Dr. David Kohl, Professor Emeritus Agricultural and Applied Economics, Virginia Tech University

There is an old saying that it’s not the downside of the economic cycle that results in business issues, but the good times. What are some of the bad management decisions that are often made during stellar economic years?

Non-recurring profits
The current positive economic situation in the grain industry is conducive for possible issues. As with many economic events, this cycle is a result of several converging variables. China is stockpiling a supply of commodities and is in the process of rebuilding its protein complex. Adverse weather conditions, particularly in the Southern Hemisphere, have reduced global grain production. Accommodative monetary and fiscal policy in the U.S. and throughout the world has devalued the dollar, which means that U.S. exports are more favorably priced. Is this economic upswing temporary or here to stay? Over the decades of observing agriculture decision-making, I’ve seen long-term financial decisions based on non-recurring profits lead to financial adversity when servicing debt, as well as a strain on working capital and liquidity.

As a general rule of thumb, non-recurring profits should be used to build working capital reserves and shore up the balance sheet. Investments to increase operational efficiency and management should be a priority before embarking on a major expansion. The old adage of getting better before getting bigger is particularly true during the best of economic times.

Financial monitoring 
There can be a tendency to take the foot off the “management pedal” in the ascending part of the economic cycle for farm and ranch profitability. Following a marketing and risk management plan, cropping plan and livestock marketing plan are sometimes placed on the back burner during the good times. While the good economic times can provide a cushion to absorb financial shocks, use this chance to position your business for opportunity in case of an impending down economic cycle. The saying, “When everybody else is running, you walk. When everybody else is walking, you run” applies in this case. This mantra is very appropriate for cycle management. If positioned correctly, down economic cycles can provide opportunities for cost and competitive advantages.

Personal consumption 
Everyone needs to enjoy the fruits of their labor and management; however, this enjoyment often entails extra family living expenses. A case for moderation may be necessary. Decisions made outside the business often mean excess withdrawals from the business. A good personal budget that includes an allocation for enjoying life's pleasures would be a good way to monitor results, and to keep business and personal finances in balance.

In conclusion, weigh the economic and financial pros and cons of making long-term commitments, and think about both the financial and non-financial unintended consequences. Sometimes running the decisions by a trusted mentor or sleeping on the decision can bring objectivity into an emotional process.

Mike Schrey, Horizon Farm Credit’s chief credit officer, reviews the Coronavirus Food Assistance Program (CFAP) which provides up to $16 billion in direct payments to farmers who have experienced losses related to COVID-19.

Help our listeners understand the basics of the CFAP. Who is eligible for the assistance and how does the program work?

As part of the CARES Act, the Coronavirus Food Assistance Program (CFAP) was developed. It provides two main components:

• USDA Purchase and Distribution: which provides $3 billion to partner with regional and local distributors to purchase fresh produce, dairy and meat.
• Direct Support for Farmers and Ranchers: which provides $16 billion in direct support to ag producers where prices and market supply chains have been impacted. This direct support for farmers is what we will primarily discuss here today.

USDA announced the details related to CFAP direct support for farmers just last week and I will cover the highlights on each commodity next. However, it’s important to understand that the funding draws from two separate authorities - $9.5 billion from the CARES Act and $6.5 billion from the Commodity Credit Corporation. The dual authority makes it a bit confusing as it does cause separate payment rates for each commodity based on the underlying authority.

Commodities eligible for CFAP include livestock (cattle, hogs and sheep- lambs and yearlings only), wool, dairy, non-specialty crops which includes many row crops such as corn and soybeans, and specialty crops such as fruits, vegetables, nuts and mushrooms. CFAP payments are limited to $250,000 per person or legal entity, and each commodity has its own set of standards for how the direct payment is structured. 

Let me share some examples of the calculations for a few commodity areas:

• In dairy, a single payment will be made based on a producer’s certification of milk production for the first quarter of calendar year 2020 multiplied by $4.71 per hundred weight. The second part of the payment is based on multiplying first quarter milk production by the national adjustment factor of 1.014 to adjust for increased spring milk production in the second quarter, then multiplying by $1.47 per hundredweight. Again, the two different payments are a reflection of the dual authorities. In total, this payment amounts to $6.20 per hundredweight for a farm’s production in January through March of this year.  
• For livestock, the total payment will be calculated using the sum of the producer’s number of livestock sold between January 15 and April 15, multiplied by the payment rates per head, and the inventory number of livestock between April 16 and May 14, multiplied by the payment rate per head.
• For corn, the rate is $0.32/bushel for the CARES Act Payment Rate and an additional $0.35 for the CCC Payment Rate. This is applied against 50% of unpriced inventory as of January 15, 2020, not to exceed 50% of 2019 total production.

