Managing Financial and Market Risk in Christmas Tree Production

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Managing Financial and Market Risk in Christmas
Tree Production
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Custom Ag Solutions

• Private Consulting Firm Based in Cowley, Wyoming
• Design and Manage Research and Education Projects
• Christmas Tree Risk Analysis
• Beef Basis Forecasting Model
• Yield Forecasting Model Given Different Water
  Allocations
• Contributory Value of Recreational Amenities

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Risk Management Agency (RMA)

• USDA Agency
• Created in 1996 to Administer the Federal Crop
  Insurance Program
• Three Divisions
• Insurance Services
• Research Development
• Risk Compliance
• RMA Quick Facts
• Over 500 Employees
• Ten Regional Offices
• Main Offices in Kansas City and Washington, DC

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Some Questions

• How much value can I add by marketing directly?
• What is the benefit of mowing residuals?
• Will expanding my operation to marginal ground
  benefit my bottom line?

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Risks Faced by Christmas Tree Growers

• Every management decision affects a growers
  exposure to one or more of the following risk
  categories
• Production Risk
• Price Risk
• Financial Risk
• Legal Risk
• Human Risk

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The Christmas Tree Industry

• Empirical evidence suggests that the industry is
  expanding, and more trees are being planted every
  year.
• Fortunately, demand appears to be growing also,
  but do not ever underestimate the fickleness of
  the American consumer.

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Efficiency Defined

• Efficiency
• Acting or producing effectively with a minimum of
  waste, expense, or unnecessary effort.
• Exhibiting a high ratio of output to input

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Economic DarwinismSurvival of the Efficient

• As more growers enter the market, competition for
  buyers will increase.
• Maximizing efficiency is the only way to ensure
  survival in a competitive market.
• This does not necessarily mean the low cost
  producer is the most efficient.

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Improving Efficiency

1. Reduce costs without affecting production
2. Increase production without affecting costs
3. Implement changes that cause cost savings
   greater than any resulting production loss
4. Implement changes that cause increased
   production greater than the value of the
   increased costs

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Management Decisions

• Resource Availability
• Site Selection
• Site Preparation
• Planting Stock
• Planting Technique
• Plantation Protection
• Weed Management
• Fertility Management

• Irrigation Options
• Shaping/Shearing
• Insect/Disease Control
• Harvesting
• Marketing
• Starting Over

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Costs and ReturnsThe First Step to Efficiency

• Efficiency cannot be improved without a basic
  understanding of your cost and price structure.
• What is your breakeven cost per tree?
• What is your average selling price per tree?
• How do your costs vary by production year?

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Developing a Cost Budget

• Data Collection and Organization
• Income and Expense Allocation
• Calculation

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Data Collection

• Income and Expense
• Normalize to a typical year
• Build up from the lowest unit
• Inventory
• Acres and/or Trees
• Trees Planted Estimated Loss
• Expenses
• Tax Return Information

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Allocation
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Allocation
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Allocating Income
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Allocating Income
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Allocated Income
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Allocating Expenses

• Begin with Schedule F Expenses
• Direct vs. Indirect
• Cash vs. Non-Cash
• Non-Expense Cash Requirements

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Schedule F Expenses

• Car and Truck Expense
• Chemicals
• Conservation Expenses
• Custom Hire
• Depreciation
• Employee Benefits
• Fertilizer and Lime
• Trucking and Freight
• Gasoline, Fuel, and Oil
• Insurance
• Mortgage Interest
• Other Interest

• Labor
• Pension and Profit-Sharing Plan
• Rent/Lease-Equipment
• Rent/Lease-Land
• Repairs
• Seeds and Plants
• Storage/Warehousing
• Supplies Purchased
• Utilities
• Dues and Sub.
• Professional Fees
• Real Estate Taxes

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Allocating Expense
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Allocating Expense
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Allocated Expenses
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Allocated Income
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Allocated Expenses
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Calculated Costs and Returns
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Calculated Costs and Returns
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Weighing the Alternatives

• Only after you understand your current cost and
  return expectations, can you focus on improving
  efficiency by analyzing the effects of different
  practices.

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Contact Information

• 866 847-4578 or Visit
• www.ChristmasTreeRiskManagement.com