northwest fcs yields - positioning in the downturn - spring 2015

Spring 2015Spring 2015

Positioning in theDownturn

Spring 2015

FEATURE STORY > 5

Dave and Leanne Van Essen were watching the market closely, anticipating a downturn in the nursery industry. Yet no one imagined such an abrupt swing. With Northwest FCS Relationship Manager Jeff Johnson, the Van Essens reflect on the lessons they learned to survive the downturn and position for the upswing.

yiel

dsWho we are: Northwest FCS is a customer-owned

financial cooperative providing financing and related

services to farmers, ranchers, agribusinesses, commercial

fishermen, timber producers, rural homeowners and

crop insurance customers in Montana, Idaho, Oregon,

Washington and Alaska. Northwest FCS provides

approximately $13 billion in loans and is a member of the

Farm Credit System, a nationwide network of borrower-

owned lending institutions that provide approximately

$208 billion in loans to rural America.

Board of DirectorsKaren Schott, Chair, Broadview, MT

Dave Nisbet, Vice Chair, Bay Center, WA

Rick Barnes, Callahan, CA

Christy Burmeister-Smith , Newman Lake, WA

Jim Farmer, Nyssa, OR

Mark Gehring, Salem, OR

Dave Hedlin, Mount Vernon, WA

John Helle, Dillon, MT

Greg Hirai, Wendell, ID

Herb Karst, Billings, MT

Kevin Riel, Yakima, WA

Nate Riggers, Nez Perce, ID

Julie Shiflett, Spokane, WA

Shawn Walters, Newdale, ID

About YieldsYields is produced for stockholders of Northwest FCS, an

Agricultural Credit Association. Comments and story ideas

can be sent to the Marketing Department, c/o Northwest FCS,

P.O. Box 2515, Spokane, Washington 99220-2515.

website: northwestfcs.com

Northwest Farm Credit Services is an equal opportunity

employer and does not discriminate on the basis of race, color,

religion, sex, national origin, marital status, age, disability,

disabled veteran, Vietnam era or other eligible veteran status.

Northwest FCS State Presidents > 3

New, Whole Farm Revenue Protection > 13

Hunker Down Business Strategies > 15

The 2015 director election results will be announced on or aboutMarch 11 at which time new directors’ service will begin.

To achieve long-term success, businesses must anticipate volatility and continually reposition in an ever-

changing marketplace. Some of our customers are positioning for growth or expansion into niche markets.

Others are positioning to survive a downturn or transition to the next generation. Change is constant; that’s

why we continue to be even-handed during the ups and downs of different business cycles.

Like our customers, we continue to position our business for the future. This year we implemented

organizational changes that combine field employees from three lending and insurance divisions into a new

team called Lending and Insurance. We’ve expanded our leadership strength and focus at state and branch

levels to increase our local marketplace presence and coordinate resources to better serve our customers.

Frontline lending and insurance staffs are being led by four new state presidents who, in addition to being

field-based leaders, will also serve on the Management Executive Committee. We’ve also named branch

managers as the primary contact for their local marketplaces to strengthen our capacity to serve customers.

Looking forward, we’re bullish on agriculture in the Northwest. Our customers will have many exciting

opportunities ahead, though the environment will continue to be volatile. Businesses with strong leadership

who are good stewards of their assets and capital should be well-positioned for the future.

Thank you for your continued business. We appreciate the opportunity to serve you and look forward to

another successful year.

Business Business PositioningPositioning

Phil DiPofi, President and CEO

yields Spring 2015 | 2

13 | Nor thwest Farm Credit Ser vices

New Northwest FCS StateNew Northwest FCS StatePresidentsPresidentsLending and Insurance staffs are now being led by four state presidents. In addition to serving on the Management Executive Committee, these state presidents also lead Northwest FCS’ University Relations Teams. Please join us in welcoming them to their new roles.

Mandy Minick is the Washington President, based in Pasco, Wash. Prior to this role, Mandy served as a senior vice president of the Agribusiness team in Western and Central Washington. During her tenure at Northwest FCS she also served as Sunnyside branch manager where she managed a portfolio consisting mainly of dairies and wine grapes.

Mandy grew up in Snohomish, Wash. on a small part-time farm. Active in both 4-H and FFA, Mandy raised and showed horses and dairy heifers. She graduated from Cal Poly Pomona with an Agricultural Business Management Bachelor of Science degree. She currently lives in Prosser, Wash. with her husband David, and three sons: Ben, James and Peter. They manage a farm and winery operation and are avid WSU football fans.

Brent Fetsch serves as the Oregon President, based in Salem, Oregon. Prior to this, Brent served as senior vice president of operations and Chief Information Officer at the company’s headquarters office in Spokane, Wash.

Brent grew up in agriculture near Pendleton, Oregon. He was active in the Oregon Future Farmers of America and served as an Oregon state officer. He gained work experience in Germany before graduating with a bachelor’s degree in agriculture and natural resource economics at Oregon State University. He has served as an elected school board member, the Spokane County United Way board and currently serves on the Oregon Food Bank board. Brent and his wife Candy have two grown children, Dalton and Allie, and enjoy cycling and the great outdoors of the Pacific Northwest.

Blair Wilson serves as the Idaho President, based in Nampa, Idaho. Prior to this, Blair served in many capacities for Northwest FCS, most recently as a senior vice president for the Financial Services Division overseeing staff in Idaho and Oregon.

