- Home |
- About Us
It’s been another difficult year for row crop farmers. They continue to face market prices that strain revenue potential, tighten margins and make financial planning for the future a difficult task.
And, just like with Mother Nature, no farmer can control the markets. But, we can control a few variables that help preserve farm equity and make ends meet until the corn and soybean markets see a return to prosperous levels.
In the January 2019 edition of the Kansas City Federal Reserve Ag Finance Databook, economists indicated the volume of non-real estate lending rose for the seventh consecutive quarter. The increase in non-land financing was especially sharp in operating financing, in which lenders saw a double-digit increase. The numbers highlight the trend of increased borrowing among farmers, largely for operating expenses.
The good news is many farmers have maintained a strong enough financial position to manage the debt. The bad news is the number of farmers in that sustainable financial position is likely declining. All in all, however, there are reason to remain optimistic.
“Alongside persistently low agricultural commodity prices, bankers throughout the country expected farm income to decline in the coming months,” according to Federal Reserve Omaha Branch Executive and Vice President Nathan Kauffman in the latest KC Fed report. “Despite the ongoing weaknesses in farm income and agricultural credit conditions, however, delinquency rates on farm loans remained low and the performance of agricultural banks remained sound.”
If you’re running up against an increasingly stressful financial situation on your farm, there are variables you can control that help retain equity.
Perform a self exam
University of Illinois Extension Ag Economist Gary Schnitkey recently suggested in a university report* that farmers perform a self-examination of their balance sheet. Though he admits this activity alone will not move returns from the red to the black, it will open eyes to opportunities and trouble spots.
“Actively conserving cash from 2018 operations while cutting capital investments and other costs where possible seems prudent,” Schnitkey wrote. “Consider all possible options for lowering cash rents and moving to variable cash rents.”
Restructuring farm assets through refinancing or selling assets, like farm land, are common ways to free up cash to cover operating capital needs. That degree of change may be necessary to secure your operation’s financial future. However, if you’re not quite to that point, there are other ways to cover short-term financing needs for long-term viability.
Finding new ways to generate income is a good way to increase equity, be it through increasing gross income or keeping a lid on expenses, Schnitkey said. Are there new or different income streams you can create for your operation? Or, are there new ways to cut expenses in an effort to make your income go further?
Control living expenses
Sticking closely to a family budget is difficult for many farmers because income is often variable. “It is easy to get into the habit of spending what you make,” Schnitkey said. "If you follow this approach, you will never have money available for equity investment. Even if you increase income, you will simply spend more." Schnitkey recommends creating a “living budget” and being ready to make adjustments to keep income on the positive side and to avoid letting expenses mount into debt.
Grow equity off the farm
Many farm families depend on at least one off-farm job to provide health insurance and benefits that otherwise would carry a massive price tag. There are alternative ways to buoy overall farm equity, namely through investments. If you have considerable investments in a retirement account, stocks, property or other assets, returns on these investments can offset overall equity erosion.
“The returns from these investments can be invested in the farm business,” Schnitkey said. “In making this decision, the rates of return and level of risk of these investments need to be compared to those from investing in the farm business.”
What’s the best option – or set of options – for you and your operation? Stop by your nearest Bank Iowa location to visit with one of our agricultural loan officers to find out how you can best preserve and grow your farm’s equity, even when times are tight.
* Schnitkey, G. and K. Swanson. "2019 Crop Budgets Suggest Dismal Corn and Soybean Returns." farmdoc daily (8):173, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, September 18, 2018.
Corn and soybean farmers have experienced a rough few years, but the news is not all bad. And if you're still farming, you've already made some good decisions.
To be sure, there are plenty of headlines that chip away at a family farmer's confidence. Market prices at or below break-even are making it increasingly difficult just to find the capital to operate. But, for those farms backed by sound strategy, success in 2019 comes down to making a series of smart decisions at the right time.
Paul Mussman, president of AgWest Commodities in Holdredge, Nebraska, recently joined Bank Iowa leaders and a room full of farmers at the county fairgrounds in Clarinda, Iowa. Up for discussion was the current state of crop and livestock marketplaces for producers. Mussman talked through several key factors to watch in 2019 and offered advice on how to capitalize on a few bullish signals.
As he talked, Mussman pointed out that farmers who have made it through the downturn are already on a path to success.
"You've made some good decisions along the way."
While the liquidity of every farm operation depends on local conditions — both in the marketplace and from Mother Nature — there are a few macro-level factors that make us optimistic about 2019. That said, the timing and sustainability of decisions made throughout the crop year will be critical. Whether marketing a few bushels at a specific price or purchasing crop inputs to manage costs, each decision you make this year must be well-timed and feasible.
“You’ve made it through the last few years, so it’s a sign that you have made some good decisions along the way,” Mussman told attendees of the Clarinda event.
Mussman pulled the latest price data. His analysis showed that while grain and livestock markets remain at low levels, long-term trends give some hope. This is particularly true for producers who make good marketing decisions.
Corn is not trading at $6/bushel, but that doesn’t mean there aren’t revenue opportunities, Mussman said. The same is true for markets like soybean and cattle. Despite continued price pressure, there are occasional opportunities to earn decent returns.
Avoid "waiting and not selling."
In Mussman’s words, “2019 is ready for opportunity.” In order to take advantage of that opportunity, however, it’s important to be prepared. For example, if you trade grain on the futures market, you'll need a dual strategy in place (for both old- and new-crop grain). More importantly, you'll need to be committed to execute on that strategy. As Mussman said, “No one picks the top all the time. If you’re waiting on a drought, disease or trade issue, you’re just waiting and not selling.” Be ready to act when the time is right for your farm.
Of course, the "right time" is different for every farm. Producers have to consider both farm-level economics, as well as macro-level factors, like global crop weather, global trade and renewable fuels.
In 2019, Mussman said the following “market movers” are the main global factors for Iowa farmers to watch:
- South American crop output. What began as a whale of a crop in late 2018 took a turn for the worse early this year as producers began turning their focus to the Safrinha crop. And while crop output will be the dominant factor from South America, infrastructure development (namely the BR-163 highway in Brazil on which much of the nation’s soybeans travel), could become equally as significant.
- U.S. crop weather. In south Texas, farmers began to plant the 2019 corn crop in January. Many are watching to see if weather issues in the southern U.S. affect early crop development.
- Ethanol demand. Slumping crude oil has been bearish for the ethanol market, sending margins to well below profitable levels for most ethanol plants. Watch ethanol margins, advised Mussman. If they enter profitable territory, it could increase corn demand.
- Global trade. There’s little hope a resolution to the trade dispute with China will be reached anytime soon, Mussman noted. Negotiations will continue through the year, as more data on a slowing Chinese economy trickles in. Keep an eye on the soybean market; the ongoing stalemate could be the culprit of stronger demand.
"Marketing is a process, not an event."
It’s important to be attentive to both your specific marketing goals and the optimal times to act. “Marketing is a process, not an event,” Mussman told the crowd of farmers.
He encouraged farmers to utilize all resources at their disposal. Whether it’s assistance to price crop inputs or leveraging tools like call options to help secure specific price points in the grain market, farmers should rely on the experts in the field to help make sound marketing decisions. But while it’s important to be attentive to macro-level factors like those listed above, it’s just as important to be attentive to your farm’s own break-even prices, balance sheet and overall revenue potential.
Overall, attendees walked away from Mussman's presentation feeling more pride in their efforts and optimism about the future. We share in that pride and optimism at Bank Iowa.
We also recognize how important it is to have the right team in your corner. You’ve made it this far by making more than a few good decisions, and we are committed to seeing your success continue to grow. We’re bullish on your farm’s future, and look forward to working with you to ensure the long-term vitality of your operation.
Contact your nearest Bank Iowa location to find out how we can work together to realize your ambitions – our team is ready.
When I first learned of the prospects of opportunity zones in Iowa, my imagination went wild.
Opportunity zones are low-income census tracts identified by economic development leaders as distressed communities worthy of attention and investment.
I could think of 30+ clients who could benefit in a huge way from participating in the program. I spent that rest of that week on the phone making sure every single person I knew who was in position to leverage this program knew about it and was thinking expansively.
It’s not every day you get to save (and earn!) money by helping others.
More than 31 million people live in qualified opportunity zones across the U.S. In Iowa, 62 communities in 44 cities were selected to be opportunity zones.
Created to unleash capital otherwise locked in highly appreciated assets, opportunity zones provide investors higher after-tax rates of return. The idea, of course, is to incentivize more capital investments while reducing the cost of capital.
If you’re looking for ways to leverage tax incentives in 2019 while also helping revitalize Iowa’s deserving urban and rural communities, consider these three ways to get involved:
Buy or Develop Property
A direct investment in a tangible property within a qualified opportunity zone is one way to realize the tax benefits of the state’s program. Investors are allowed to operate within the Working Capital Safe Harbor, which allows as many as 30 months to acquire, construct or rehabilitate a business property, so long as a written plan is adopted and followed.
Combine with Other Tax Incentives
Opportunity zone benefits can be combined with other tax incentives, such as the low-income housing tax credit, historic tax credit or new markets tax credit.
Invest Capital Gains from Sale of Company Shares
Company owners about to deploy their succession plans are often concerned about the tax ramifications of associated capital gains. The Opportunity Zone Deferral program allows these individuals to re-invest realized capital gains into the communities that mean the most to them.
The result is temporary deferral of taxable income until the investment is disposed of or Dec. 31, 2026, whichever comes first. In addition, investors can receive a step-up in basis for the capital gains of up to 15 percent depending on how long the investment is held in the opportunity fund. Permanent exclusion from taxable income is granted to those who hold the investment for at least 10 years. According to the Economic Innovation Group, after 10 years, an investor would see an additional $44 for every $100 of capital gains reinvested into an opportunity zone compared to an equivalent investment in a more traditional stock portfolio.
Contributing to the long-term viability of Iowa cities and towns is a value shared by many of the state’s most successful individuals and corporations. As you meet with your CPA this tax season, ask how you might step up efforts in this area while also realizing tax benefits that can help you achieve your most pressing financial goals.
It’s important to fully understand the opportunity zone fund structure before making any moves to invest. Be sure to consult your financial team, which should include your banker, CPA and attorney, before taking your plan into action.
The financial outlook for the farm sector in 2019 isn’t exactly filled with sunshine and roses. The latest economic indicators from places like the U.S. Federal Reserve (here’s some of the latest. Here too) show the year to come will continue to face present economic pressures not seen since the farm crisis of the 1980s.
With the right financial management — and working with your trusted financial partners like your Bank Iowa ag lender — farmers in strong positions today will be able to survive the continued downturn. It’s as good of a time as any to rely on those partners and take steps to ensure your operation is in the best position, both in the short-term while prices remain down, and in the longer term when the rebound happens.
Farmers tend to “sharpen their pencils” more during bearish times like these than when profit margins are wide and revenues are strong. Doing so takes into account both farm-level and macroeconomic variables. While the former depends entirely on each individual operation, here are a few of the latter to watch in the next year for signs of a turnaround in the ag sector.