To ensure availability of funding throughout the application period, producers will receive 80% of their maximum total payment upon approval of the application. The remaining portion of the payment, not to exceed the payment limit, will be paid at a later date as funds remain available.

It’s clear that there are a lot of details related to CFAP that farmers need to understand. How can farmers learn more and what steps do they need to take to apply?
CFAP is administered through FSA. I encourage all farmers to review the CFAP website for details on their specific commodities.

All farmers must apply for CFAP through their local FSA office, many of which are operating by appointment only right now. The application period officially opened this week on May 26 and will remain open through August 28.

To expedite the process, be prepared before you have your appointment with FSA. If you’ve worked with FSA before, many of the entity and general information forms should already be on file. If not, check out the farmers.gov website for the forms what will need to be collected. Consider all aspects of your operation and information you will need to submit. For instance, if you are a dairy farmer, in addition to having your settlement checks for January through March, gather your receipts for cull cows as well as inventories of grain not under contract and inventories of corn silage on hand as of January 15 which will be paid on grain conversion.

Are there any other thoughts you would like to share?
Some program details are still unclear and may change. Stay informed about any changes by reviewing the website and reading articles in farm publications. Submit an application with FSA as soon as you can. There is a limited amount of funds and when the funds are expended, there’s no guarantee they will be replenished. Apply early, and hopefully you will get your payment quickly to help cover lost income during COVID-19.

We recently interviewed Dave Fleming, accounting officer with Horizon Farm Credit. Farm taxes have many nuances, especially in a year like 2020, and Dave discusses tax planning strategies for farmers.

Let’s begin by talking about the basics of tax planning. What’s the goal of tax planning, and why is tax planning especially critical in 2020 for farmers?
The ultimate goal of good long-term tax planning is to even out the peaks and valleys of income. Oftentimes people think of tax planning as a way to get income down, and that certainly is true sometimes, but there are times when it may be beneficial to bring income up. Tax planning is a two-way street.

One of the main reasons to bring income up is to avoid a Net Operating Loss (NOL). Several tax attributes are lost whenever the taxpayer experiences an NOL. The other reason is to take advantage of tax credits. People love a sale and if you think about using tax credits to pay taxes that's kind of like paying your taxes on sale so to speak. There are many credits that are either use it or lose it, meaning if you don't use them this year, you have lost them forever. Finally, if a taxpayer has marketplace insurance, there often are large advanced premium tax credits. To qualify for these you don't want your income too low or you have to repay them back. Also if it's too high you repay them back. You want to strike an even balance.

To the second part of your question, why in 2020? Well, it's been a year like no other. Who would have thought back in January that we'd have churches and theaters closed for weeks even into months? We had milk sales rationed at the retail level while at the producer level on the farm some farmers were being forced to dump milk. The agriculture industry saw much larger government payments than in the past. Some commodities are up in price; some are down in price. A few weeks ago my coworker Kenny Nearhoof did a great job on a podcast explaining some of the COVID assistance programs. 

The net result is some farmers have substantially higher incomes and there are other farmers that have extremely low incomes.

In the case of a farm that would benefit from a tax perspective to increasing income, what tax planning strategies have you seen effectively used?
I’ve used about five or six different strategies with customers over the years. 

Where it is feasible, one way is to step up income. Obviously a dairy farmer can't make the cows produce more milk to substantially change his income. However, if you think about grain farmers where they have an opportunity to market grain either this year or next year, you can move up sales. 

For example, let's say a farm loses $100,000 this year and makes $120,000 of profit next year. What's the two-year profit? It's $20,000. So, what's the tax this year? It's zero. That sounds pretty good so far. But what's the tax next year? It's over $21,000 for self-employment Pennsylvania and state and local income tax. That is enough to get almost anyone’s attention! Plus, I'm ignoring the federal income tax factor in this because I'm assuming that the NOL from this year's large loss and the standard deduction will offset the majority of that. You can simply just ride out the current interest rate you have. It's not going to cost you anything to do that. I know you're going to be stuck there, but it's one of the options you have.

Now, let’s consider moving sales up to sell an extra $100,000 of product this year. The income this year is still zero and the taxes are zero. Next year, his income will be to be $20,000 because he had the extra sales this year. His total tax bill will be in the range of about $3,600. Therefore, we're looking at saving about $18,000 by good tax planning. 

Now, some people will say, "Well, I expect the price of the commodity to go up next year." I checked corn prices from one of the major buyers in western Pennsylvania and they were offering $4.49 per bushel last Friday. However, good tax planning though to another $0.81 per bushel on those 22,000 bushels that would have to be sold to generate an extra $100,000 income. So, tax planning is worth about $0.81 per bushel in this case, and the offer on July corn next year is only about $0.09 more than what it was last Friday. So you have a surefire win when using good tax planning. 