Blair was raised on his family’s farm/ranch near Lapwai, Idaho. He graduated from the University of Idaho in Agri-business and began his Farm Credit career working for the Federal Land Bank in Idaho Falls. Blair has been involved with many ag-related groups throughout his career: Leadership Idaho Ag, Food Producers of Idaho, Idaho Co-op Council, Idaho Ag in the Classroom, University of Idaho Ag Consulting Council and the Idaho Cattle Association. He currently serves on the board of the Idaho Food Bank. Blair and his son enjoy outdoor activities and travel.

Bill Perry serves as the Montana President, based in Bozeman, Mont. Prior to this, Bill worked in the headquarters office in Spokane, Wash. as vice president of Enterprise Risk Management and Credit Underwriting.

Bill was raised on his family’s cattle ranch in central Montana, near Judith Gap. He holds a Bachelor of Science degree in Agricultural Business from Montana State University and a Master of Science degree in Agricultural Eco-nomics from Kansas State University. Bill has served as a volunteer in a variety of roles at his alma mater. He served on the board of directors of the MSU Alumni Association, including a term as board chairman. Bill currently serves as treasurer for the board of directors of the Alpha Gamma Rho Fraternity at MSU. He and his wife, Devney, enjoy spending time with their son and cheering for the Bobcats.


Rural Community GrantsRural Community GrantsNorthwest FCS’ strong financial position allows us to continue to invest in the rural communities we serve. From community centers to medical facilities, emergency response systems to city parks, we’re committed to giving back to the rural communities where we live and work. In 2014 Northwest FCS, with support from CoBank, awarded 83 rural grants totaling nearly $150,000. Since 2007, Northwest FCS has presented 353 rural grants totaling more than $700,000.

Rural Community Grant deadlines are October 1 and February 1.Rural Community Grant deadlines are October 1 and February 1.Visit Visit northwestfcs.com/ruralgrantsnorthwestfcs.com/ruralgrants for more information. for more information.


Moses Lake Farmers MarketMoses Lake Farmers MarketMoses Lake, Wash.Moses Lake, Wash.

“The Moses Lake Farmers Market is proud to be the recipient of a $2,000 Rural Community Grant,” says Bruce Bailey of the farmers market. “This grant will be used to help fund our Wednesday Market at Larson, a market providing fresh produce fruits, vegetables, baked goods and locally produced products. Our hope is to build a strong Wednesday Market over the next few years giving area residents opportunity to buy direct from the farmer/producer. Thank you Northwest FCS for supporting our local farmers market and small agriculture in our community.”

Milestown Community Improvement, Inc.Milestown Community Improvement, Inc.Miles City, Mont.Miles City, Mont.

“The money will be used to install sidewalks, purchase picnic tables, park benches and help with additional landscaping,” says Jeff Lee of Milestown Community Improvement, Inc. “The youth of Pine Hills are building this new park in partnership with various businesses and organizations in Miles City. They are learning valuable job skills and developing a sense of ownership and responsibility. Once the park is complete the youth will maintain it, giving them an opportunity to give back and pay off their community service hours. We are very pleased that we can add Northwest FCS to the list of donators and supporters.”

Wood River Soil andWood River Soil andWater Conservation DistrictWater Conservation DistrictShoshone, IdahoShoshone, Idaho

“We are so excited that you have chosen to contribute $1,000 to our ‘Trees Against the Wind Project,’” says Barbara Messick, Administrative Assistant for Wood River Soil and Water Conservation District. “The money will be utilized for trees and fabric mulch, all necessary material to make this single-row windbreak work. The Conservation District is pleased to bring the City of Shoshone and Lincoln County together to celebrate and promote Arbor Day. This project, once established, will bring many benefits like protection from blowing snow drifts, energy savings, air quality improvements and aesthetic value for travelers on Highway 75.”

Mid-Columbia Senior CenterMid-Columbia Senior CenterThe Dalles, Ore.The Dalles, Ore.

“Our center serves as the only true community center in The Dalles, reaching out not only to seniors but all residents of our area,” says Joan Silver, Mid-Columbia Senior Center Board Member. “When the center was built, the funding allowed for a downstairs level but not an inside access, so an outdoor stairway or a narrow drive to a secured door has been the only access to much useable space. With the generous $1,500 grant from Northwest FCS, we are much closer to funding the elevator and indoor stairway. Many thanks to the agriculture community, without whom the center would not be the vibrant place it is.”


Positioning in the Positioning in the Downturn for the UpswingDownturn for the Upswing


In Oregon, the nursery downturn was swift and stunning.In Oregon, the nursery downturn was swift and stunning.

For 18 years, starting in 1990, the Oregon nursery industry grew For 18 years, starting in 1990, the Oregon nursery industry grew

steadily, reaching $988 million in sales in 2007. The nursery steadily, reaching $988 million in sales in 2007. The nursery

commodity outpaced cattle that year, then ranked second, by as commodity outpaced cattle that year, then ranked second, by as

much at $500 million. Then suddenly, the industry slammed into much at $500 million. Then suddenly, the industry slammed into

trouble: the abrupt halt of home and business construction, high trouble: the abrupt halt of home and business construction, high

transportation costs, financial industry woes and a depressed transportation costs, financial industry woes and a depressed

national economy. In 2008 sales plunged a whopping 17 percent national economy. In 2008 sales plunged a whopping 17 percent

to $820 million and the worst was far from over.to $820 million and the worst was far from over.