- Trade chatter. As we head into the new year, we have very little fact to go on as to whether headline-grabbing trade disputes — regardless of their severity — will ease or sharpen. A lot of farmers will be watching the issue closely, just as they’ll be watching their account for the “tariff bailout” deposits that the federal government says will offset revenue losses resulting from the trade fight (if they ever get to distributing the funds). Any headlines that foreshadows a positive resolution of the trade dispute could be bullish for the grain markets, but it may be short-lived. Capturing any rally in grain prices could be a matter of attentiveness.
- Grain stocks. After harvest this last fall, corn and soybeans were in abundant supply, so much so that there have been a lot of worries about the long-term viability of the stocks of the latter crop, especially with shipments abroad being sharply limited. Abundant supplies tend to keep a lid on grain prices over the winter and into early spring. Much will depend on whether that supply can be utilized at home or abroad, as well as how the ag news cycles and crop and market prognosticators see whether that’s happening. If a lot of that grain can be sold or utilized over the winter and the supply situation isn’t too out of whack from previous years, fundamentals say it could move the grain markets higher. But many say it will take a widespread, significant drawdown of grain stocks for higher prices to stick around.
- Widespread business restructuring. That’s a kinder, gentler way of saying “a lot of farmers are trying to avoid going broke.” This last fall was said to possibly have been the last straw for some farmers trying to retain enough capital to continue operations. Many will be able to restructure equity to free up the capital to continue operating, while others will face larger sell-offs to make ends meet. There could, as a result, be fewer farmers in the next year. Whether that trend continues in 2019 will be one sign of the overall ag economy’s health. If restructuring or liquidations continue, it will be a sign that the sector’s yet to begin its rebound.
- Farmland flooding the market. When times are tight, one way to free up capital is to restructure land ownership or adjust land bases. In other words, when it’s tough to pay the bills, selling land is one way to free up some money to do so. Late 2018 already saw an increase in the amount of land for sale in parts of the U.S., and a continuation of that trend will be a sign that tightening margins are causing increasing strain on some operations.
- Emphasis on iron, family budgets. For a few years now, the farm machinery market has been seen as a bellwether of overall farm performance. A decline in demand, or increase in inventory on machinery dealer lots around the country, will show farmers are tightening their financial belts and holding off on big-ticket purchases. Also, watch for any talk of “family living expenses” among ag economists. When that topic comes up, it’s essentially a lecture to farmers facing adverse market conditions: Stop buying new cars, remodeling houses and going on vacations so you don’t dwindle farm equity as much until prices can rebound. If these remain hot topics in 2019, it’s a sign that farm revenues have yet to rebound.
The news isn’t all bad. Tight times like these compel many farmers to “sharpen their pencils” and tighten up financial management. Taking steps to do so now will pay dividends later on when grain prices rebound and the farm sector is on more solid footing. It’s a matter of when, not if. It requires not just the patience, but the ability to manage through the downturn, creating new efficiencies and altering spending habits to ensure you’re in a good position when that day comes. It’s best handled as a team effort with your trusted financial advisors, including your Bank Iowa ag lender.
Best of luck in 2019, and may it be a prosperous one for you and your family! Thank you for being a part of the Bank Iowa family!
Bank Iowa is proud to sponsor the Bank Iowa Spirit of Chandy Scholarship, a program to honor Chandy Barr Clanton, our former Vice Chair, and to show our commitment to our communities and area youth.
Our 2019 application period is now open until March 5, 2019. Click here for the application form.
About Chandy Barr Clanton
Chandy was a successful businesswoman who served as Vice Chair on the Board of Directors for Bank Iowa Corporation; a competitive swimmer and triathlete; a talented pilot who could decorate the sky with her airplane; and, most of all, a beloved mother to her two sons, Harrison and Drew. She was a joy to be around and touched the lives of many. Her energy, pursuit of excellence and love of life were contagious.
Although taken at the young age of 36, Chandy died doing something she loved. On July 10, 2009, Chandy was piloting her Zivko Edge 540 aerobatic plane during a training flight near Tarkio, Missouri, when she crashed into a bean field.
Being the daughter of an aviator and an aviatrix, flying was in her blood. It was her father and Bank Iowa’s co-founder Harry Barr, who taught Chandy and her brother J.B. to fly. Chandy often appeared at events in Clarinda, Iowa, Harry’s hometown.
Chandy accomplished a great deal during her 13 years in aviation. Aerobatic flying was her passion. She was both a competition and airshow aerobatic pilot, her skill exemplified by her success as a three-time member of the United States Unlimited Aerobatic Team. Chandy was the youngest female pilot at the 2003 World Championships in Lakeland, Florida, and won the Programme Q flight at the 2007 World Championships in Granada, Spain. She was also the only woman named to the 2003 “Stars of Tomorrow” program. As an airshow pilot, Chandy performed before hundreds of thousands of spectators multiple years at EAA Air Venture in Oshkosh, Wisconsin.
Giving back to her community was another of Chandy’s passions. She was a mentor to future aviators, volunteered at her boys' school and church, and served as a missionary pilot for Mission Central, a mission supporting agency for the Lutheran Church, Missouri Synod. She was also a frequent guest speaker at churches and discussed her career and the impact her faith had on her success.
While a lot of time has passed since we lost Chandy in 2009, we are still saddened by the fact she was taken too soon, Bank Iowa welcomes the opportunity to give to others as we honor her memory with the Bank Iowa Spirit of Chandy Scholarship.
Over the next year, Mark Phillips, Manager of Cash Management at our West Des Moines office, will travel to different Iowa communities and learn about specific topics and issues. The goal is to help the group gain an insider’s perspective on the conditions and needs of our state.
Reliving his glory days
Back when he was an Iowa high school student, Mark was selected to participate in the Iowa State Fair Singers and Jazz band. He performed at more than 50 shows throughout the state of Iowa, wrapping up the tour at the Iowa State Fair. Mark admits he may be looking to relive his glory days just a bit through the Leadership Iowa class.
“The tour was a phenomenal experience, a terrific way to meet Iowans I wouldn’t have, and to see Iowa in a way I wouldn’t have,” said Mark. “I built friendships for a lifetime during that tour. So perhaps a little part of me is looking to create that experience. An opportunity to come together with another group of Iowa leaders and do something huge together? That’s just too good to pass up.”
Continuing a lifetime of volunteerism
Mark’s passion for community service is one that hit him at a young age. In the 7thgrade, he traveled with his youth group to Des Moines to help with dinner at the Door of Faith Mission. It was there that he experienced the power of humanity and learned that even a small gesture can have a big impact.
Fast-forward to today, and Mark continues to feel passionately about advancing total wellness for others and his community.
While he lived in Denver, Colorado, for a brief time, he followed a profound calling to serve the homeless and low-income families by volunteering at an agency called Denver’s Road Home and the Denver Asset Building Coalition. Once back in Iowa, that calling hadn’t weakened. Mark has served as a board member of Primary Health Care, a non-profit that works to provide medical and dental care to underserved individuals and families, as well as Central Iowa Shelter and Services.
Mark and his wife believe service to be contagious, which is why they regularly invite and encourage friends and family to participate in give-back opportunities.
Representing the bank and its people
Mark is in good company at Bank Iowa. Our employees devoted nearly 9,000 community service hours in 2017 and are on track to surpass that number this year. We are so proud to be represented by Mark during the 2018-2019 Leadership Iowa class. Each of our regional offices is made up of people passionate about becoming strong centers of influence in our communities, and truly believe each individual has the ability to make a meaningful impact on the lives of the people around them.
- Know the cancelation policies. No one wants to call off a long-awaited vacation, but we all know life happens and plans change. Review copies of the travel agency, hotel, resort and/or airline’s cancelation and refund policies before purchasing services.
- Check before you book. Opt for making reservations through a trusted travel website or travel app on your smartphone. It’s typically safer to go straight to the airline or hotel’s website directly when making purchases. Ask family and friends for recommendations, and look online to see what people are saying about their service and prices. Avoid agencies you have never worked with or that seem fishy.
- Pay by credit or debit card. This will make it easier to dispute charges and potentially get your money back if you don’t get what you paid for. Plus, when you’re on the road, lost or stolen cards are easier to “get back” than cash or checks.
- Let your bank know you are traveling. The bank will place a travel notice on your card so it does not get turned off by the fraud team when transactions are made in unfamiliar locations.
- Beware of travel scams. Broken taxi meters, spills on your clothes and fake WiFi are just a few of the tactics crooks deploy to take advantage of unwitting tourists. Before you leave on your trip, familiarize yourself and your family with common travel scams like the ones in this infographic.
For more travel safety tips, visit the Federal Trade Commission’s Travel Scams page.
- Accountant: Identifies the succession plan’s tax and financial implications.
- Attorney: Drafts the legal paperwork necessary to facilitate ownership transfer and succession.
- Insurance representative: Determines the right insurance products — such as life, disability and health insurance — and how they’ll factor into the overall succession plan.
- Lender: Provides the right financing options for both the continued operation of the farm and the transfer of assets from predecessor to successor.
- Financial planner: Provides guidance on meeting long-term financial goals and ensures the right financing is in place to enable a strong succession.
- Outside consultant: A farm consultant can serve as a third party to help resolve any family conflicts and keep the succession plan on track.
- Policy adviser: Someone like a USDA Farm Services Agency specialist can help ensure your succession plan follows all FSA payment limit eligibility rules and other regulations relevant to federal farm programs.
(Des Moines, Iowa – September 28, 2018) – The Des Moines Business Record 2018 “Best of Des Moines” list. On it is Jim Plagge, Bank Iowa CEO. Plagge was named Best CEO Runner Up by the awards competition, which is based entirely on community votes.
Under Plagge’s leadership, Bank Iowa’s lending efforts far exceeded the community bank’s goals. Gross loans reached an all-time high of $885 million at the end of 2017, an 11-percent increase over 2016.
“The Iowa Bankers Association congratulates Jim Plagge on this well-deserved recognition,” said Iowa Bankers Association President and CEO John Sorensen. “It is gratifying to see another Iowa banker recognized for their leadership, and the significant contributions they make to the communities they serve.”
Since taking the helm as president and CEO of Bank Iowa six years ago, Plagge has stressed the value of each team member across all 22 communities the bank serves. “It’s not the bank president our customers count on each and every day,” said Plagge. “It’s the tellers, loan officers and local leadership, among many others, who make a real impact in the lives and businesses of our customers and business partners.”
Community health is a high priority for Plagge. Under his leadership, Bank Iowa employees logged nearly 9,000 community service hours in 2017, the equivalent of almost five full-time bankers. The bank also donated more than $400,000 to charities, people and organizations across Iowa.
Plagge has more than 30 years of financial services experience and is a two-time CEO, having also led Northwestern Bank from 1992 through 2012. Over the span of his career, he has been involved in numerous charities, associations and civic groups, including various school and church committees and the local hospital and economic development foundations. Plagge graduated from ISU in 1982 with a bachelor’s degree in Ag Business. He also completed the Graduate School of Banking from the University of Wisconsin, Madison.