Other strategies to use include delaying prepaying, or if you have expenses that are due in December wait until January 2 to pay them. People worry about losing a discount on pre-payments for seed corn, but usually the tax savings is much greater than what the discount on seed corn is. 

You can also capitalize larger repairs and then depreciate them over five or seven years. You can slow down depreciation by using straight line depreciation.

Another alternative is to take Section 179 on capital purchases if there's no other earned income. It will be disallowed, and it will carry forward to next year. You have to be careful on this one though because next year you can't decide how much Section 179 you're going to take. It's going to take an amount equal to the earned income on the tax return. 

Also, if you have crop insurance you can delay crop insurance payments on 2020 losses until 2021 for federal tax purposes. Keep in mind that Pennsylvania doesn't allow this for state taxes.

Let’s look at the opposite side. For a farm that would benefit from a tax perspective in bringing income down, what do you recommend? 
First pay any open accounts. That will save on taxes. Also, the interest charges on those open accounts is oftentimes the highest interest that the farmer pays, so there’s a two-fold benefit. 

Secondly, prepay expenses. Especially consider prepaying things like feed on a livestock farm because you're going to use that feed right away in January, and you start getting those prepayment dollars back. Prepaying spring crop inputs is also good. As I mentioned previously, you can sometimes get some discounts on things like seed and lock in favorable prices on fertilizer. 

You can use bonus depreciation and or Section 179 on qualifying capital purchases to bring income down. You can also defer crop insurance payments. In some cases, an IRA can be used to bring down federal tax.

Is there anything else you’d like to share with our listeners about taxes and tax planning?
We have been living most of our lives in a period of falling taxes. Ever since 1980 we've seen falling taxes rates starting with the Kemp Roth tax bill. In fact, even if you go back a little further, President Kennedy had some tax cuts in the 1960s. Our tax rates are at extremely low levels. 

As my coworker Kenny Nearhoof pointed out in his podcast, $100,000 of income in 1980 was equivalent to $316,000 in 2020. However, in 1980 you had a 59% marginal tax rate. In 2020 we have a 24% tax rate. That is huge. Maybe it's time to pay some taxes before tax rates go back up. 

Andy McCarty, crop insurance specialist with Horizon Farm Credit and Crop Growers LLP shares the role of crop insurance in today’s challenging environment and how crop reporting will work in a recent podcast.

COVID-19 has had many significant impacts on agriculture. In these volatile times, should farmers be looking at crop insurance any differently than normal?
In my opinion, this year is no different when considering crop insurance for your business. I believe we should always consistently be proactive when mitigating our risk around the farm. We should always look over all the options to make sure that we're protected when we need it the most. With the drop in commodity prices this spring, revenue coverage should probably be top on producers’ minds, and a conversation that they should have with their crop insurance agent. Crop insurance offers peace of mind and ensures a future for your farm operation.

I'm sure the pandemic has changed the format that you can serve your crop insurance customers. What will be different this spring for farmers in terms of reporting?
That’s exactly right. I will be working with farmers using technology more than ever before. Crop insurance agents are committed to working hard to serve farmers. Our team has been in communication with many local FSA offices, and if farmers continue to report to FSA first, that's totally fine; that's their option. FSA will likely have limited servicing availability at some of the offices. 

As an agent, I am willing to meet ahead with farmers, any time, by phone, email or any type of electronic technology including web meetings or FaceTime. I can review planted acres to make sure the farmer’s FSA reporting goes a little smoother this year. I can then take that report, provide it to FSA, and reduce the farmer’s time spent at the FSA office. Unfortunately, I can't meet in-person on the farm, so that's why we're utilizing technology to help. 
The saying is, "The early bird gets the worm." If they haven’t already, farmers should reach out to their crop insurance agent and set some time aside to develop a plan on reporting acres.

For dairy farmers, how could Dairy-RP help them manage volatility on their operation?
Dairy-RP is a powerful tool, and it's already helping many producers manage through this uncertain time. If you're a dairy producer who is unhappy with the current prices, consider Dairy-RP. Talk to your crop insurance agent or ag business consultant for their perspective. If you are a dairy producer who did not sign up for DMC, Dairy-RP is an option for helping to manage your risk. Dairy-RP is available almost every day the market is open. With Dairy-RP, you can customize it to your herd size, your components, your production and Class III or Class IV. So it's kind of like a Liberty Mutual. With Dairy-RP, you only pay for what you need, and not what you don't.

Are there any other thoughts you'd like to share?
Crop insurance is not just for corn, soybeans, and milk. There are a number of different crops in Pennsylvania, and we have insurance products to cover all of them. Having a knowledgeable crop insurance agent definitely helps farmers navigate through all of the options. 

We have insurance products available for orchards, vineyards, a variety of vegetable crops, to more specific products, like Crop Hail, Rainfall, Whole Farm, and our newest insurance product this year is in hemp. If you grow it, chances are we have the product to meet your needs.