Dave and Leanne Van Essen were watching Dave and Leanne Van Essen were watching

the market closely and anticipating a the market closely and anticipating a

downturn. Yet, no one imagined such downturn. Yet, no one imagined such

an abrupt swing. Van Essen Nursery an abrupt swing. Van Essen Nursery

Company is one of the larger ornamental Company is one of the larger ornamental

shrubbery growers in Oregon, marketing shrubbery growers in Oregon, marketing

to independent garden centers across the to independent garden centers across the

country. Dave and Leanne were diversifying country. Dave and Leanne were diversifying

their risk by expanding into a wide selection their risk by expanding into a wide selection

of new varieties. But, in September 2009 of new varieties. But, in September 2009

they knew they weren’t going to make sales they knew they weren’t going to make sales

projections. Tough decisions had to be made projections. Tough decisions had to be made

immediately if they were going to survive immediately if they were going to survive

this downturn and position for the other side. this downturn and position for the other side.

“Labor is nearly half of our gross sales,” says Dave. “We have about 50 permanent employees and we’ll ramp up to more than 100 employees during the spring shipping season. The seasonality of our business really helped in the downturn. In September we knew we had three months left in the year to make significant changes. We started with seasonal, winter layoffs.”

Working with employeesWorking with employees

The Van Essens sat down with their permanent employees and explained what was happening in the business. They told their people how much they valued them, wanted them to come back when things improved, but expenses

had to be cut immediately. Their employees understood. They were seeing their peers being laid off from other companies too. Everyone at Van Essen Nursery knew cut backs were needed for the company to survive.

When it came to staffing cuts, Dave considered employee longevity and the quality of work, especially for the nursery crew they hoped could return in the spring. Then he sat down with office staff to see what could be done to help everyone get by. Some people would only work one day a week for the next three months, he told them. With unemployment they could earn 30 percent of their pay. That’s when the employees stepped up to help the company and each other.

“One employee said, ‘My husband has a good job so I can take a couple months off,” says Dave. “He knew another person in the office was a single parent. The first two winters, two office employees took the layoff, then the opposite winter two or three others took time off. They realized this was survival mode and everyone worked together. That helped a lot.”

Managing inventory costs Managing inventory costs

The Van Essens looked at anything and everything they could do to cut expenses. They considered tasks that were nice to have done, but weren’t critical to the business. They did less weeding. They looked for ways to reduce the movement of product across the 300-acre operation. They didn’t make structural improvements. But, the one thing the Van Essens vowed they would NOT do is shut down their production line or cut back on marketing.

“There was almost a panic in the industry,” says Dave. “But rather than shut down production as some were doing, we kept the potting machine going. Shrubbery is a four- to five-year assembly line. Plants start in the greenhouses or in the field before we move them to containers. We recognized this as a long-term cycle. If you just stop producing product there comes a point you’ll have nothing to sell when the market comes back. The same holds true for marketing. We kept our marketing department alive and worked really hard to manage our inventory.”

The Van Essens kept planting and potting all through the recession. They continually reviewed recent sales history and inventories on the ground. If they thought there was adequate inventory to cover Dave and Leanne with Pablo Gonzalez, Production Manager at the nursery


sales projections they wouldn’t pot that particular crop. If it looked like they would need 500 plants of a certain variety they would only pot 500 plants, not 550 plants as they might have done before the recession. Overall, their inventories remained steady, with only a slight reduction in the numbers.

Lean manufacturing improves Lean manufacturing improves efficiencyefficiency

Dave and Leanne credit the Oregon Association of Nurseries for bringing lean manufacturing concepts to their operation. Starting in 2010, OAN sponsored a number of programs highlighting Toyota’s Lean Manufacturing Principles to improve efficiency and productivity. Continual process improvement is something the Van Essens and their employees take to heart daily.

Leanne says lean principals start at the top. Owners must embrace the concepts about reducing waste, watching how money is spent, being organized and looking for ways to save time, even seconds that add up during the day. To be successful, managers and employees must buy into the concepts and not slide back into old habits or old ways of doing things.

“Lean is not one big improvement or one little improvement,” says Leanne. “It’s everyone thinking about how work gets done and finding a better way to do it. Little things matter, even down to unnecessary keystrokes on a computer that waste valuable time. If you can shave seconds off a process you’re saving money.”

For example, Dave says potting tools used to be scattered around the shop. If the potting machine went down and someone couldn’t find a part, five guys might be standing around waiting for the machine to be fixed. After attending a lean manufacturing workshop, one employee took the initia-tive to have the shop build a shadow board on a rolling table top for all the tools. There were holes for drill bits and places where the plates would fit. Now the table can be pulled close to the machine someone’s working on to save valuable time.

The market recoveryThe market recovery

Many nursery and greenhouse operations say 2014 was their most profitable year since the downturn of 2008 began. Steady demand for product at higher prices contributed to profit increases. Early sales orders for 2015 point toward a positive outlook, largely influenced by favorable economic factors like housing and consumer confidence. However, the current recovery is viewed by many as “supply driven” due to lapses in replanting since 2009. Limited supply is creating market share opportunities for operations, like Van Essen Nursery, that remained viable in the downturn with fresh inventory rotations.

“Before it got really bad we took things seriously,” says Dave. “In good times it’s so easy to get focused on the production side of the business. But the real traps are behind the doors, managing the finances and watching expenses. One of the things I most appreciated was the way Northwest Farm Credit worked with us in the downturn. It wasn’t us against them. They were always helpful and encouraging, giving us ideas about how to better position the business. That means a lot to me.”