About Bank Iowa
With more than $1.3 billion in assets, Bank Iowa ranks as one of the leading independent ag banks and the second-largest family owned bank in the state. Farmers, families and businesses access Bank Iowa’s products and services through 25 locations in 22 communities, as well as online and on mobile devices. To learn more, visit bankiowa.bank. Member FDIC.
From photos to texts to online account access, there are plenty of reasons we don’t want our phones to end up in the wrong hands. But, it happens. Below are some tips for keeping your mobile devices safe should they become lost or stolen and vulnerable to fraudsters.
- Lock your phone and other devices. One of the easiest ways to protect your phone from unauthorized access is to lock it with something unique to you, such as a passcode, thumbprint or even your face.
- Keep your phone’s software and apps up to date. Software updates will frequently include patches for vulnerabilities that could be exploited by attackers. Don’t wait – the sooner the vulnerability is patched, the less time the hackers have to find it.
- Be wary of public WiFi. Because encryption and other security protocols are often lax or nonexistent on public WiFi networks, they could be ripe for attack by cybercriminals looking to steal sensitive information. To learn how to stay safe while using a public WiFi network, click here.
- Turn off WiFi and Bluetooth when you aren’t using them. When you have WiFi and Bluetooth enabled on your phone, they will constantly scan for networks and other devices to connect with. Minimizing your WiFi and Bluetooth usage minimizes your exposure to potential vulnerabilities (and, as an added bonus, saves battery power).
- Tell your bank when you change your phone number or lose your phone. This will ensure no one can use your device to obtain security codes.
“Sign up with any service online, and it will almost certainly require you to supply an email address,” writes Brian Krebs, an investigative reporter and brains behind the well-known KrebsOnSecurity blog. “In nearly all cases, the person who is in control of that address can reset the password of any associated services or accounts – merely by requesting a password reset email.”
It’s therefore extremely important that you protect your email from getting hacked. If your email does fall victim, it’s critical that you identify the hack quickly and take swift corrective action. Read on to find out how.
How to prevent a hack
Safeguard your email from being hacked by taking these steps:
- Use a strong, unique password.
- Set up two-factor authentication.
- Don’t click on links or open attachments in emails from people you don’t know.
- Download free software only from sites you know and trust.
- Always log-out of your account if you’re accessing on a public computer.
Signs of a hacked email
If you experience any of the following situations, there’s a good chance your email has been hacked:
- You are unable to log into your email account.
- Your family and friends are getting emails from you that you didn’t send.
- Your sent folder has messages you did not send.
- There are posts on your social media accounts that you didn’t make.
- Your email signature has links that were not there before.
You’ve been hacked. Now what?
Once you’ve identified that your email has been hacked, take the following actions to rectify the situation and prevent further damage:
- Change your email password.
- Update your computer’s security software and run a scan.
- Contact your email provider to inform them of the hack; they will be able to assist further with account recovery.
- Check your account settings for anything suspicious, such as unfamiliar links in your email signature.
- Let your friends know your email was hacked so they don’t take action on any of the malicious emails they may have received from you.
Positioning yourself to win in a rising rate environment can be fairly simple, and Q1 2019 is an excellent time to get started.
Here are 5 ideas to consider:
Get back to basics. Interest-bearing checking accounts may not have yielded much in recent past. That’s changing. Look at what your cash is earning today; can another financial institution offer you better returns?
Think short-term. Rates are predicted to continue rising. As you choose where to invest excess funds, make a specific plan for how you will monitor the return on those accounts frequently. Can you choose flexible, short-term products, like CDs or money market funds, which will allow you to take advantage of higher interest rates if and when they are established?
Think long-term. If you are anticipating a substantial capital expense, now may be the time to lock in a rate on financing. What’s ahead for your business or personal plan? Does it make sense to move just a bit more quickly to ensure the price you pay for financing remains in check?
Revisit your loan terms. When rates were at historical lows, many consumers and businesses took their lenders up on adjustable rate products. Does it make sense to migrate that loan to a fixed rate?
Mark K. Phillips is cash management services manager for Bank Iowa, Iowa’s second largest family-owned financial institution. He can be reached at firstname.lastname@example.org. To learn more, visit bankiowa.bank. Member FDIC.
Strength in Numbers… and Letters and Characters: How to Create Strong Passwords
The top two most popular passwords – “123456” and “password” – retained their positions on the list for the fourth consecutive year. SplashData estimates about 10 percent of people have used at least one of the 25 worst passwords on the list, and nearly 3 percent of people have used “123456.”
Review the following tips to learn how to create strong passwords and protect your accounts.
- Make your passwords complex. It goes without saying, but avoid any of the 25 worst passwords. Other weak passwords include your name or your friends’ and family members’ names, words in the dictionary, your username and keyboard pattern swipes (“qwerty” was fourth most popular password in 2017). Experts suggest creating passphrases of 12 characters or more with a mix of characters, including upper- and lower-case letters, numbers and symbols.
- Be random. Avoid using easily obtained information like your birthday, Social Security number or phone number. As a general rule, the easier a password is to remember, the easier it is to crack.
- Don’t use the same password for multiple sites. SecurityCoverage reports 73 percent of consumers use the same password across multiple sites, and 33 percent use the same password across everysite. Also, the average user visits 25 password-protected sites but uses only six passwords. There’s a big problem with this practice: If a hacker gets one password, he or she will be able to access multiple accounts.
For more password information and tips, check out this infographic.
Keep the following things in mind to avoid getting scammed:
- Government entities and banks rarely call you, and they never ask for information they already have access to, such as Social Security numbers and routing or account numbers. They will typically send a letter by first-class or certified mail if they need something from you.
- If it sounds too good to be true, it probably is. This rule applies to phone calls, emails, pop-up ads and social media messages.
- Never send money to someone you don’t know. Scammers will sometimes hide behind online dating profiles – hoping to trick someone looking for love into giving them money.
Identifying banking scams
Banking scams involve attempts to access your bank account. USA.gov provides the following information on popular banking scams:
- Overpayment scams – A scam artist sends you a counterfeit check and asks you to deposit it in your bank account and wire a portion of the money back.
- Unsolicited check fraud – A scammer sends you a check for no reason. If you cash it, you may be authorizing the purchase of items or signing up for a loan you didn’t ask for.
- Automatic withdrawals – A company sets up an automatic debit from your bank account, as part of a free trial or to collect lottery winnings.
- Phishing – You receive an email message that asks you to verify your bank account or debit card number.
Preventing banking scams
- Be suspicious if you are told to wire a portion of funds from a check back to a company.
- Be wary of lotteries or free trials that ask for your bank account number.
- Verify the authenticity of a cashier’s check with the bank that it is drawn on before depositing it.
- When verifying a check or the issuer, use contact information on the bank’s website.
- Be fooled by the appearance of checks or money orders. Scammers can make them look official.
- Deposit checks or money orders from strangers or companies you don’t have a relationship with.
- Wire money to people or companies you don’t know.
- Give your bank account number to someone who calls you, even for verification purposes.
- Click on links in email to verify your bank account.
Staying up to date
To know the latest scams, sign up for free email alerts at the FTC’s Scam Alerts webpage.
The correct answer is B. If you get a call, pop-up, email or any other urgent message about a virus on your computer, do not follow along. Reputable software companies will not call you or display pop-ups asking you to call a toll-free number about viruses or security issues. If you do, the person on the other line isn’t there to help you – he or she is there to steal your information or money.
Follow these tips to avoid falling victim to a tech support scam:
- If you get a direct call from Microsoft, Apple or anyone else claiming to be tech support, hang up right away. Reputable software companies will never call you.
- If you receive a pop-up asking you to call in for tech support, ignore it. Your computer’s security software will also routinely send you pop-up messages; however, they will not be displayed within your computer’s Internet browser. Your computer’s security software will never ask you to call a phone number.
- Never share your private information with someone online or over the phone, and never allow someone to have control over your computer.
- If you paid for or gave your financial information to someone, contact your bank or credit card company right away. They can assist in returning any money, replacing compromised card or account numbers and pursuing financial investigations.
- If you shared a password with someone, change it right away – on every account that uses that password. (See tips on creating strong passwords.)
- Clean your computer. Update your computer’s security software and run a scan. Be sure to delete anything the software indicates as a problem. You may also take your computer to a professional to be reviewed as well.
You can also report the scam to the Federal Trade Commission (FTC) using the FTC Complaint Assistant. For more information, visit the FTC’s website, and watch this video.
At best, cybercrime is a big inconvenience. At worst, it can have major financial impact or even threaten a victim’s personal safety.
The U.S. Department of Homeland Security has named October National Cyber Security Awareness Month. Since 2004, the annual campaign has been educating consumers about safe connected device practices to reduce the impact of cybercrime.
In honor of National Cyber Security Awareness Month, take note of the following tips for staying safe online.
- Enable a Firewall. A firewall is a security device that monitors Internet traffic and determines whether or not to block certain sites based on predetermined rules.
- Keep a clean machine. Keeping the operating system and software on your computer and mobile device up to date will prevent attackers from taking advantage of known vulnerabilities. Antispyware and antivirus software protects against malicious hackers. Allow the software to automatically perform updates and scans of your devices, and be sure to renew the software if it is subscription based.
- When in doubt, throw it out. Stop and think before you open attachments or click links. Links in emails, instant messages and online posts are often the way cybercriminals compromise your computer. If it looks at all suspicious, it’s best to delete it.
- Use stronger authentication. Enable multifactor authentication when available, especially for accounts with sensitive information such as your email or bank accounts. Visit lockdownyourlogin.com for more information on stronger authentication.
- Avoid websites that are not secured. You will be able to tell if a website uses safe programming if the website address begins with https://. Never give personal information on websites that use http://.
This October, enjoy fewer cybercrime tricks (and more treats) by following safe connected device practices. To learn more, visit the U.S. Department of Homeland Security’s Stop. Think. Connect. website.
What is card cracking?
Often perpetrated through social media, card cracking occurs when a fraudster convinces a consumer to divulge his or her bank information. The fraudster may promise a lucrative return on the victim’s investment, a prize of some sort or just plain big, easy money. The victim is told there is just one stipulation: They must hand over their debit card information, including a PIN.
Aside from being a terrible idea, it’s often against the debit card’s terms of service.
How does it work?
After debit card information is shared, the fraudster writes bad checks and deposits them through an ATM into the victim’s checking account. Almost immediately, the fraudster withdraws the value of the bad checks – or sometimes even the full account balance – from another ATM.
What are the consequences?
When a victim notices the money is gone, he or she will most likely report fraud on the account. The minute the financial institution replaces the money, the “victim” becomes an accomplice. Typically, a financial institution will not consider withdraws fraud if they are made by an individual who was given account information willingly by the account owner. In their eyes, and according to their terms of service, the money was not actually stolen.
The victim, therefore, becomes responsible for the funds that have been withdrawn – possibly in addition to bounced check fees.
How do you protect yourself against card cracking?
- Keep it personal: Never-ever share account information with anyone. Remember, a Bank Iowa representative will never ask for your PIN.
- Use common sense: The age-old adage bears repeating: If it sounds too good to be true, it probably is. Do not respond to calls or Internet ads that promise quick, easy money.