Horizon's directors and employees often talk about how to enhance the benefits of our cooperative business model for customer-owners. I’ve often asked myself, are these benefits real to our customer-owners? Do they see tangible differences that help them achieve their business and personal dreams? 

We passionately hope that we’re leveraging the power of the cooperative business model to your advantage.

About Cooperatives

A cooperative is a business entity owned by its customers. The University of Nebraska’s Cooperative Development Center summarizes the model like this:

The cooperative business model has many appealing components at its core that make its use in rural areas generally easily accepted and embraced. The cooperative model is centered on the user-owned, user-controlled and user-benefited concept of business.

Why the Cooperative is Different

Your Horizon cooperative is different in key aspects and isn’t duplicated by other financial services providers.

• Customers (not a group of investors) own the business. Horizon exists to help all of our members achieve success. We strive to understand and deliver what you want and need rather than to “push” products or services in the pursuit of more profit. Non-cooperatives typically exist to benefit investors, who are not customers, by maximizing the business’s net income and stock value. Our vision to serve for and with you as expressed in our Shared Purpose statement: Inspiring growth in our families, businesses and rural communities.
• We pay patronage. Horizon is profitable, but after setting aside the earnings needed to capitalize the business, we return the balance to you as patronage. Why? Because you own the business.
• The Board of Directors consists of customer-owners. All but two of our 12 Board members are also borrowers who are elected by you. As they set the direction for Horizon, their vision and objectives for the Association should closely align with the best interests of all of our customer-owners. This structure allows you to have a say in the way your cooperative performs.
• We focus on long-term success. Because you plan for your business to be “in the family” for generations to come, we focus on the long-term success of the Association. We understand the future viability of the Association depends on your enduring success and growth. Horizon develops loan officers, consultants, accounting officers and other service providers who can help advise you toward successfully building your business. We also devote considerable attention to learning opportunities such as the AgBiz programs and AgForums. Our Knowledge Center serves as a hub for information and educational resources to benefit current and future customer-owners.

What Should Customer-Owners Do?

I hope you’ll agree that our cooperative business model offers you unique advantages. What responsibilities do you have to help the cooperative grow and thus continue to create value? Here are a few things you can do.

• Vote! Help ensure the Association has a strong group of directors on the Board. They serve a critically important role. Consider running for a Board position.
• Be a good customer-owner. Make loan payments on time and help your Association by providing timely information. Help us keep costs down – the benefits are returned to you.
• Refer new customers to us. We must grow to achieve long-term success.
• Help with the education and development of fellow and future customer-owners.
• Advocate for agriculture to consumers and legislators. Promote our industry and rural communities for the benefit of our future generations. 

April is National Intern Awareness Month and throughout the month we will interview past Horizon Farm Credit interns. We recently spoke with Emily Shaw, founder of Dairy Girl Fitness. Emily shared about herself and her passions in dairy and fitness along with reflections on her Horizon internship experience.

Let’s hear more about you and Dairy Girl Fitness. Tell our listeners about your journey in life and what you do now.

This is one of my favorite things to talk about. I'm Emily Shaw. I'm 26 years old and I currently live in north central Florida, but I am a Pennsylvania dairy girl. I grew up in central Pennsylvania and was involved in the dairy industry. We had a show herd at our house, raising show heifers. I was heavily involved in 4-H, FFA and National Holstein Association. Just about anything I could be involved in with my siblings, we were.

Along with that, we also played sports year round. We played baseball, softball, basketball, volleyball and dance. Again, just staying very active year round. We were always on the go, and that's where a lot of my passions for the dairy industry and the fitness industry came from and then allowing those passions to grow as I got older.

For college, I went to Penn State University. I graduated in 2017 with a degree in ag business management. While I was also there, I was involved in the Penn State Dairy Science Club, Alpha Zeta, which is a co-ed ag fraternity, and Ag Student Council. Again, just really trying to get involved in any way with dairy and ag. I was also on the collegiate dairy judging team.

I started weightlifting at Penn State, because let's be real, I was not qualified enough to join a D-1 sports team at Penn State. But I still wanted to be active. This is where weightlifting and becoming more interested in the fitness side of things came from.

After graduating from Penn State in 2017, I moved south to Georgia. A couple months later, my boyfriend and I moved to Florida. We've now been here three years.

There’s a lot of ag in the south, but there's not as much dairy in Florida as there is in Pennsylvania. I was having a little bit of a tougher time trying to find that dream career that so many kids are looking for right out of college. I really wanted to be involved in dairy promotion.

In March of 2018, I started my Dairy Girl Fitness Instagram page. This was my way to combine my passions for dairy promotion and the fitness industry. Through Dairy Girl Fitness I help debunk myths people have about the nutrition of dairy, or animal products, about how animals are taken care of, and really just bring in a lot of stories and a lot of information about the dairy industry to people interested in fitness.