“The industry is recovering sooner than a lot of people thought,” says Northwest FCS Relationship Manager Jeff Johnson. “But, most nurserymen agree it probably won’t reach the level of its heyday. The demographics of home-buyers are different now. People aren’t buying big homes with big yards. I think the nursery industry really appreci-ated how we responded in the downturn. We didn’t pull out. We stayed the course and never lost our enthusiasm for the industry. Every commodity we lend to goes through times like these. The nursery industry isn’t going away; it’s just going to be different.”

Branded products bring new Branded products bring new opportunitiesopportunities

Plant brands are a fast growing trend in the nursery business as consumers are enticed by national advertising and celebrity endorsements. When Martha Stewart touted the benefits of Limelight Hydrangeas, her loyal followers followed. Soon plant retailers across the country were responding to the demand. Name recognition and consumer-focused marketing is quickly changing the nursery landscape.

The Van Essens embraced patented, plant brand varieties early on. The trend was relatively new in the shrubbery line when Dave and Leanne joined a group of growers marketing annuals under the Proven Winners brand. Today, you’ll find Proven Winners advertised in a number of national publications, including Good Housekeeping and Better Homes and Gardens. Independent garden centers and box stores are paying close attention to the trend as more consumers look for branded products.

“Thirty five percent of our overall sales are branded product now,” says Dave. “It’s closer to 42 percent for our container sales. Just five years ago it was less than half that. A lot of growers have resisted patented brands because they add extra costs, like a patent fee and the expense of the liner or branded tag. If plants are grown in containers you may need to put them out in clean, branded containers at the loading dock. There’s some additional cost you need to pencil out, but the consumer is embracing and asking for these prod-ucts. Bigger nurseries and retailers are starting to follow.”

Marketing the HGTV brandMarketing the HGTV brand

When it comes to name recognition, Home and Garden Television is big. More than 98 million American households receive HGTV which broadcasts a variety of how-to shows focused on home improvement, gardening, craft and remodeling. Imagine the star power of the HGTV HOME Plant Collection.

In 2012, HGTV HOME announced three new grower partners for its new, “Smart and Stylish” shrub line, featuring 14 exclusive ornamental shrubs from Ball Ornamentals. Van Essen Nursery was selected as the sole west coast grower. According to HGTV, “Van Essen Nursery was chosen based on their excellent nationwide distribution network and their ability to grow under diverse zonal conditions. Van Essen has critical experience growing new plant varieties and working


Dave and Jeff Johnson, Northwest FCS Relationship Manager

with other national branded plant programs, making them a great fit for the HGTV HOME Plant Collection.”

Ken McVicker, Director of Marketing & Product Develop-ment at Van Essen Nursery agrees. “Partnering with HGTV was an easy decision for us,” he says. “We recognize the HGTV brand as established with a proven track record. The addition of plants to the HGTV HOME line of products makes perfect sense for consumers. It creates the connec-tion we were looking for to help our retailers reach a new generation of brand-centric, media-savvy consumers.”

Looking to the futureLooking to the future

Dave and Leanne are quickly gearing up for spring shipping season. They’re excited about the plant mix they’ve developed – from the tried and true to the hot new varieties. They’re also adding perennials to the mix. The domestic housing market and general economic conditions continue to improve, bringing a positive outlook to the nursery industry.

The Van Essens reflect on the lessons they’ve learned these past six years. When times are good pay close attention

to your expenses. Care deeply for your employees and they’ll treat the company like their own. Continually look for ways to improve your processes because seconds add up and cost you money. Resist the urge to cut marketing. And above all, keep the faith.

“It helps to know you don’t have control over everything being a person of faith,” says Leanne. “We’re stewards of what has been entrusted to us, this property and this business. We’re going to do the best we can do and trust we’ll have the resources when we get to the next challenge. That’s certainly been true for us.”

“We’re stewards

of what has been

entrusted to us,

this property and

this business. We’re

going to do the

best we can do and

trust we’ll have the

resources when

we get to the next

challenge.”


Beware of Tax ScamsBeware of Tax ScamsTake a tip from IRS Commissioner John Koskinen: “Taxpayers should be on the lookout for tax scams using the IRS name. These schemes jump every year at tax time. Scams can be sophisticated and take many different forms. We urge people to protect themselves and use caution when viewing e-mails, receiving telephone calls or getting advice on tax issues.”

Here are some of the more common IRS tax scams. Please don’t allow yourself or your family to be fooled.

Use common sense and trust your instincts. If it doesn’t sound right, it probably isn’t.

Email Phishing Scam: “Update your IRS e-file” Email Phishing Scam: “Update your IRS e-file” In this scam, emails are crafted to appear to be from the IRS and include a link to a bogus web site that looks almost identical to the official IRS web site. These emails contain the direction, “You are to update your IRS e-file immediately.” First, carefully check the email address. The correct IRS address is @IRS.gov. A telltale sign for a bogus email may mention USA.gov and IRSgov (without a period between “IRS” and “gov”). Don’t be scammed. These emails are not from the IRS. The IRS does not initiate contact with taxpayers by email to request personal or financial information.

Persuasive Telephone ScamsPersuasive Telephone ScamsIn this scam callers pretend to be from the IRS in hopes of stealing money or identities from victims. These phone scams include many variations. Callers may say the victims owe money or are entitled to a huge refund. Some calls threaten arrest or to revoke a driver’s license. Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.