- Stay in good conscience: Understand that making false claims with a bank is illegal activity and can result in penalties.
- Communicate to others: Students, seniors, newly enlisted military and young adults are some of the most susceptible to card cracking. If you are sending a child off to college, the military or a first job, explain why they should never share card numbers and PINs.
For more information on card cracking, check out this infographic from the American Bankers Association.
But, how much do we really want taken care of for us? Aren’t there some things we really don’t want to forget or to automate?
What about managing money... how much of that do we want to hand over to the supercomputers, algorithms and artificial intelligence (AI) bots?
Let’s take a look at the pros and cons of three banking technologies in particular. Then, you decide: How much tech can your money take?
To win favor with a generation of customers who experienced their first Facetime the day they were born, banks have begun engaging with them via video. Rather than staff multiple branch locations, financial institutions are experimenting with the idea of keeping all their human resources in one physical location. Customers around the city, state or region can still interact with their bankers face-to-face, but they have to do it via streaming video.
It may be a good idea in theory, but what about in practice? According to one survey, 88 percent of customers who used video tellers were satisfied. Sounds good, right? But consider how that compares to the percentage who were satisfied their bank branch experience overall – 93 percent.
A group that studied the satisfaction gap concluded it had something to with perceived wait times. But, do we think maybe people just miss the humanity and the confidence that comes from interacting with people face-to-face… without a screen in between?
To be sure, human-to-human banking is not dead. In fact, we may be experiencing a bit of resurgence. The roll out of banking “cafés” that offer free money coaching is perhaps evidence of that.
One of the more prevalent use cases for AI in banking, robo advisors first came on the scene a few years back. Since then, they are becoming quite prevalent. So much so that popular consumer financial sites have begun ranking their top picks.
The upside to the innovation is that an entirely new segment of consumers can now afford financial advice because robo advisors do not have the same asset minimums often required by human financial investment advisors.
The most pressing downside may be the lack of history. Simply put, advice from computer algorithms has not yet proven to be successful. No doubt, there are individuals and companies with complex financial situations not well suited to automated guidance. Time will tell, of course. The question now, are your investments strong enough to withstand the guinea pig treatment?
New FICO Score Models
Coming early next year, FICO will allow borrowers to ask lenders to look at an entirely different score to assess their creditworthiness. Called the UltraFICO score, the number will be based on a big data analytics model pulling intelligence on behaviors not traditionally calculated by FICO. So, this would be looking at things like checking account balances and utility payment histories.
For some consumers, the UltraFICO Score is expected to be as many as 20 points higher than the traditional score. While 20 points isn’t necessarily a significant jump, it could move a particular borrower into a different pricing or credit line segment.
A lot remains unknown about the UltraFICO. For instance, we’re not sure yet exactly how consumers will ask lenders to consider it; and we don’t know if or how the score may be applied to loans already in place. Could an existing credit cardholder, for example, request a credit line increase based on his or her new UltraFICO score?
The other thing to consider here is that UltraFICO ultimately means more consumer data flowing through a system already under constant assault from cyber criminals. How might more payment, financial and behaviorial data exposure increase the risk of identity theft and other big data threats?
Technology in banking is one genie who is definitely not going back into his bottle. How much we pay attention to that genie and what he advises is the real question. While automation, hyper-personalization and increased access all bring with them great pros, it’s the wide swath of cons we haven’t yet considered that I’ll be watching for in 2019.
In my line of work, blind spots have major repercussions; yet, they are not uncommon. That’s because managing wealth is a complex, and often emotional, endeavor. Beyond those foundational challenges, there are new-age threats from some pretty scary places. I’m talking, of course, about cyberattacks, phishing scams and network compromises.
Each of these dangers has made managing and holding on to wealth something of a cat-and-mouse game. Constant pursuit, near captures and repeated escapes are constants for today’s business owners and high net worth individuals.
And, things are not getting easier.
With the help of crimeware-as-a-service, not to mention advanced technologies like artificial intelligence and machine learning, hackers have automated their crimes. They simply set their parameters and let the robots scan the connected world for open doors. When they find one, they walk right in.
That’s why the idea of deploying a bug bounty is so appealing to me. Bug bounty programs are crowdsourced initiatives that offer rewards to white hat, or ethical, hackers. Unlike their black hat counterparts, white hats hack for good. When participating in a bug bounty program, they use all the tricks of the hacking trade to discover – and report – weak points (or bugs) in a business’s cybersecurity protections.
The strategy got its start in 1983 when Hunter & Ready, Inc., a software developer in Palo Alto, offered a VW Bug in exchange for the discovery of vulnerabilities in its operating system. “Get a bug if you find a bug,” the firm promised.
Since that time, bug bounty programs have become an effective way to deputize white hats in the fight against their black hat counterparts. With the average cost of cybercrime estimated at $1.3 million per enterprise, there’s excellent potential for some pretty hefty ROI on an investment in bug bounties. And, of course, when you consider the reputational damage that typically accompanies a compromise, the strategy begins to look even more appealing.
Consider these facts from the 2018 Hacker-Powered Security Report:
· Since Google began its bug bounty program in 2010, it’s paid out nearly $12 million to white hat hackers.
· The U.S. Department of Defense has received more than 5,000 reports since the launch of its program.
· Goldman Sachs, Toyota and American Express all launched vulnerability disclosure policies, a pre-cursor to bug bounty programs, in 2018.
· Top-earning white-hat hackers across the globe make almost three times the median salary of software engineers in their countries.
· 50 percent of white hat hackers studied computer science at an undergraduate or graduate level.
It’s important to point out businesses don’t have to architect these programs alone. Many IT and security firms offer bug bounty services and manage the program from start to finish on behalf of their clients.
In today’s high (cyber) crime environment, hanging on to wealth is harder than ever before. Beating crooks at their own game requires ingenuity and a little bit of risk-taking, and white hat “outsiders” can be a great resource. Yet, they continue to be overlooked. Reportedly, 93 percent of the Forbes Global 2000 do not have a policy to receive, respond or resolve critical bug reports submitted by the outside world. If they did, more white hats may make them aware of the vulnerabilities in their systems. One in 4 hackers say they did not report something they discovered simply because the company didn’t have an established channel for doing so.
If a bug bounty program feels like a good fit for your cybersecurity strategy, sit down with your team and walk through a few early-stage questions, like...
Reporting channels:If an outsider wanted to inform you of a bug they discovered, would it be easy for them to do so?
Budget:What size of reward is likely to motivate white hats to probe your network? How does that fit within your overall cybersecurity budget?
Insurance:How might a bug bounty program change or otherwise impact your cybersecurity insurance policy? Do you have a cybersecurity insurance policy?
While bug bounty programs are relatively new, they are becoming something of a worth-it strategy, particularly when integrated into a robust, comprehensive cybersecurity program. Think of them as that “little something extra” that keeps hackers and their robots from spying an otherwise open door.
Some will maintain the status quo, choosing to repeat successful community outreach programs of the past. Others will challenge themselves to give to a new cause or endeavor.
It’s not uncommon for people in the second group to struggle with a few unknowns. Yet, that’s no reason to give up on the pursuit. Below are three common fears that creep up when we feel a calling to help in new ways, and a few ways to work through those natural reservations.
When we first begin researching a specific need, it can become pretty overwhelming pretty quickly. That’s because there’s an incredible amount of need in our communities, and the resources to address it are stretched thin.
Don’t be discouraged if you sense the time, talent or treasure you’re able to contribute isn’t enough. The old adage “Every little bit helps” is old for a reason – it’s true. Consider developing a stair-step approach in which you start out small and increase your giving over time. You might also talk with others in your network – colleagues, friends, strategic partners, vendors – to see if they are willing to match your contribution.
Even when you feel compelled to help, there may be a part of you that’s nervous. It can be intimidating to volunteer in new spaces or places. There are several ways to prioritize personal safety while answering that calling to help.
One is to connect with an organization familiar with the areas you want to go and the people you want to serve. Ask questions and insist on training. Experienced practitioners will be able to guide you through the things you need to know to be as safe as possible while serving. Another is to understand your qualifications. Talk with a knowledgeable person to get a full appreciation for the ins and outs of volunteering and be honest about whether or not it’s a good match for your skill set.
Getting it Right
People are often afraid of making mistakes – in giving and beyond. They worry about giving the wrong thing or the wrong amount, causing someone to feel bad or making an error in judgement. The simplest way to get around this fear is to ask. But, that’s not always possible, nor does it always feel appropriate.
Do your research. Talk to the people that have volunteered or contributed before you. Ask what they learned.
Second, practice. The more time you spend with an organization, cause, charity or set of people, the more aware you become and the more proactive you can be. That’s when giving really gets good – when you start to identify the need before it becomes acute.
Lastly, trust your gut. Something has alerted you to this particular need, so listen to that instinct. You may mess up, but that’s okay – mistakes are proof you’re trying. Learn from the misstep, apologize if necessary and prove you are there to get it right. You will.
Hostage crimes have gone digital. A well-known form of malware, ransomware is a cybercrime in which the perpetrator holds a computer’s data for ransom via encryption. If the data owner doesn’t pay the cybercriminal a certain amount of money within a certain amount of time, his or her data will be lost forever.
According to a recent global cybersecurity report, ransomware is the fastest growing cybercrime, with more than 6,000 online criminal marketplaces and ransomware-as-a-service gaining in popularity.
The good news is there are ways to prevent falling victim to ransomware. Here are three of the most critical:
- Keep your operating system and security software up to date. New ransomware variants appear on a regular basis to take advantage of newly discovered security vulnerabilities. Software updates will frequently include patches for vulnerabilities that could be exploited by ransomware attackers. Don’t wait – the sooner the vulnerability is patched, the less time the hackers have to exploit it.
- Think before you click.According to the Federal Trade Commission (FTC), 91 percent of ransomware attacks are downloaded through phishing emails. You also can get ransomware by visiting a compromised website, clicking a malicious online ad or downloading an infected app. For tips on avoiding falling victim to a phishing scam, read our most recent blog post.
- Back up important data.Attackers gain leverage over their victims by encrypting valuable files and rendering them inaccessible. Victims who have backup copies can restore their files once the infection has been cleaned up. From tax forms to family photos, make it part of your routine to regularly back up files stored on your computers and mobile devices. When you’re done, unplug external hard drives so hackers can’t encrypt and lock your back-ups, too.
What if my computer is infected with ransomware?
- Disconnect all devices from the Internet to prevent spreading the ransomware.
- Contact law enforcement at the Internet Crime Complaint Center. Be sure to share any contact or identifying information of the criminal, such as their email address.
- Restore your device(s). Ensure your device is cleaned by a professional service.
For more tips on protection your computer from malware like ransomware, watch this FTC video.
- What do I want from the succession?
- Are my expectations realistic?
- How do my expectations mesh with others?
- What do I want to happen to the farm?
- Am I willing to compromise to make that happen?
- Acknowledge common goals. Every succession plan has the same ultimate goal. Yet, in the throes of serious discussion about family business issues, that goal can get lost. Reminding everyone of their collective hopes for the same positive outcome may help the process move forward when it gets stuck.