That eventually grew into me being able to go full-time with Dairy Girl Fitness over the past year. I have a one-on-one coaching business. It's all online personal training. I also offer group coaching, and I have a couple of other different things going on, but that's really where my main focus falls with the Dairy Girl Fitness staff.

What has been the most rewarding part of starting Dairy Girl Fitness? What has been the most challenging part?

There's so many I can really think of it, but I think the coolest part about starting Dairy Girl Fitness is the connections in the community I've been able to build. When I started Dairy Girl Fitness as an Instagram page, I didn't know what it was going to lead into. I don't even know if, at that point, I was able to imagine that I could grow this into a full-time thing and grow it into what it is now.

Being able to make an impact in a way that feels really good to me and connect so many people from different parts of the country, different sides of farming - the people that consume it and the people that produce it - it's just been really, really incredible to be able to create these conversations and have conversations and bring so many people together through the community I created.

One of the most rewarding parts is when someone reaches out to me and they're like, "Hey, because of you or because of your posts, I'm not scared of eating dairy anymore.” Or they say, “I'm not scared of GMOs anymore."

They’re much more open and receptive to listening to farmers and understanding where we're coming from, rather than jump to conclusions.

Just being able to feel like I'm making an impact that I want to be and getting to connect with so many women has been one of the most rewarding parts.

Along with that, though, it is challenging, right? It's not just in being an entrepreneur, but I think in any realm of life or any career people might find themselves in, sometimes it's hard to feel like, "Hey, am I doing enough? Am I doing the right thing? Am I going to make this a sustainable thing?" So sometimes falling into that comparison trap or self-doubt.

I think a lot of people find themselves in that position at one point or another in their life, and sometimes think it's wrong or think there's something wrong with them. But no matter what, I think a lot of people may deal with imposter syndrome, but the most important thing is to push through that and know if you do feel scared, if you do feel a little bit uncomfortable, very often that means that you are doing big things, that you are doing the right thing.

It's so important to surround yourself with like-minded people that are going to really support you and elevate you even on the hard days.

Your experience as an Horizon intern in 2016 was a bit different than what you do today. However, could you reflect on that experience – what did you learn and how do you think it helped you get to where you are?

Pretty much everything I've done is a little bit different than what I've done now. I can say, I never imagined going to school for ag business management with a specialization in dairy science and then becoming an online personal trainer and Instagram influencer.  That was never necessarily the plan, but I think every single aspect of my youth, college and my internships provided so many different experiences and perspectives that have truly helped me in what I'm doing now.

With Horizon, one of the most awesome parts was going to visit customers on their farms and seeing different types of ag with different loan officers. Sitting in on those conversations and the problem-solving was eye-opening to see different ways people were thinking and looking at things.

I believe that helped in my communication skills. I became more confident in what I know and contributed to conversations, even though sometimes it could be a little bit nerve wracking going into these conversations with people who are doing very well or are just much more experienced than you, and think you have value to add.

Plus, we were able to go into the Headquarters of Horizon, and a few time throughout the summer. We interacted with Horizon leadership and had engaging conversations. I remember one of the meetings, we were talking about dairy and agriculture and how, as youth, we can continue to promote what we're doing. Having that conversation reminded me how passionate I was about dairy and ag promotion.

Being able to have those conversations with people that were very successful, doing well in their industry, and even within the company, was something that really allowed me to feel comfortable, to push myself, to challenge myself and think outside the box.

As we wrap up today, share any advice you have for young people who are interested in pursuing their passions.

My biggest piece of advice to anyone is you're never going to feel ready. Stop waiting to feel ready.

You may always think there's something else you should be doing, or you need to get one more thing done, but it's always going to be nerve wracking. It may always be a little bit scary, but that means you need to do it anyways. As long as you're falling forward, you're going to keep moving forward.

One of the biggest things is not thinking that you have to fit a certain mold or a certain box. I mean, honestly, I never really knew how I was going to combine dairy and fitness, and it felt kind of weird. It felt a little bit awkward at first. I wondered if it was even going to work.

As long as you're passionate and truly care about what you're doing and the people you're helping, there doesn't need to be a certain path, or it doesn't need to follow a certain thing anyone else is doing to move forward and be successful.

Dr. David Kohl, Professor Emeritus Agricultural and Applied Economics, Virginia Tech University

The title of this article comes from a recent Farm Credit University face-to-face session for the online Commercial Ag Lender course. This group of students represented employees from various Farm Credit associations and banks throughout the United States. One theme the class wanted to address was how can an agricultural business thrive in chaos?