Telephone scammers may:

• Use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.• Be able to recite the last four digits of a victim’s Social Security Number.• Imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.• Send bogus IRS emails to some victims to support their bogus calls.• Create background noise of other calls being conducted to mimic a call site.

PhishingPhishingPhishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, like the Electronic Federal Tax Payment System, report it by sending it to [email protected]. The IRS does not initiate contact with taxpayers by email or any type of electronic communication, such as text message or social media channels, to request personal or financial information.

What information do thieves want?What information do thieves want?

• Social Security Numbers• Bank account or credit card numbers• Driver’s license number• Insurance policy numbers (medical and auto)• Date of birth• State or employee identification number

Scam Alert Reminders:Scam Alert Reminders:

• If it’s too good to be true, it probably is.• When in doubt, check it out.• A bank, credit card company or utility company will

never ask for your personal information by email, whether you have an account or not, period.

See: the IRS’ “Dirty Dozen Tax Scams” which is renewed yearly and will be available for 2015 in February.


IRS TAX

SCAMS

yields Spring 2015 | 10yields Spring 2015 | 12

A New Way toA New Way toProtect Your RevenueProtect Your RevenueWhole-Farm Revenue Protection Insurance

New, Whole-Farm Revenue Protection insurance provides coverage against the loss of revenue you expect to earn,

or will obtain from commodities you produce or purchase for resale under one insurance policy. WFRP provides:

• A range of coverage levels from 50-85 percent to fit the needs of more farming and ranching operations.

• Replant coverage for annual crops.

• The ability to consider market readiness costs as part of the insured revenue and expenses.

• Provisions to adjust the insurance guarantee to better fit expanding operations.

• An improved timeline for farming operations operating as fiscal year filers.

Frequently Asked QuestionsFrequently Asked QuestionsQ: What types of farms is WFRP insurance made for?

A: WFRP can potentially work for any type of farm, but is specifically designed to meet the needs of both highly diverse farms that grow a wide range of commodities and farms that sell commodities to wholesale markets.

Q: What farm revenue is covered?

A: The amount of farm revenue you can protect with WFRP insurance is the lower of the revenue expected on your current year’s farm plan or your five-year historic income, adjusted for growth.

Q: What adjustments are made for farm growth in determining my insured revenue amount?

A: There are two ways the WFRP policy looks at growing operations. The first is an indexing procedure that looks to see if the allowable income from either of the last two years is higher than the five-year average allowable income and then, if that condition is met, it increases the historic income based on how much the farm has grown over the five historic years. The second way the WFRP looks at farm growth depends on records provided by the insured to show that physical changes have occurred on the farm that support an expanded operation increase of 10 percent over the five-year average allowable income.

Q: Does diversification on my farm matter?

A: Yes! Farm level diversification is important in WFRP. In general, diversification is measured by the number of commodities on the farm because diversification reduces risk. The following are key items in WFRP that are affected by diversification on the farm: • Qualification for the 80 and 85 percent coverage levels require a minimum of three commodities.

• A minimum of two commodities is required for potato farms to qualify.

• Farms that have a commodity that is insurable under Revenue Protection, Revenue Protection with Harvest Price Exclusion or the Actual Revenue History plan of insurance must have a minimum of two commodities on the farm in order to qualify.

• Farms with two or more commodities will receive a premium rate discount based on the amount of diversification. This discount is a reflection of the lower risk of revenue loss because of the farm’s diversification.

• Farms with two or more commodities will also receive a whole-farm subsidy resulting in less premium cost to the producer.



Q: What type of subsidy is available for WFRP?

A: See chart below for Percentage of Total Premium Paid by the government:

WFRP is a Back-Up StrategyWFRP is a Back-Up Strategyfor Agriculturefor Agriculture“I share with many neighbors that in the past 13 years, AGR insurance(now WFRP) has been our go-to policy. It has protected us when rain came at the wrong time, hail bruised and destroyed our fruit or heat caused sunburn and poor quality. The insurance give us downside price protection and has provided revenue stability.”

– Marvin Lapp, orchardist

Q: What is the insurance period for WFRP?

A: The insurance period is based on your tax year. If you are a calendar year filer, the insurance period isJanuary 1 through December 31. If you are a fiscal year filer, your insurance year is the same as yourfiscal tax year.

Q: How do I determine the prices to use for the commodities on my farm plan?

A: Prices must be reasonable for your local market and will be determined using the expected value

guidelines in the policy.

Q: Is replant coverage part of WFRP?

A: Replant coverage is part of WFRP for annual crops only and is only for crops on your farm operation that are not insured under another FCIC reinsured policy.

Q: Can I purchase individual Federal reinsured crop insurance policies for my commodities in

addition to WFRP?

A: Yes. You may purchase other Federal reinsured crop insurance coverage for any of your commodities as long as the other policy provides coverage at a buy-up coverage level and not at the ‘catastrophic’ coverage level. When you purchase other Federal reinsured crop insurance policies in conjunction with WFRP the total cost of WFRP may decrease.

The deadline to purchase WFRP insurance is March 15.Contact a Northwest FCS Crop Insurance Agent today.