- Remove emotion from the discussion. Anytime family is involved in a farm succession plan, it can ignite hot tempers, dredge up latent resentments and create conflict fatal to the planning process. Start with an open acknowledgement that emotion has no place in the planning process. This enables all parties to address important issues with a cool head. If you feel negative emotions welling up, take a step back, a deep breath and think back to that common goal.
- Be honest. Yes, this can sometimes cause more conflict than cooperation, but it’s important to be completely forthright in guiding a farm’s future through the succession process. Failing to enumerate specific goals and needs will leave you unfulfilled. It may also lead to a situation in which it’s difficult to remove emotion from the process.
- Be flexible. Mick Jagger was right: You can’t always get what you want. That doesn’t mean you’re necessarily “losing.” It’s just as important to adjust so every party gets a version of what he or she proposes. Enter the conversation willing to be flexible so everyone walks away satisfied.
- Put yourself in their shoes. It can be difficult to understand the needs of other parties involved in a farm succession process. Take a moment to consider what others think and feel going into the planning process. Putting yourself in the other generation’s shoes can help you reach identify with shared goals more quickly and easily.
- End the conversation with a handshake or an equivalent gesture. It’s important to always keep the tone positive and progressive. There may be bickering and arguing, but as long as you come way from the process amicably, your farm and family will be better equipped to succeed.
When I read the Fleetwood story, it got me thinking about the multitude of ways companies fail to truly know their customers. And I don’t mean that in a regulatory, “KYC” way, although that’s obviously very important in my line of work. I’m talking about having a close relationship with the people who trust us, whether that’s with their health, their money, their education or their family vacation.
Everybody wants to feel like an individual – to be seen and heard and acknowledged for their uniqueness. Brands that recognize and execute on this are the ones that will with love and loyalty for the long term.
So, how can we go over and above to understand what each of customers really need? What technologies and practices can we adopt that will enable us to look around the corner for them, preventing issues or creating opportunities before they even ask? In our environment, it’s essential that we nail this; it’s what separates a community bank from any one of seven megabanks down the street.
To be sure, there are brands killing it in the game of hyper-personalization. Most of them are digital companies. But, there is no reason legacy firms and incumbent businesses cannot also achieve the same competency.
It begins and ends with listening.
Young, agile companies listen to their customers extremely well. Highly valuable feedback loops drive their businesses forward. Cultures that empower employees to create big “wows” generate consistently wonderful experiences, both inside and outside the organization.
If you run a business, or lead a team within one, you’ve probably asked yourself some of the same questions I have, especially if you work for an incumbent group in a market experiencing the disruption of digital competitors. How can we get closer to customers to really know what they need?
Here are three ways to listen well for customer wows.
Social listening. This is not social media listening. While there is great value in the two-way communication allowed by Facebook, LinkedIn, Instagram and others, I’m talking about good-old fashion, real-world socialization. Make it a point to get to know your customers on a human level. Visit their offices and pay attention to their space. What do the pictures on the desk, pendants on the walls and candy in the dishes tell you about who they are? Find ways to connect on a personal level.
Deep listening. This happens when companies avoid the temptation to discount an issue because they believe it to be silly or isolated. Deep listening practitioners let go of judgement and learn as the customer’s story evolves. This allows you to take a truly consultative approach based on the individual, not on what has worked for others who happen to share similar traits.
Opportunity listening. Digital brand Buffer refers to its customer service department as the Happiness Team. Employees are not only trained how to solve problems, they are empowered to “wow” customers by going above and beyond. They listen beyond the issue du jour; instead, searching for opportunities to impress. This is sometimes referred to as “active listening,” and it allows both parties to come away feeling like they added real value to one another’s lives.
Knowing your customer’s name – common or not – simply isn’t enough in today’s competitive and connected world. Expectations for personalized experiences are cranked to 11. Now’s the time to put those ears in gear, respond to what you hear and prove your customer’s success is your success.
So, who are the people you need around the table? Identifying them by name comes later. Let’s start by pinpointing their areas of expertise.
Keep in mind every sale is different and may require unique or specialized expertise. From a generational hand-over to a strategic buy from a competitor, there are literally hundreds of forms a sale can take. That said, these eight experts are foundational to a successful transition and should be involved whenever possible.
You will notice each of the below is capable of contributing not only during the planning phase, but also during and after the actual sale of your business. This is really critical, as you want the people or firms you’ve involved to transition easily from plan to execution. The last thing you want during hand-over time is the added challenge of recruiting a whole new team.
CPA: This team member’s job is tax planning for both the buyer and the seller of the business. He or she can also set future tax strategy to grow the company into the future.
Law Firm: Your attorney will draw up the necessary documents for the transaction and the new ownership structure. They will also help manage the development of future documents for ownership and planning. If you are buying with a partner or partners, a buy-sell agreement should be considered.
Insurance Partner: Special coverage, such as key man insurance (or life insurance on the key person in a business), may become necessary during your transition. This individual will be responsible for both researching and outlining those needs based on what the other parties around the table require. He or she must also take charge of understanding how past coverage may need to evolve going forward.
Investment Firm: This group will not only help the seller put a solid plan in place for the proceeds of the transaction, they will also help the buyer understand the ramifications of different investment opportunities ahead.
Estate Planner: This will be an important perspective to have in the mix for family-based transactions. This individual or firm will help family members determine their collective goals and then execute – for generations to come.
Commercial Banker: Even if the buyer purchases the business with owner financing (sometimes called a carryback note), rather than bank financing, it will still be crucial for the new owner to establish a solid banking relationship from Day 1 (sooner, actually.)
Cash Management Consultant: Now may be a good time for new ownership to implement services that increase efficiencies and address risk. A cash management consultant can advise which services stand the best chance of increasing margins and paying down loans quicker. For example, moving payroll and vendor payments away from checks to ACH (Automated Clearing House) creates efficiencies for the business while getting money to employees and vendors faster allows a client to become more efficient when disbursing money and employees and vendors to receive payment in a timely manner.
Branding/Marketing: This is not a competency every business thinks through as it transitions, but it can be incredibly important to ensuring your business’s reputation remains intact and is well-positioned for the change that will inevitably accompany new ownership. This person or team will be very important to have at the strategy table from the outset so they can guide branding and communications efforts as your stakeholders learn what’s ahead.
Choosing the people who will fill each of these slots should not be rushed. While some of your existing relationships, including your internal people, may fit nicely, others may not have the right mix of expertise and experience to usher you through a transaction as delicate as a change in ownership. One method you may consider is tasking your most trusted partners with rounding out the team. After all, each of these people / firms will need to work together closely, so they may be the best judge of who should fill any open spots.
Mark K. Phillips is cash management services manager for Bank Iowa, Iowa’s second largest family-owned financial institution. He can be reached at email@example.com. To learn more, visit www.bankiowa.bank. Member FDIC.
Maintaining well-designed and frequently updated input budgets are important to the sustained success of any crop operation. As such, managing these budgets has become something of a year-round endeavor for farmers. It also poses an opportunity for taking full advantage of trusted banking relationships.
Managing crop inputs to minimize risk generally begins by establishing a good understanding of production costs and marketing strategies. With this basic foundation, you have a clear view into the investment you made while raising your crop, as well as the return that investment is likely to generate.
One of the trickier parts of establishing an input budget is getting a handle on variable costs. Seed, fertilizer and chemicals are three such expenses. Below are some thoughts you may consider as you and your banker work together to calculate expected costs.
Costs will likely be slightly higher throughout 2018, but Schnitkey expects them to remain at similar levels for the 2019 crop year. Fertilizer is a volatile industry, however, so local market conditions could create fluctuations farmers will want to plan for when preparing 2019 input budgets.
One variable to watch when gauging seed costs is both U.S. and world acreage projections. Heading into 2018, for example, U.S. acres were projected lower, but world numbers were relatively unchanged. Since seed costs tend to follow planted acreage fairly closely, slightly lower projected acreage likely means slightly lower to steady seed costs through the coming year.
One major factor impacting pesticide costs is herbicide resistance. In certain areas of the country, farmers will be pressured to explore alternative chemistry and different products to control weeds. If you’re in an area where there’s a lot of herbicide resistance, expect higher pesticide costs.
We can help!
Bank Iowa ag lenders work with Iowa farmers to develop comprehensive historical pictures of their farms' financial performance, as well as identify and monitor key performance indicators for their operations. By examining variable cost trends like those above and staying close to the farmers who are working hard to improve their operations, our lenders help hundreds of farm businesses across the state cut costs and improve financial performance each year. And they can do the same for you. Contact your nearest Bank Iowa ag lender today.
* Schnitkey, G. "Historic Fertilizer, Seed, and Chemical Costs with 2019 Projections." farmdoc daily (8):102, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, June 5, 2018.
By: Jim Plagge, President & CEO, Bank Iowa
This is where debt restructuring can help.
That’s the primary benefit of this strategy. But, it has drawbacks.
So, what should I do?
How to spotting a phishing scam
- If the offer is too good to be true, it probably is.
- Beware of offers or requests that instruct you to act immediately.
- Pause before clicking hyperlinks. Hovering over a link shows you the actual URL where you will be directed when you click; if it’s an unusual or misspelled website, don’t click.
- Never open attachments in an email you weren’t expecting or if it seems at all suspicious.
- If the message is from someone you don’t recognize, it’s better to ignore it.
- If the message is from someone you recognize, but something feels off (maybe they are requesting a wire transfer), double check by giving your contact a call.
How to preventing falling victim
- When in doubt, call. If an email, text or call you receive from a bank or other institution you do business with seems suspicious in any way, call using a phone number you know is legitimate. Remember, reputable businesses will never ask you disclose information they already know.
- Keep your security software up to date. Security patches for devices, browsers and other software are released regularly in response to vulnerabilities that hackers will inevitably discover and exploit. The minute an update is available, download and install it. Also install and periodically update firewalls and antivirus software.
- Use a secure access code. Secure access codes, like the one provided by Bank Iowa to protect our customers from hackers, are recommended by the Federal Trade Commission (FTC). To require a secure access code each time someone attempts to access your online banking, clear your cookies from your Internet browser. This will prompt the secure access code upon login. Next, click "Do Not Register Device" to ensure you will need a code the next time you log in.
How to report phishing attempts
- Forward phishing emails to firstname.lastname@example.org.
- File a scam/phishing complaint with the FTC at ftc.gov/complaint.
- Visit identitytheft.gov. Victims of phishing could become victims of identity theft; there are steps you can take to minimize your risk.
- You can also report phishing to the Anti-Phishing Working Group at email@example.com. This group of Internet service providers, security companies, financial institutions and law enforcement agencies use reports to fight phishing.
There isn’t a soul on earth, nor in business, who relishes the idea of moving financial institutions. But perhaps it’s time for that to change. That’s because many of the pain points people conjure up when entertaining a switch have been resolved.
So, you’re looking for one good reason to make a move? Here are three.
- On Your Terms – Introductory rates are, by their very nature, fleeting and not a good enough reason to leave your current banking relationship. Many banks, however, are reimagining incentives for new customers and are offering longer-term benefits that can make a move very much worth your while. Consider paying less attention to promotions du jour and more to things like the promise of customized service, evidence of active listening and bankers with proven histories of placing clients in products that truly meet their unique needs.