The first step is preparation and focus. In my interactions with leading legendary coach John Wooden of UCLA, preparation and focus were prime strategies that he had for success when he won 10 national basketball championships. He emphasized to his teams that they would prepare the best they could with a focus on fundamentals and follow-up with the basics. In this strategy, the key was to maintain focus while limiting outside distractions. This is analogous to agriculture with all of the breaking news and tweets concerning trade and tariffs. Following one’s strategies and knowing when to take a profit or minimize losses will be key to long-term success.

Another key component that Coach Wooden stressed was the execution of fundamentals. When operating a business, developing a business plan with financial, marketing and operational strategies is an important, fundamental step. Then, one must take the business plan from concept to action and accept both the positive and negative consequences. With any good coach or business, measuring and monitoring outcomes is important to tweak the game plan for the next opportunity or the next year.

Those who thrive amid chaos often have strong financial statements, particularly on the top half of the balance sheet. Working capital and the ability to quickly convert assets to cash to garner opportunities when others are not in a position to do so provide a competitive advantage. Being able to negotiate cash discounts is possible only if adequate liquidity is maintained. Strong working capital and liquidity also allow you to market on your terms to meet profit and cash flow expectations.

Finally, develop a strong team culture where individual goals sometimes are modified for the betterment of the team's overall success. In this scenario, some team members will have to check their egos at the door, listen rather than talk, and be fully committed to the overall team success.

This chaos we are experiencing is only just beginning and will be with agriculture throughout the next decade. Staying ahead of chaos with a well-thought-out plan, execution and monitoring with flexibility in the financials combined with a team concept will be imperative.

No matter if you are a full- or part-time farmer, agricultural producers have a number of capital needs to make their operations successful. While often overlooked, leases can be a valuable option by providing tax advantages, little or no down payments and lower monthly payments.

Oftentimes, the real value for a farmer lies in the use of the asset and not the ownership. But conventional loans also have their benefits, most notably being that the asset is owned and can be reflected on your balance sheet.

Other benefits of loans and leases include:

Benefits of a loan

• Payment timing and terms are structured to fit your operation
• Owned facility/equipment are your assets
• Asset is depreciated on your tax return
• If you are an Horizon Farm Credit borrower, patronage can be earned based on the amount of interest you pay

Benefits of a lease

• Working capital and your operating line is preserved
• Cash flow is improved with lower payments
• Tax benefits are maximized with accelerated write-off
• 100% financing is available

For your next equipment or building need, in addition asking your lender about a conventional loan, ask about a lease as well. Depending on your unique situation, one option may be more favorable than the other, and you may want to consult with your accountant or other tax advisor to get his/her opinion, too.

We recently interviewed Ollie King who raises sheep and beef on his farm in Doylesburg, PA. During the interview, Ollie shared about his operation and strategies for raising sheep and marketing their products.

Our listeners can probably tell from your accent that you aren’t a Franklin County native. Share with us about your story and how you ended up being a farmer here in south-central Pennsylvania.

I'm clearly not from Pennsylvania nor America. I served 22 years in the in the British army, which now I'm retired. During my time in the army, I was serving in Afghanistan and I was in a U.S. army base when I met my soon to be wife, Megan. She was in the U.S. army. We met there and then we continued to see each other.

I'm from a farming community in the UK. I always kind of wanted to be a farmer or wanted to have some land because all my friends growing up were from farming families.

We really wanted to have some property at least, but we couldn't afford to buy any land in the UK. We started our search more in America, and Megan is from Pennsylvania. Megan's parents had a farm in Franklin County, so we looked around there and found our farm, which is a 90-acre farm. We bought it with me being in the UK and Megan being in Afghanistan. So that was quite a challenge. We did see the farm before we bought it, but we basically bought it via an online contract. And so that's what brings us to Franklin County.

We have a mixed farm. We have beef, sheep and as I said, Megan has horses. We did have some arable crops to begin with before we got the livestock. As the livestock population has grown, we've reduced down any cash crops. Now the whole farm is in pasture or hay land, which is basically the same thing because we use rotational grazing.

Let’s talk a bit more about your sheep operation. Tell us about the sheep you raise, how you’ve grown your flock and what you’ve learned over the years about raising sheep.

As I said, we are a mixed farm. We have sheep and cows, but I'm completely new to agriculture as an owner. I thought we should start with something not as big as a cow. And so I thought sheep would be a good way to start.

We started with five ewes and three ram lambs. That was in the spring. Two of the ram lambs went to butcher that autumn and the third was kept to be a stud ram. We had lambs in the springtime that following spring, and we had some lamb in the freezer and that was the beginning.

We have a bank barn on the property and so I just used the base of the bank barn. It's quite an old bank barn and it is in relatively good shape, but it's not like a new construction. It was somewhat damp and it was somewhat cramped and there wasn't any lighting in there. That first year was quite a challenge. I learned quite a lot.

Thankfully, in that first year I didn't lose any of the five ewes but because they were yearling ewes, only three of them had lambs.