Coverage Level 50% 55% 60% 65% 70% 75% 80% 85%

Basic Subsidy-Qualifying

Commodity Count: 1 67% 64% 64% 59% 59% 55% N/A N/A

Whole-Farm Subsidy-Qualifying

Commodity Count: 2 80% 80% 80% 80% 80% 80% N/A N/A

Whole-Farm Subsidy-Qualifying

Commodity Count: 3 or more 80% 80% 80% 80% 80% 80% 71% 56%

The economic cycle shifts to a downturn. The dollar strengthens, taking away market advantage. Emerging nations’ economies slow down and prices drop faster than costs. This is reality when operating in a global economic environment with a surprise around every corner. The great commodity super cycle that has bestowed prosperity and wealth on many sectors of agriculture has ended, which has resulted in many businesses shifting to a “hunker down” approach. Let’s examine a few points and perspectives. Dusting off the old books from the school of hard knocks can provide some interesting perspectives.

First out of the gate, do not wait too long if you think your business is headed for financial issues. Contrary to the old Rolling Stones song, time is not on your side in a business downturn. As businesses become larger and more complex, the numbers are bigger and losses can mount very quickly. Unfortunately, I am often called when it is too late. Farmers and managers will indicate the turnaround strategy should have been focused on five years ago. However, in many cases, business conditions were good five years ago, but complacency in management and follow-through created the problems. The worst management decisions are often made during the best economic times.

An important tool in a business turnaround is a good financial system that “talks” to the business owners and managers. Managers should know their cost of production. If multiple enterprises or entities exist, costs and revenue streams should be broken down individually by enterprise. Analogous to a struggling athletic team, intense focus is often needed on corrective actions, with strategies and timelines to measure results. This needs to be monitored by an outside party such as a lender, financial consultant or an outside facilitator to provide accountability.

A valuable tool that is very popular in business turnaround is variance analysis. Develop a set of cash flow and income projections with best, average and worst-case scenarios, and compare the actual results or “facts” to the projections monthly or quarterly. When there are deviations from projections, determine what caused each deviation, positive or negative. It is important to list the reasons for deviations, whether it was macroeconomic conditions, a change in the marketplace or cost dynamics or management actions.

Another important tool used in the “hunker down” period is a paper trail of strategies, actions and the sequence of events and outcomes. A timeline of


“Hunker Down” “Hunker Down” Strategies forStrategies forBusiness SuccessBusiness SuccessDr. David KohlProfessor Emeritus, Virginia Tech


results helps to document progress. The psychological aspect is important in any turnaround. Most successful turnarounds will build upon mini-victories, i.e., reducing cost in key areas by 5 percent, exceeding market or price expectations, shedding a business of unproductive assets like marginally productive land, machinery or equipment. Remember: 80 percent of business is emotional rather than logical decision-making. Mini-victories and progress reported to business stakeholders and employees can bestow confidence at all levels of the business.

Five Strategies for Positive MarginsFive Strategies for Positive Margins

What are five strategies that can lead to positive margins? This game plan for turnaround can help develop priorities.

• Examine your business expenses with specific emphasis on the five largest items. Too often both large and small businesses will focus on minor expenses and fail to zero in on the large ones that can turn a business around very quickly.

• Develop a strategy to focus on efficiency. Many owners attempt to grow their way to possible profits and cash flow, only to find it worsens problems because they were not efficient in the first place.

• Many businesses will increase compensation to owners for living expenses or dividends in good times. Yes, it is important to enjoy the fruits of your labor, but tough times require tough strategies at all levels of the business. Farm record data finds there is a difference of $50,000 to $80,000 between the high one-third and the low one-third of family living withdrawals from agriculture businesses. One of the biggest competitors for cash flow can be the business owners. Personal budgeting and priority management are very important and they require some introspective thought. While sometimes this can be painful, it is a necessary evil in a turnaround situation.

• Much of the success in business turnaround is dependent on the top half of the balance sheet related to financial liquidity and working capital. Put succinctly, it is the ability of the business to sell current assets without disrupting normal operations. What current assets can quickly be turned to cash, such as inventory, receivables or crops growing in the field? What is the timeline and does it align with the timing of expenses, debt obligations or repayment of operating lines of credit? Are there any excess reserves in working capital and how long will it take before projected losses or negative margins will burn through these reserves? These are major questions owners, managers and lenders need to examine.

• Speaking of lenders, successful turnaround usually requires outside resources such as your lender, financial consultant or accountant, who often become very useful in the “hunker down” approach. Often members of an outside advisory team play three roles. First, they act as teachers, examining various approaches and scenarios. Second, as a facilitator, attempting to put plans together and finally, as a coach, providing guidance, corrective action, motivation and discipline. In the side-by-side approach, the owners and managers strategize, then execute and monitor actions.

The “hunker down” business approach during adverse times can take a lemon and turn it to lemonade. As one owner recently stated, the negative margins and losses can be the cost of tuition in the real life school of economic hard knocks. Sometimes the goal is to minimize the tuition and position the business to be stronger and hit the ground running when the business economic climate turns positive.

Take Your Best Shot - Win $1002016 Photo Calendar ContestHelp us fill our 2016 Photo Calendar with agricultural

imagery that illustrates Northwest Farm Credit Services’

purpose: To serve the people of Northwest farming,

ranching, forestry and the commercial fishing industries.

If your photo submission appears in the 2016 Calendar you earn a $100 cash prize!

Thirteen photos will be selected.

Contest EntriesContest EntriesAll entries must include a Northwest FCS customer with their family or a customer with a staff member. Customers can be photographed eyes to camera or in a candid presentation. Photos should capture an authentic image of the operation that can be taken in an array of scenes:

• Planting, timber, irrigation, livestock or harvest scenes.

• Industry shots of vineyards, commercial fishing, dairy farms, orchards, vegetable operations, nurseries, greenhouses, etc.