- Fresh Set of Eyes – My friend recently came to me for advice. He was unhappy in his job for a long time and needed help finding something else. I told him not to run from his job, but to run to a better opportunity. The same is true in banking as many who leave their financial partner do so because they are unhappy. But what if you ran to the new opportunity a new bank could provide you? Partnering with a new financial institution puts your financial wellness in the hands of new people, and potentially expands your financial network. The fresh perspectives, innovative ideas, and frankly, the drive to prove you made the right move can accelerate the achievement of your financial goals dramatically.
- Not Your Grandfather’s Switch Kit – For many moons, financial institutions have been bragging up the value of their switch kits, services that claim to make moving accounts from one institution to another easy as pie. Sadly, those kits rarely live up to the hype. Thanks to the advent of new technology, however, today’s switch kits have been digitally transformed. They are anticipatory; they are custom; and many have been tailored to specifically serve the needs of business customers. Plus, they are often geared toward seamlessly integrating all of your financial accounts and services so that the most tedious of your financial tasks become easier, simpler – or disappear entirely.
Aside from the time and diligence a switch takes, there are the personal connections that complicate matters even more. Customers and their bankers can develop a close enough working relationship that it begins to resemble a friendship. If you have a situation like this, you should give your banker a chance to make things better. You may be surprised how the prospect of losing your relationship can open up new opportunities for an even richer partnership.
Mark K. Phillips is cash management services manager for Bank Iowa, Iowa’s second largest family-owned financial institution. He can be reached at firstname.lastname@example.org. To learn more, visit www.bankiowa.bank. Member FDIC.
When was the last time you logged into a secure online account while sipping a latte at your favorite coffee shop? If you’re anything like most Americans, the answer is probably not that long ago. While having “anytime, anywhere” access to your financial accounts is convenient, there are plenty of potential threats lurking in the background of public WiFi networks.
The 2017 Norton Wi-Fi Risk Report found 92 percent of Americans have potentially put their personal information at risk while using public WiFi. Among them, 32 percent have accessed their bank account or other financial information. What’s more, 19 percent said they had entered personally identifiable information (PII), such as their Social Security number or birthday, while using public WiFi.
Why is this a potentially dangerous practice?
Because encryption and other security protocols are often lax or nonexistent on public WiFi networks, they could be ripe for attack by cybercriminals looking to steal sensitive information.
Encryption is key to keeping personal data secure online. It scrambles the information you send over the Internet into a code so it’s not accessible to others. Most routers are shipped from the factory with encryption turned off by default, and there’s no surefire way to tell if a public WiFi network has it turned on.
If you use an unsecure network to log into an unencrypted website (one without an “s” following “http” in the URL), your personal information, including login credentials, could be up for grabs by cybercriminals. Once they have your information, hackers can use it to gain access to your other accounts, including websites that store your financial information.
How can I stay safe while using a public WiFi network?
Take the following steps to protect your information when using a public WiFi network:
- Only visit secure websites. To ensure information you submit to a website is being encrypted, look for the “s” at the end of “https” on any website you visit. If there’s no “s,” avoid using the site. Whatever you do, don’t log in or provide any information to an unsecure website.
- Do not use the same password for different online accounts. Using the same password for multiple accounts opens you up for much greater impact if someone gains access to one of your accounts.
- Log out of your online accounts when you are finished. Staying permanently signed into accounts makes it easier for hackers who could be eavesdropping on your online activity to access your personal information.
For more tips on protecting your personal information when using public WiFi networks, watch this video from the Federal Trade Commission (FTC).
Nine trillion dollars in household wealth and assets is expected to land in the laps of Gen Xers and millennials within the next 10 years. Are they ready?
What about the transfer of business ownership? Are the Gen Xers and millennials among us primed to take over the family venture? Do they even want to?
In Iowa, many of our family businesses have roots in agriculture, an exceedingly important industry to not only the state, but the world. When it comes to handing over the reins to the world’s most important food source, can our planet afford to cross its collective fingers and hope the sons and daughters of America’s farmers are able and willing to accept them?
It all starts with conversation. Every business owners, small and large, ag and non-ag alike, need to get a chat with the next generation on the calendar. It’s not difficult to understand why many people avoid it. For family-owned businesses especially, these talks can be at best awkward, at worst heartbreaking. Some find it easier to have an independent advisor participate or even lead the dialogue to keep emotions from getting in the way of an effective succession planning exercise.
Like any good conversation, listening is critical. Whether you decide to approach your planning alone or with an advisor, you want to come to the discussion with at least a basic list of questions to ask the individual(s) you are considering as the next leaders of your business. Here are a few to consider:
Is the family business something you would consider as a career?
It may seem like a no-brainer, but too often business owners assume incorrectly that the company will be ushered into its next era by children or close relatives. You want to be assured this is indeed the case before you begin your succession planning. Ask the question straight out.
How would you like to contribute to the company?
It’s possible the individual you have in mind for taking over your business has no real desire to lead. Perhaps he or she would like to contribute from the front lines rather than the executive suite.
Are you prepared to go through the hiring process just like any other leader of the business would?
Too often, children or relatives of business owners assume their position without having to demonstrate their talent. Showing off their skills can happen within your company walls, of course, but you may want them to prove their talents and leadership capabilities elsewhere to gain an independent view of their ability to be hard-working and strategic. Addressing this sooner rather than later can set both sides of the leadership generation up for success.
Once you have the outcomes of a solid level-set conversation, you can begin building out a thorough and simple-to-execute succession plan. Over the coming months, we’ll delve a little deeper into some of the components that should be included in such a plan.
Mark K. Phillips is cash management services manager for Bank Iowa, Iowa’s second largest family-owned financial institution. He can be reached at email@example.com. To learn more, visit www.bankiowa.bank. Member FDIC.
Breakeven Prices, Enterprise Budgets Key Machinery Cost Factors
There are things in life you can change and things you can’t.
The grain market is one of the latter. In a time with so much uncertainty like today, it is sometimes easy to get caught up in those things over which you have no control. Rather than wrestling with things that we can’t control, it’s important to focus on the things we can.
Managing your own crops and input costs is something you can control. Keeping a close eye on crop input efficiency, including machinery, is one good step to take to restore or sustain profitability on your farm. As a variable you can control, it’s something to which you should devote attention and effort instead of factors like market variables that are out of your control.
What follows are two necessary calculations to account for in making your next machinery purchase.
Know your breakeven price
Efficiently managing machinery costs more efficiently as a way to improve your operation’s financial performance starts by getting a firm grasp on your crop breakeven price. The crop breakeven price is a value comprising your total cost per acre divided by expected crop yield. It’s a value similar to your breakeven yield (total per acre cost divided by expected price), and it shows your relative profit potential and general competitiveness. Your breakeven prices, which can help guide marketing plans and determine exactly what prices you need to generate positive revenue, should include costs that typically go on cash flow statements.
For corn and soybean farmers, enterprise budgets can help determine the overall breakeven price you need in order to generate revenue. Enterprise budgets take into account expected bushels and both variable and fixed costs. Those costs include:
- Crop nutrients
- Grain drying
- General machinery
- Operating capital interest
- General overhead and living expenses
Include opportunity cost
Once you’ve laid out all the specific line items on the cost side of the equation and your expected yield, you can then calculate what your breakeven price is. If those costs exceed your available market price, look at ways to cut back on some of the variable costs. Machinery is one category, for example, where you can make adjustments throughout the growing season.
Then look beyond those hard numbers and consider your opportunity costs to get a feel for not just how your current inputs can be streamlined, but what to avoid cutting altogether in an effort to get more efficient. When you look beyond those hard numbers and to opportunity costs, you can get a feel for not just how your current inputs can be streamlined, but what to avoid cutting altogether in an effort to get more efficient.
“Opportunity costs are typically included in enterprise budgets. If we want to benchmark a farm's costs to those from other farms, it is important to include both cash and opportunity costs in your enterprise budgets. If your operation owns 50 percent of your crop acreage and the operations you are comparing with only own on average 25 percent of their crop acreage, you would not be comparing apples to apples if you did not include opportunity costs for owned land when making the comparisons,” according to Purdue University Center for Commercial Agriculture ag economist Michael Langemeier*. “By including opportunity costs in your enterprise budget, you can determine whether you are fully covering the costs of all inputs. For instance, you would like to know what return you are receiving for your owned land and machinery.”
Consider other ownership variables
For your machinery lineup, look to both the cost of ownership as well as operating and opportunity costs. That includes variables like depreciation and interest costs, which can be broken down per acre.
“Specifically, you can compute depreciation by dividing crop machinery investment by the average length of life of your machinery and equipment, and interest by multiplying crop machinery investment per acre by an intermediate term interest rate,” Langemeier says. “Of course, these are only proxies for machinery ownership costs. More detailed computations could be obtained using a management or economic depreciation schedule.”
These steps can start the process of determining how and where you can make changes to your machinery lineup to get more efficient and maximize the return on your overall machinery investment. Having a basis of comprehensive information on your machinery inputs by following this process can help you not only take concrete steps to streamline your machinery lineup and cut overall costs, but also make informed decisions for things like acreage and plantings.
“In addition to estimating breakeven prices, enterprise budgets can be used to make cropping decisions for the upcoming year,” according to Langemeier. “In the short-run, a farm should continue to produce if it is covering variables costs. In the long-run, all costs need to be covered.”
* Langemeier, M. "Projected Corn and Soybean Breakeven Prices." farmdoc daily (8):66, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, April 13, 2018.
When I was growing up, a child of the 80s, people who paid with plastic seemed to be in a higher echelon. Credit equaled status. Today, that may be changing. It’s cash, not credit, that carries the real cachet.
Even as technology seems intent on pulling us away from paper money and toward digital coins, Americans appear to be enjoying a renewed love affair with cash. Why? I suppose it could be the frequent cameo appearances of “fat stacks” in music and YouTube videos. But more likely, it’s a Millennial-driven distaste for debt.
For many in the younger generation, sliding a card into the waiter’s book is a terrible way to finish off a meal. Watching their parents get into credit card debt – and struggling with their own massive student loan burden – has left something of a bad taste in their mouths. Just one out of three Millennials carries plastic. And, if they do carry a card, it’s most likely debit or prepaid (each of which is really just cash in plastic form).
For businesses, changing attitudes about money may shift the way they, too, value cash.
Paying employees by check, for instance, is becoming less popular. Not only do workers appreciate not having to make a deposit; they also like getting that cash faster. It’s one of the reasons we’re seeing dramatic month-over-month increases in use of the ACH system.
As more Millennials launch and lead businesses, will their debt and risk aversion be a positive or a negative? Some young people have seen as many as three major stock market crashes already. They may have a hard time trusting public markets with their investment dollars.
The increasingly loud cry for credit card surcharges among retailers is another area we see the impact of cash love among consumers. The last thing retailers want to do is chase away business, especially the brick and mortar type. If they are willing to charge a fee for using a credit card in their store, they must be pretty confident their customers are okay paying with cash.