I thought we needed to look at some different breeds. What we got originally was just a white, fluffy sheep. It’s a Cheviot cross. It’s not a pure bred, and it's got a mixture of bits and bobs in it. So I thought it was probably wise to go with one or two purebred breeds. On the farm now we have Shropshire, Clun Forest, and the Cheviot crosses.

I emailed a couple of people on the Clun Forest registry and one really nice chap got back to me from Maryland. I bought two ewes and the ram from him.

From that relationship, I bought a couple of more sheep from him, but also became involved with the Maryland Sheep and Wool Festival for which now I'm a board member. I really enjoyed the contacts and the friendships I've made as a result of that first meeting with the chap that sold me the Clun Forest.

So we bought five Cheviot crosses, two Clun Forest ewes and then over the next three years bought six, six and six of Shropshires, each of the groups coming with their own ram. We run three breeds. So they've got five groups with five rams come autumn time, because they're running those separate groups to keep the purebred and registered ones in their own line. Now we're now up to 60 odd sheep on the farm.

So we have 54 using the barn now for lambing. We choose springtime lambing so that when the grass comes in, which is almost now, the mothers can go out on the fresh pasture, almost straight out of the barn.

They sheared the end of February and then they stay in the barn until the beginning or middle of April. So we have basically four weeks, just with new shorn coats and then they start lambing and they go through the general population in the lambing barn.

Then they go into mothering pens for a couple of days, and get sorted to a maternity wing where all the ewes and the lambs are together. Now the grass is coming in, they will start dashing out onto the fields and enjoying the grass.

Importantly, on our farm, we practice rotational grazing. The whole principle of how we run our beef and sheep is on rotational grazing because we only have a relatively small farm at 90 acres. Grass pasture is at a premium. I use electric netting for the sheep and hot movable electric wire for the cows.

We rotationally graze them, moving them every few days. In Pennsylvania, the stocking rate is one animal unit per acre. One animal unit being a 1,000 lb. animal, and a 1,000 lb. animal in beef terms is equal to five sheep. So if you do the math on that, we will very quickly run out of space on 90 acres.

The rotational grazing makes it much more efficient because you can put more hooves on the ground. Because you moved them frequently, the grass grows and so therefore soil quality and regeneration is enhanced and it allows for a better stocking rate and being a better custodian of the pastures, I feel.

The ewes and the rams stay with their mothers. We do what we would call a soft wean. At four months, the ram lambs do get taken away from their mothers, but they can still see them. The ewe lambs stay a little bit longer with their mothers. The ram lamb continues to graze in rotational grazing until they go off to the butchers in the autumn.

Now, let’s talk about the marketing of products from your sheep. How do you approach the marketing side of your business and what strategies do you use?
One of our biggest marketing tools is me being British because I've noticed that most Americans don't eat lamb. Where I live, all the producers around me are beef producers.

Those that do have sheep, and there are a few up the Valley here that do have sheep, none of them eat their own product. If I ask them why they don't eat lamb, nine times out of 10, they'll say they don't know how to cook it. For me lamb is a staple that we've always grown up with being from Britain in Shropshire.

I encourage people to start trying it. So that's helping.

Megan, my wife has a full-time job and she works for Highmark, the health insurance provider. She’s not in the office now because of the pandemic, but her office is in Camp Hill and it's a relatively big office. Many people there have become customers. She's managed to make a lot more contacts that way.

We have begun to serve ourselves in that way through Megan. I'm at a bit of a disadvantage because I have no social network in America because I'm new to the country. Most Americans have a network of friends. Of course I don't. That made it quite difficult.

The marketing from our perspective has been very slow because we've been A - learning and B - growing the business.

We started selling to friends and family and for the first four or five years. We had more people wanting to buy lamb than we could produce lambs. 2020 was the first time we people wanted and we had lambs. We sold three separately this last year, direct to a meat producer.

This next year coming up, we will be positively marketing. We've been kind of passively marketing in the past, but obviously our network of friends and our network of people that have bought and passed it on to other people is increasing.

Two springs ago, we started a Facebook page and we have a Facebook farm page, which is every week growing more followers. It’s not perfect marketing but it kind of is surprising how fast word of mouth spreads. In fact, we took a photograph of one of our steers in a feeder just a few months ago and it went all around the world. The power of Facebook marketing is extraordinary. Last year we did sell two half lambs as a result of Facebook. So this year we will be putting more on Facebook. At some point, we would like to get a webpage put together to orders represent ourselves with a web presence.

We sell the wool and the pelts also through the Facebook marketing strategy, because we try and use as much of the animal as we can. The wool and the pelts is a whole network of other people. The people that use the wool might not necessarily even eat lamb. A person might buy some wool of ours and then come and visit and then think it might be nice to have a half of lamb.

