in mind, the recorded information we are able to research and review on the Net represents only the cases that are reported. How many cases actually exist, where embezzlement is actually identified by an employer and it merely ends with the employee being terminated? This is generally the case more often than not.

Generally smaller businesses are at greater risk because, they typically have very few controls or the resources to implement and enforce controls. More often than not, the small business owner ends up relying on his or her bookkeeper or CPA. Spending a few minutes to make sure the appropriate basic controls are in place can go a long way toward helping remove any opportunities to misuse, misdirect or misappropriate funds that may exist. A basic study performed by someone outside your business does not have to be massive or costly.

If you remember some of our earlier "Fiscal Fitness" blogs, we spoke about the need for a management team and its ability to change as your business moves forward. This is an issue that might need a different type of consultant than you currently are using. We cannot express enough that a second opinion regarding your businesses financial health can be just as important as that second opinion we all look for when dealing with our personal physical health.

Now that your business and you are coming out of a pretty severe economic storm, be sure to make the needed repairs and then move forward preparing for the future. Do not let someone else begin to prepare for their future at the expense of you and your business’s future. Give your CPA a call and have him or her come in and give your financial record processes a health check-up. If you get a clean bill of health, great! If not, then let’s start the healing process and begin to really enjoy life.

Based in Idaho, Mark A. Brady is a partner with the firm of Cooper Norman Certified Public Accountants. Brady is a Certified Public Accountant (CPA) and a Certified Valuation Analyst (CVA). He grew up on a Montana dairy. Contact him at 208-733-6581 or

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