• Action shots in fields, forests, barns or docks.

• Seasonal photos, such as holiday decorations, 4th of July events,pumpkins, winter scenes, etc.

• County fairs, roadside markets or farmers markets.

• 4-H or FFA events.

The RulesThe Rules

• Photo must be taken in Montana, Idaho, Oregon, Washingtonand Alaska.

• High-resolution images (at least 1MB) digitally submitted via northwestfcs.com/photocontest.

• Do not touch up or add filters to photos prior to submitting.

• No negatives, printed photos or links to web libraries.

• Photos should have horizontal orientation.

• Images become the property of Northwest Farm Credit Services. No images will be returned.

• Parties submitting photos certify that they have permission of all individuals shown in each photo and all individuals owning property shown in each photo.

Submit Your Winning Photo Today Submit Your Winning Photo Today The deadline for photos is September 30, 2015. Winners will be contacted in October 2015.

Submit your photos to: northwestfcs.com/photocontest


IDAHORobert Ball HamerJeff Bartschi MontpelierCody Bingham JeromeJeff Blanksma, Jr. HammettAdrian Boer JeromeRay Carlson BlackfootConnie Christensen BlackfootCade Crapo St. AnthonyRon Elkin BuhlCarl Ellsworth LeadoreBruce Foster AberdeenDavid Funk HansenLeRoy Funk BurleyBrent Griffin RupertJackie Hillman HamerBrian Huettig HazeltonJoshua Jones TroyBrent Lott Idaho FallsKaren Lustig CottonwoodMarty Lux NezperceDan Mader GeneseeRay Matsuura BlackfootKyle Meyer RathdrumRon Mio FruitlandGreg Moss KetchumLisa Patterson HeyburnGreg Payne CaldwellErick Peterson MoscowRoyce Schwenkfelder CambridgeKirt Schwieder Idaho FallsScott Searle ShelleyTodd Simmons TerretonRobert Swainston PrestonRyan Telford RichfieldBernie Teunissen CaldwellDale Thomas GoodingCamellia Thurgood NampaJustin Tindall BruneauRitchey Toevs AberdeenSteven Toone GraceJames Udy American FallsTodd Webb DecloShane Webster RexburgPete Wittman LapwaiMatt Wolff Boise

73 Fort Hall Avenue, Suite AAmerican Falls, Idaho 83211(208) 226-1340

370 North Meridian Street, Suite ABlackfoot, Idaho 83221(208) 782-3800

1408 Pomerelle Avenue, Suite BBurley, Idaho 83318(208) 678-6650

501 King StreetCottonwood, Idaho 83522(208) 962-2280

1215 Pier View Dr.Idaho Falls, Idaho 83402(208) 552-2300

2631 Nez Perce Drive, Suite 201Lewiston, Idaho 83501(208) 799-4800

16034 Equine DriveNampa, Idaho 83687(208) 468-1600

102 North State St., Suite 2Preston, Idaho 83263(208) 852-2145

1036 Erikson DriveRexburg, Idaho 83440(208) 656-2100

815 North College RoadTwin Falls, Idaho 83303(208) 732-1000

MONTANALes Arthun WilsallDavid Bell Great FallsBill Bergin MelstoneMark Bergstrom BradyAdam Billmayer HogelandBart Bitz Big SandyRyan Bogar VidaJonathan Bolstad HomesteadKeven Bradley Cut BankSandy Carey BoulderCalvin Danreuther LomaNels DeBruycker ChoteauVicki Eggebrecht MaltaWarren Flynn TownsendConni French MaltaJoe Fretheim ShelbyScott Glasscock AngelaBeth Granger Great FallsGreg Grove MoccasinChad Hansen DillonCraig Henke ChesterCourtney Herzog RapeljeDale Hirsch KinseyAlan Klempel BloomfieldSteve Lackman ForsythTim Lake PolsonBryan Mussard DillonCorie Mydland JolietKen Olson RicheyJon Owen GeraldineMiles Passmore SomersTracey Pearce SheridanRobert Peterson HobsonTrudi Peterson Judith GapShawn Rettig RudyardDave Sattoriva HinghamNancy Schlepp RinglingKim Skinner HallCarmie Steffes PlevnaSteve Swank ChinookKurt Swanson ValierDuane Talcott HammondDale Tarum RichlandBob Taylor DentonKelly Toavs Wolf PointMark Tombre SavageMiles Torske HardinBrian Tutvedt KalispellLarry Tveit, Jr. FairviewBruce Udelhoven WinifredMike Wallewein ConradSteve Wood Sheridan

Tech Plaza, Building 1, Suite 3003490 Gabel RoadBillings, Montana 59108(406) 651-1670