Selling to cities is somewhat more challenging because people don't have such big freezers, but that's something we will be looking forward to looking into in the future -  the selling and the marketing of individual cuts of lamb.

As we wrap up today, if any of our listeners have an interest in starting their own sheep operation, what advice would you give them?

I think the most important piece of advice I can give, which we have adhered to purely by luck rather than any calculated judgment on our part, is start with good stock. Now I'm kind of addicted to YouTube channels because I'm trying to learn as much as I can, how to be a farmer. If any farmers are listening to this, they'll just roll their eyes and think, "Oh my goodness, how is he learning to be a farmer from just watching videos." But I've obviously had to start somewhere being in the infantry for 22 years.

A lot of YouTube channels will often do ‘Top 10 Things I Wish Someone Had Told Me’ or ‘Top Five Things I Wish Someone Had Said to Me.’ In all of those different YouTube videos, in the top 10 of that their list will be ‘starting with good quality stock.’

And so having fallen into that by accident, we started with registered Shropshires. We started with a good stock from the Cluns, and it just happens that we were lucky that the Cheviot crosses were a good standing. It makes such a difference in what you do, because if you buy from the sale barn, you don't know what you're getting, where they're coming from, what they're bringing with them. The good stock means that they will be more hardy. It means that they don't bring problems onto your farm. And it means that they take less of your time with the husbandry.

I've learned so much from different visits to different farms, and hand in glove with that, do get some YouTube videos under your belt. I know it sounds silly, but no matter how many times I watch new and old videos on YouTube, I always spot something I didn't see first time or I’ll always learn something on each episode.

Make sure your handling systems are safe and that works, I think, two ways. It keeps the handlers safe and it keeps the animals safe. Low stress handling and low stress animal movement is hugely beneficial to the animals but also for the farmers or the others working with you on your farm, and oftentimes that's family. The less stress the animal is up against, the better they will feel and the better they will work with you.

Dr. David Kohl, Professor Emeritus Agricultural and Applied Economics, Virginia Tech University

Welcome to the new decade with all of its challenges, but also some bright opportunities. This decade will be characterized by both social and global competitive shifts and could be defined as the “fork in the road” for many businesses, industries and economies. The following are just a few of the questions, perspectives and observations to consider when conducting short- and long-run planning and strategy sessions.

Will consumer trends, driven by the millennials, Generation Z and Generation A, continue to shift rapidly? Plant-based and cultured meat have established a place in the market. Will these alternative products cut into the demand for more traditional products? Will individual producers and industry leadership groups develop a game plan to align with consumer desires? Or, will they be satisfied to be the low-cost commodity producer for the U.S. and global markets?

Will trade disputes be resolved in 2020 with our trading partners? If so, will the loss of demand to our competitors around the world impact prices for commodities that are exported? The major question for cash flows and profits will be whether government support payments will continue making up a larger share of producer profits. The fork in the road concerning global economics is whether there will be a return to globalization or a shift to “decoupling” and populism as the mode of operations internationally.

Will farmland values maintain their resilience in 2020? If interest rates stay low and skepticism about alternative investments such as stocks and equity remain, expect farmland values in most regions of the country to stay strong. Baby boomer farmers and investors with new money have enough equity and cash to continue investing in hard assets, such as land, that come with other attributes including mineral and development rights, energy and water.

Political volatility and uncertainty will be key words for 2020 in the U.S. and abroad. The unpredictability of election outcomes will put a cautious, conservative stance on the stock market as well as capital investment strategies for businesses.

The year 2020 and beyond will be dominated by consolidation. Will consolidation continue to accelerate or will political, consumer and social forces result in a black swan for big business? The power struggle between big and small businesses may be in its early innings for business owners and strategic thinkers. Will non-governmental organizations (NGOs) continue to place pressure on business and institutions to regulate in favor of their desires?

The next decade will continue to bring extreme weather in both the U.S. and abroad. Will improved management practices and genetics be enough to overcome these weather aberrations without impacting worldwide supplies?

A major question for 2020 concerns the health of the economy and interest rates. The U.S. economy has set a record for economic expansion with 126 consecutive months of growth. Interest rates in the U.S. and abroad have been at record low levels for nearly a decade.

Will the U.S. energy sector still remain number one in world output followed by high rankings posted by our northern and southern neighbors? If the output of the North American energy sector continues, the resulting stability and cheaper energy will be beneficial to producers, businesses and consumers. Any disruption could lead to volatility and be advantageous to possible enemy forces.

With all these questions, one variable remains constant: good, solid planning with alternatives will be critical. A focus on execution and monitoring results will be even more important going forward. Manage to your strengths and complement your weaknesses or areas of improvement. With the best talent and a strategic plan, you can increase the probability of traveling the high road to profit, overall success and fulfillment. Best wishes for the upcoming year and the next decade!