Millennials are also said to prefer experiences over stuff. Chances are pretty good this will have an impact in both business-to-consumer and business-to-business sectors. Employee incentives, for instance, may shift from gold watches to more PTO.
If you are a business leader who believes Americans’ renewed love affair with cash is likely to impact your financial outlook, make a call to the cash management leaders at your bank. They are studying the trends, watching the shifts and managing the evolving cash needs of their clients every day. With a front-row seat to the impact of changing attitudes about money, they are in a terrific position to make your cash work for you.
Mark K. Phillips is cash management services manager for Bank Iowa, Iowa’s second largest family-owned financial institution. He can be reached at firstname.lastname@example.org. To learn more, visit bankiowa.bank. Member FDIC.
Cut through the chatter: There is still revenue potential, even in a down grain market.
Corn and soybean planting is exciting and nerve-racking at the same time. It’s a race to get crops in the ground at the right times to maximize early yield potential.
But this spring, there’s a lot of news and speculation that could distract farmers from their No. 1 job of getting their crops in the ground. It’s a good time to sharpen your focus, tune out the “noise” and take care of what’s important. Make sure you’re watching the markets for ways to cover cash needs. Then, take action before prices put too much strain on your revenue potential.
Market ‘buzz’ factors
Late-March USDA Prospective Plantings data had an immediately bullish reaction from the trade. The federal government said it expects larger soybean plantings this spring. Corn and soybeans both saw declines in expected acreage, but the net result is a soybean planting number (89 million acres) slightly higher than corn plantings (88 million acres). Lower acreage numbers for both crops and a soybean crop projected larger than corn helped buoy prices. New crop corn futures contracts moved above $4.00/bushel, and soybeans pushed well into the $10.50 range.
While the USDA data initially “fed the bulls,” the potential trade war with China could keep a lid on the gains that smaller overall crop sizes could otherwise create. The prospect of tariffs that could increase the cost of U.S. soybeans and corn by as much as 25% could threaten to pull the rug out from under the slow, incremental grain price gains leading up to planting. News like this comes and goes, but the trade sometimes reacts more sharply to the news than the event itself.
Headlines like these create a lot of chatter in agriculture. But at a time when crop producers are five years into a market downturn and facing continued revenue challenges, it’s important to tune it out and focus on what you can control.
Keeping a sharp pencil
Four-dollar corn is a far cry from the $6 to $8/bushel prices of a few years ago. With prices like those, the average farmer didn’t have much incentive to “keep a sharp pencil.” But, times are a changin’. And keep in mind, corn at the $4/bushel level is a marked improvement over what we’ve experienced in recent history. Farmers should not ignore these prices, nor cross their fingers and hope the rebound continues. This is especially important for farms with immediate financial needs.
There’s a big difference between sentiment and action. Four-dollar corn may not signify the most profitable level in the world. But if you have unmet cash needs on your farm, and the recent uptick in prices is enough to help you meet those needs, it may be a good time to take advantage.
Today, there are some signs pointing to a better year in 2018. But, it will require executing on some of the plans we’ve made and the decisions we’ve been weighing. Moving into the growing season, it will be of utmost importance to watch prices and, when we see opportunity, quickly and confidently make smart marketing decisions to generate the necessary revenue. As I advise the farmer’s in our area, don’t spend all your time and energy listening, watching and talking.
Be decisive, take action
Now is a time for action in capturing any rallies the market offers. Cutting through the chatter and keeping a close eye on your bottom line will pay off in the long run. What’s more, it will put your operation in the best possible position when grain markets eventually bounce back.
Have a safe and productive spring planting season!
Roger Vial is a Regional Senior Lender for Bank Iowa's Red Oak location. He can be reached at email@example.com. Member FDIC.
As you may have heard, the Bank Secrecy Act has been amended in order to clarify and strengthen customer due diligence requirements for financial institutions. This includes explicit instructions regarding identifying beneficial owners of legal entity customers. If you’re curious as to what this new regulation is all about, and how it may affect you, we’ve got answers.
When are these new rules effective?
May 11, 2018.
Do these rules apply to all financial institutions?
Yes, all financial institutions will be implementing this rule and putting it into effect on May 11, 2018. For purposes of this rule, covered financial institutions are federally regulated banks and federally insured credit unions, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities.
Why were the Customer Due Diligence rules issued?
These rules were issued to further aid the government in the fight against crimes to evade financial measures designed to combat terrorism and other national security threats.
Who does the beneficial ownership portion of the rule apply to?
The rule applies to a bank’s covered legal entity customers. Covered legal entity customers include corporations, limited liability companies, general & limited partnerships, and other entities (including statutory trusts) created by filing a public document with the Secretary of State or similar office.
Who is considered a beneficial owner and what information will be collected?
Banks are required to ask for identifying information such as name, address, date of birth, social security number and copies of identification documents for:
- Each individual that has beneficial ownership (25% or more) in the legal entity; and
- One individual that has significant managerial responsibility for the legal entity
When must beneficial owners be identified?
Beneficial owners must be identified EACH time a new account is opened for a covered legal entity customer on or after May 11, 2018. A new account is defined as: All formal banking relationships including a deposit, loan, safe deposit, cash management, or trust account.
Legal entity customers will also be asked for beneficial ownership information any time there are changes regarding the beneficial owners, ownership structure, or nature of their business.
What if I’m opening an account on behalf of a legal entity?
You will be required to provide the appropriate documentation regarding the beneficial owners and certify that this information is true and accurate to the best of your knowledge. This is required to be completed prior to the account being opened.
What else do I need to know?
The most important thing to remember is that this regulation is for your protection and to continue assisting the government in fighting financial crime. At Bank Iowa, we proudly support all efforts to maintain the security of our customers and our country.
Still have questions? Contact any Bank Iowa location as we’d be happy to discuss this new requirement to ensure a smooth account opening process for legal entity customers after the effective date of this rule.
It was on August 26, 1994 that Bank “Altoona” first opened its doors. And it was a humble beginning. The office actually started in a small trailer at the front of the property we occupy today.
Over the last 23 years, it’s been very exciting to experience the growth of the bank throughout the ebbs and flows of the economy, and a pleasure to have played a small part in the success of our customers.
What a privilege to spend more than two decades working in a career I enjoyed, with people who have invested and mentored me, customers that have become friends, and a wonderful community that flourish alongside the bank.
I am thankful for the many leadership roles I have been trusted with both at Bank Iowa and in the city, especially with the Altoona Chamber. A mentor suggested I get involved with the chamber and it was among of the best pieces of advice I’ve received. Being a part of the chamber helped me to grow, not only professionally, but personally.
I am excited about my retirement, but will miss the daily interaction with my co-workers and customers. My husband, Gary, retired in October, and we look forward to spending more time with our family, our church, volunteering and traveling.
As Altoona celebrates 150 years, I will be volunteering with the parade and will continue to be active in the community I live in and enjoy. Please say hi when you see me around town!
Pat Stafford is Bank Iowa's former Retail & Operations Manager of Des Moines.
The cash corn price averaged $4.49/bushel in 2013 in Iowa. That same year, the state’s average cash land rental rate was $270/acre. For the most part, farmers renting land were able to make that work. It certainly wasn’t as easy as when corn prices were closer to $7.00/bushel, but it worked.
However, 2013 was also the early days of the downturn in grain prices that continue to challenge corn and soybean farmers working to do more than just break even. Obviously, cash corn prices below $3.50 alone make life tough for farmers. But, when cash rent rates don’t fall in line with those corn prices, it exerts even more pressure on farmers’ bottom lines.
Current State of Cash Rents And Corn Prices
So, have cash rental rates fallen as much as they should have? The latest data from the Iowa State University (ISU) Extension Ag Decision Maker show the cash corn price averaged $3.24/bushel for the state of Iowa in January. The latest ISU survey data show farmers paid an average of $219/acre for cash rent in 2017. Based on the numbers alone, it adds up to a decline of around 18% in both corn prices and cash rents over that four-year period.
But many farmers and ag lenders around the state say cash rents represent a growing share of the expenses to raise a crop, yet despite the decline, profitability is still strained. In fact, many Iowa farmers say that cash rents are one of their top concerns. Even though the numbers show a direct correlation between cash corn prices and land rents, some say the dip in rent has fallen well short of tracking the decline in corn prices. In other words, rents aren’t falling as much as many farmers feel they need to be to sustain viable profitability long term.
Factors Keeping Rents High
Demand is a major driver of cash rents that haven’t fallen nearly as much as renting farmers feel they should have. Even with higher rent costs, there’s still strong demand when a parcel of land goes up for rent. There’s a finite amount of it out there, and when multiple operators in one area are after the same rented ground, it can drive pricing higher. Though that may only happen occasionally in a given area, it can raise the price bar for other rented ground, meaning that in some cases, a high bidder or two can have a major influence on cash rental rates in general.
The available grain terminals and outlets in a specific area can also influence rental rates. Areas where demand for specific crops – like organic corn, for example – at a higher price can allow more room in some farmers’ balance sheets to pay higher cash rents. It’s another case in which local demand may outpace the market in general, thereby justifying a hike in cash rents and making it difficult for some farmers to compete.
Surviving High Rents By Cutting Costs
Many farmers’ efforts to cut overall production costs as a way to offset the lower grain markets may include paying less for cash land rents. That’s much easier said than done, especially in areas of high land demand, especially where land doesn’t often come up for rent very often.
One strategy is to look to other areas to cut cost and continue paying the market standard for cash rent. That may mean fine-tuning marketing strategies to squeeze enough additional revenue from each acre to cover a portion of the rental rate. Other strategies simply involve paying less for other crop inputs like chemical and fertilizer. Especially in a year when the demand for rented farmland looks to remain strong, this will likely be a more sustainable solution until grain prices rebound.
Improving The Land
Another way to prevent high cash rents from eating away at crop revenue potential is by looking at the land itself. Can you make improvements that could be used as ways to negotiate a lower rent? If you can somehow make the land better as a tenant – through drainage tile, cover crops or other practice that can improve its overall productivity – you can use that as a way to negotiate a lower cash rent. Plus, some improvements may not pay dividends until years down the road. Integrating practices that work toward those improvements shows the landowner you’re committed to the land well into the future.
Value Land Right
Another way to ensure you’re paying the right cash rent, and not a price that’s dictated primarily by a specific local demand situation is to match your rent to the productivity of the land. Following indices like the Iowa Corn Suitability Rating (CSR) and land value by soil type or slope gradient is a good way to ensure your cash rental rate is justified based on the productivity of the land.
Communication will remain hugely important in negotiating cash rental rates this year and beyond. Especially when it comes to assigning an accurate value to land and the improvements the lessee can make to improve its long-term productivity, it’s important to always keep open lines of communication between the landowner and renter. Even when local demand spikes can drive up cash rent rates for specific land, open lines of communication can make it easier to reach a cash rent level upon which both lessor and lessee can agree.
Brennan Vaverek is an agriculture lending specialist for Bank Iowa's Humboldt location, Iowa's second largest family-owned financial institution. He can be reached at firstname.lastname@example.org.