1001 West Oak StreetFarm Credit Building, Suite 200Bozeman, Montana 59715(406) 556-7300

519 South Main StreetConrad, Montana 59425(406) 278-4600

134 East Reeder StreetDillon, Montana 59725(406) 683-1200

501 1st Avenue SouthGlasgow, Montana 59230(406) 228-3900

700 River Drive SouthGreat Falls, Montana 59405(406) 268-2200

1705 US Highway 2 Northwest, Suite AHavre, Montana 59501(406) 265-7878

120 Wunderlin Street, Suite 6Lewistown, Montana 59457(406) 538-7737

502 South Haynes AvenueMiles City, Montana 59301(406) 233-3100

3021 Palmer Street, Suite BMissoula, Montana 59808(406) 532-4900

123 North Central AvenueSidney, Montana 59270(406) 433-3920

OREGONMonet Allen Montague, CAReed Anderson BrownsvilleRoben Arnoldus CoveGlenn Barrett BonanzaAlex Blosser DundeeJohn Boyer HainesGreg Brink JosephRon Brown Milton-FreewaterGeorge Bussmann SixesWarren Chamberlain ValeJason Chapman Klamath FallsTim Dahle The DallesDan Dawson RoseburgPaul Denfeld HillsboroMike DeWall HarrisburgSusan Doverspike BurnsRod Fessler MadrasTom Fessler Mt. AngelJoe Finegan CorneliusBruce Ford HermistonJavier Goirigolzarri RoseburgDennis Harmon Grants PassMatt Insko LaGrandeKenneth Jensen ValeKyle Kenagy RoseburgJeremy Kennel MonmouthAlan Keudell AumsvilleDiane Kunkel PortlandLeland Lage Hood RiverSharon Livingston Mt. VernonBill Martin RufusScott McClaran JosephRon Meyer TalentGreg Myers TillamookDavid Neal TangentLarry Parker HelixAlan Parks Silver LakeAmy Doerfler Phelan AumsvilleJohn Reerslev Junction CityStephen Roth BrothersShannon Rust EchoMarc Staunton MerrillAnna Sullivan HerefordSteve Walker StanfieldEric White Nyssa

3370 10th Street, Suite BBaker City, Oregon 97814(541) 524-2920

2345 Northwest Amberbrook Drive, Suite 100Beaverton, Oregon 97006(503) 844-7920

650 East Pine Street, Suite 106ACentral Point, Oregon 97502(541) 665-6100

2911 Tennyson Avenue, Suite 301Eugene, Oregon 97475(541) 685-6140

300 Klamath Avenue, Suite 200Klamath Falls, Oregon 97601(541) 850-7500

308 Southeast 10th StreetOntario, Oregon 97914(541) 823-2660

12 Southwest Nye AvenuePendleton, Oregon 97801(541) 278-3300

3113 South Highway 97, Suite 100Redmond, Oregon 97756(541) 504-3500

2222 Northwest Kline StreetRoseburg, Oregon 97471(541) 464-6700

650 Hawthorne Ave. S.E., Suite 210Salem, Oregon 97309(503) 373-3000

3591 Klindt Drive, Suite 110The Dalles, Oregon 97058(541) 298-3400

WASHINGTONDave Allan WapatoLoren Beale PomeroyJeff Bosma OutlookRuss Byerley TouchetRoger Canfield OlympiaBill Clark ChelanMike Cobb EphrataBill denHoed GrandviewRichard DeRuwe DaytonFrank DeVries LyndenScott Eschbach YakimaPatrick Escure QuincyKevin Filbrun PascoSteve Fish Sitka, AKStacy Gilmore PascoAlan Groff WenatcheeLori Hayles PascoIan Jefferds CoupevilleCris Kincaid PullmanJim Klaustermeyer, Jr. OthelloTristan Klesick StanwoodChris Kontos Walla WallaSteve Krupke ReardanDavid Lange ColfaxJosh Lawrence Royal CityPoppie Mantone BingenDan McKay AlmiraAlan Mesman Mt. VernonJohn Miller ToledoPat Murphy ChehalisBrian O’Leary Kodiak, AKEric Olson Anchorage, AKJeff Raap EllensburgSara Rolfs WenatcheeJason Salvo SeattleDerek Schafer RitzvilleJeff Schilter OlympiaDanielle Scrupps RitzvilleBen Smith SequimJerry Smith Benton CityJim Stone LakewoodLori Stonecipher Walla WallaMark Tudor GrandviewJake Wardenaar Royal CityAndy Werkhoven Monroe

265 East George Hopper RoadBurlington, Washington 98233(360) 707-2353

629 South Market BoulevardChehalis, Washington 98532(360) 767-1100

224 North Main StreetColfax, Washington 99111(509) 397-2840

1501 East Yonezawa BoulevardMoses Lake, Washington 98837(509) 764-2700

9530 Bedford StreetPasco, Washington 99301(509) 542-3720

2157 North Northlake Way, Suite 120 Seattle, Washington 98103(206) 691-2000

1515 South Technology Boulevard, Suite BSpokane, Washington 99224(509) 340-5600

2735 Allen RoadSunnyside, Washington 98944(509) 836-3080

1 West Pine StreetWalla Walla, Washington 99362(509) 525-2400

667 Grant Road, Suite 1East Wenatchee, Washington 98802(509) 665-2160

1360 North 16th AvenueYakima, Washington 98902(509) 225-3200

advisorsadvisors and locations HeadquartersP.O. Box 2515, 1700 S. Assembly St.Spokane, Washington 99220-2515509.340.5300 | northwestfcs.com

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P.O. Box 2515Spokane, Washington 99220-2515

New address?Please notify your local Northwest FCS office.

Northwest Farm Credit Services is a cooperative. When you become a customer you also become an owner.

You have a voice and a vote in how our association does business. Plus, when we do well we share profits with

you in the form of patronage. No bank does this. You borrow. You own. You earn. You grow. Learn more about the benefits of being a customer-owner.

northwestfcs.com | 800.743.2125

Northwest FCS financial specialist, Angela Caryl and customer, Dave Hubbard

This institution is an equal opportunity provider and employer.

northwest fcs yields - positioning in the downturn - spring 2015

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