Last weekend over breakfast, the second of my four sons called out the Tooth Fairy for what he perceived to be jaw-dropping incompetence. She had completely neglected to leave his older brother any money for his lost tooth.
Older brother had done his part. He’d suffered through the loss, delicately tucked the pearly white under this pillow, and yet come morning – nothing.
While my first born was mildly disappointed in the fairy’s failure to visit him the night before, he was nowhere near as outraged as his younger brother. And that’s probably due to the way my two oldest boys, only one year apart in age, think about money. It’s about as far apart as you can get. Birth order, it seems, has had much greater influence over their financial perspectives than my wife and I ever could.
One boy knows, to the penny, how much money he has at any given moment. Call him up right now, and he could tell you exactly how much more he needs before he can buy the next great Lego set to hit the shelves (and pay the sales tax, too). His older brother, not so much.
My boys are parented by a banker and a teacher, so they’re used to unwittingly wandering into teachable moments. That morning at breakfast, we seized on the Tooth Fairy’s unexplained absence to talk about the unpredictable nature of money and the importance of saving. Even when you are positive money is coming, there are plenty of potential hiccups that can prevent that cash from making its way to you.
Each of our sons loves to earn money. They all have that in common. They even like to work for it, although “work” is a fluid concept. Last fall, the boys got to sell pumpkins from their grandpa’s fledgling patch in Williams, Iowa. While they had tried their hand at weeding earlier in the season, they really had no idea how much actual work went into the planting, nurturing and harvesting of the Iowa State Fair-sized behemoths my dad has somehow managed to coax out of the soil. Because the boys were going to profit from the sale of the pumpkins, my wife and I thought it would be smart to sit them down and talk about all of the expense – mainly Grandpa’s blood, sweat and tears – that went into creating them. (We can’t help ourselves… teachable moment!)
The other thing the boys share is their affection for banks. We’ve talked with them often about the value of keeping that hard-earned (and not-so-hard earned) money safe under the protection of people in their hometown they can trust. They love to count their coins and dollars at home and then compare it to the bank teller’s tally when they come in to make a deposit. They also love looking over my shoulder when I check out their balance online or on my phone. It’s even more exciting when I’m making a transfer from our checking into their Young Saver accounts.
You may be relieved to hear the Tooth Fairy is back in good standing at our house. She did show up that evening and even left behind an apology note for being tardy. As it turns out, she hadn’t had enough money to give the other night. She’d had to work really hard and save up enough to make her gift to our son. “Remember, it’s very important to save your money!” she wrote. Seems the Tooth Fairy, too, appreciates a teachable moment.
Mark K Phillips is cash management services manager for Bank Iowa, Iowa's second largest family-owned financial institution. He can be reached at email@example.com.
By Jim Plagge, Bank Iowa President/CEO
Grain price discovery and establishment of crop insurance prices for the 2018 crop concluded at the end of February. But, for farmers looking to protect themselves from price risk through the growing season, it’s anything but a finish line.
Every year, the USDA Risk Management Agency sets spring prices for corn and soybeans that are used for federal crop insurance guarantees and can serve as early bellwethers for planted acreage for the two crops. In recent years, the two have maintained a relatively static ratio. The soybean-to-corn spring price ratio remains at 2.57 for 2018, the same as 2017 but well above the 20-year average of 2.25. Based on new-crop contract pricing during the month of February on the Chicago Board of Trade (CBOT), this year’s price guarantee for corn is $3.96/bushel, while the soybean price is $10.16/bushel. The spring price for corn is unchanged from 2017 and the soybean price is down 3 cents per bushel from 2017.
Though still closely watched by farmers and the grain trade as a baseline for pricing moving into spring and beyond, this year will be another in a newer, more recent trend. Traditional factors --insurance guarantees, spring prices, soybean-to-corn ratios and ultimately, marketing strategies themselves – are decoupling from one another. Though planted acreage may still reflect the crop ratio resulting from these numbers and planting conditions in much of the U.S. this spring, there’s more uncertainty than ever underpinning how these types of data will influence grain prices throughout the year. That’s a call for farmers to take action to protect themselves from downside price risk moving into the 2018 crop year, market-watchers say.
Tip #1: Consider Harvest Price Options
“Spring prices for corn and soybeans are determined by averaging the new-crop futures contract settlement prices during the month-long February price discovery period. Following the spring price discovery period, farmers may purchase revenue protection policies that provide insurance against yield declines,” says American Farm Bureau Federation Market Intelligence Director John Newton. “In the event of a crop loss, a farmer purchasing a harvest price option policy would be indemnified at the higher of the spring planting price or the price during harvest. Farmers without the harvest price option would be indemnified at the spring planting price.”
Tip #2: Lock In Prices with Options, Contracts
Selling grain on the cash market carries the obvious risk of eroding on-farm supplies, and grain ownership remains a high priority for many farmers whose marketing strategies infer a more bullish future for prices later in the year. Grain options and hedge-to-arrive contracts are both ways that farmers can lock in prices – at hopefully profitable levels – and protect themselves from future downside pricing risks without leveraging existing on-farm grain supplies.
“This year, a lot of farmers may be more apt to try to lock pricing in earlier, or at least more periodically. You just don’t know how other market factors, like trade agreements, are going to shake out. You’ve got to have some insurance for things like that,” says Dax Wedemeyer, grain market broker and analyst with U.S. Commodities in West Des Moines, Iowa. “If those guarantees can come at profitable levels, they’re more apt to put something on, like an options contract or hedge-to-arrive, especially if you’re not willing to sell on the cash market or give up grain ownership. These are ways to give you price support without pinning you down, but you can still get a higher cash price if it does go up.”
Wedemeyer’s recommendation comes amidst continued uncertainty for acreage and subsequent grain pricing moving into the 2018 growing season. The soybean-to-corn ratio, typically a key number to watch in forecasting acreage and prices, isn’t always the most reliable predictor of how prices will respond to farmers balancing the two crops.
“The projected acreage changes are not aligned with historical acreage and price relationships,” American Farm Bureau’s Newton says. “Based on historical acreage data from 1996 to 2017, when the spring price ratio was greater than 2.2, a positive change in soybean acreage is expected. Alternatively, when the spring price ratio is above 2.4, a negative acreage response is expected for corn. It’s important to note that only 35 percent and 13 percent of the deviations from trend are explained for soybeans and corn, respectively. The poor fit suggests the model is reliable only in predicting the direction of acreage changes. However, last year, when the price ratio was 2.57, soybean acreage increased by 8 percent to 90.1 million acres and corn acreage decreased 4.1 percent to 90.2 million acres.”
This year, that soybean acreage number will be a big one to watch. Though Newton says there are a lot of expectations for a larger soybean crop and smaller corn crop in 2018, U.S. Commodities’ Wedemeyer says he believes such a circumstance that could keep a lid on the soybean market.
“If soybeans go above 90 million acres, we’re not likely to see higher prices until July,” Wedemeyer says. “Farmers have to start considering where they are in relation to profitable levels. A lot of that depends on what they may have wrapped up in things like land rent.”
The next major round of crop size projections will come in USDA’s March 29 Prospective Plantings report, which will give what’s typically seen as a more accurate estimate of crop size based on early-March farmer surveys. It will either further confirm acreage data or create more speculation and uncertainty heading into spring planting in the Midwest.
“The prospective plantings report gives the first estimate of the area farmers are expected to plant to row crops for the upcoming year based on survey responses during the first two weeks of March,” Newton says. “This report will remove some of the uncertainty on likely acreage decisions. Importantly, it will also answer a lingering question now facing the industry: Will the U.S. plant more or fewer soybeans in 2018? For this question, model results and USDA forecasts disagree.”
Tip #3: Capture Prices to Maintain Liquidity
Moving forward, how farmers integrate federal crop insurance guarantee prices and subsequent pricing into their overall management strategy should account for more than just the quest to sell grain for the highest possible price. It will be critical to capture any bullish pricing through sales to maintain liquidity, even if those prices fall short of the expectations created by years of higher prices earlier this decade.
“It’s important to pay attention to resources and factors like how much has been borrowed, interest rates and breakeven prices. If farmers can sell new-crop corn for 40 cents higher than a couple of months ago, it’s important to capture those prices, not just look at them,” says Bank Iowa Vice President in Red Oak, Iowa, Roger Vial. “Farmers have an opportunity to have a profitable 2018; they just need to execute on it. These risk management decisions need to be made after watching all of this important information.”
Are rising interest rates friend or a foe? The answer often depends on how quickly you respond.
After an almost unprecedented period of immobility, interest rates are finally on the move. When the Federal Reserve came through with its promised quarter-point increases in Q2 and Q4 2017, it signaled the start of what the U.S. Central Bank said would be a gradual increase over the following 12 months. You’re hard-pressed to find an economist who doesn’t forecast the same.
For nearly everyone, rising interest rates present a double-edged sword. Fantastic for earning interest; not so great for paying it. That’s why staying close to your banker during a period of fluctuating rates is so important. Remember, the squeaky wheel gets the grease. So, if your cash management partner isn’t proactively reaching out to you, pick up the phone and insist on a conversation.
Here are a few basic questions you might ask…
Should I be moving my money?
Every progressive financial institution needs deposits. Most banks have or will soon go over their preferred lending thresholds during what has been a huge period of loan growth. Naturally, they need the funds to back up those loans. This is what’s causing all those competitive CD and money market rate promotions you may be hearing about. Financial institutions are hopeful you will see their shiny new rates and pull your money out of the savings account you have with a competitor and bring it on over to them. Are you taking advantage?
Of course, moving money can be a hassle. Keep in mind that by having a conversation with your current banker, you may find he or she is willing to negotiate so you won’t have to leave at all.
What can you do about FDIC limits?
If a material percentage of your business, non-profit or personal portfolio is made up of cash, this can be an important consideration, especially as financial cybercrimes continue to proliferate. As you work with your financial institution, ensure the bank has you covered from an insurance standpoint. The FDIC protects deposits up to $250,000. Ask about CDARS or ICS, each of which helps cash-strong bank clients manage their risk beyond that dollar amount.
Is my line of credit going to reset?
The answer to that is very likely, yes. At Bank Iowa, we tend to price off of the Wall Street Journal Prime Rate. As this moves upward, so, too, will the rates on lines of credit, many of which are adjustable. Ask your banker if locking in that rate is an option so you don’t have an unexpected increase in costs associated with your credit needs.
Make sure you understand when your line of credit is set to renew, whether the bank foresees any issues with that renewal and exactly how much more it’s going to cost you. When you get your answers, a smart follow-up question is, “How are you going to help me address my interest expense?”
Having regular conversations with your banker is a best practice. If you’re not currently doing so, take our financial wellness quiz to see if there are other to-do’s you may want to add to your list this year.
Having those chats is especially important now, as your financial frenemy is making moves. The last thing you want to do is wake up to rising interest rates only after they’ve crept up an entire point. Call your banker today, and remember, it never hurts to have a second financial institution in mind to help secure the best outcomes from that call.
Mark K. Phillips is cash management services manager for Bank Iowa, Iowa’s second largest family-owned financial institution. He can be reached at firstname.lastname@example.org. To learn more, visit bankiowa.bank. Member FDIC.