Don Kracaw – The start of Winnemucca Farms, Inc

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Don Kracaw ( Former Owner of Winnemucca Farms, Inc)

Today’s farmer profile is about Don Kracaw and the Kracaw family.  The Kracaw’s developed and successfully operated Winnemucca Farms Inc, for nearly 30 years.  Winnemucca Farms is a large commercial farm north of Winnemucca whose specialty is potatoes.  Don has been a good friend, and is a man that I have always wanted to emulate.  Don is an excellent farmer, a sharp business man, and not a bad golfer.  I have learned a lot from Don and I hope I can continue to learn a lot from him. 

Don Kracaw lived in Blackfoot, ID for 30 years, prior to moving to Winnemucca, Nevada.  He worked on his family’s farm with his father Clair, his brother Jerry and brother-in-law Tack Nakamura.    Don’s father Clair began farming in 1939 on the Fort Hall Indian reservation near Blackfoot on 75 acres of rented farm ground.  Clair increased the 75 acres into 6,500 acres of farm ground by 1971, and added a potato fresh pack plant.  The Kracaw Produce and the Bakewell potato brands were first introduced at this time in Idaho.  This was truly a family business. 

In the late 1960’s Don’s father Clair began looking for expansion opportunities beyond Idaho.  He was looking in the Columbia Basin of Washington; the Columbia Basin was beginning to emerge as a prime potato farming area.  However, while Clair was in Winnemucca, Nevada visiting friends, and looking at potential farms in the Kings River area, he noticed  a large tract of ground about 15 miles north of Winnemucca.  This land’s sage brush was taller than he was, and good sandy soil.  After digging around for a few minutes with a shovel, he turned right around and went back to town.  It was not long before he had purchased the land, secured water rights and began developing a farm.  When the farm was fully developed in 1976 there was well over 10,000 acres in production and 52 agriculture wells had been drilled.  There were many development challenges such as the irrigation wells sanding in, but the Kracaws worked through them with patience and hard work, and overcame them in time.  Winnemucca Farms was at that time the largest family owned farm in the Western United States.

The Kracaws continued to grow and sell fresh potatoes throughout the western United States.  Since Winnemucca was much closer to the Bay area and Phoenix, the Kracaws were able to decrease their freight expense on their potatoes getting them to market.

As Winnemucca Farms increased potato production, there was a large number of off grade potatoes (potatoes that could not be sold into the fresh market) that became available.  At the time it was not cost effective to ship these off grade potatoes to a potato processor out of the area.  Due to this supply of off grade potatoes the RT French Company built a potato processing plant in Winnemucca.  In fact the first “Pringles” potato chips were produced from potato flake from RT French Company’s Winnemucca plant from potatoes grown on Winnemucca Farms.    RT French company struggled in Winnemucca, and eventually in the mid 1990’s the Kracaw family purchased the plant and began selling potato flakes to Proctor and Gamble, and also developed “Creamy Mash” which is a line of instant mashed potatoes. 

The Kracaws continued to grow potatoes, sell fresh potatoes, and sell potato flake to Proctor and Gamble through the early 2000’s.   The Kracaws then sold their farm, fresh pack shed and processing plant to the R.D. Offutt Company (RDO) who at the time were assumed to be the largest potato grower in the United States.  RDO continues to operate Winnemucca Farms up to this point.

Don has had a great life working and operating his family farming operation, and stated he would not change a thing. 

Dons advice to others –

1-When you have a family business, tend to your business.  You will either make it or you won’t.   It is your livelihood.  Take care of it.

2-Once you get big; you should keep growing.

3-Diversify

4-You need to hire smart, honest people and trust them.

5-You need some luck along the way.

 

Bookkeeping Happiness

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One afternoon during a busy tax season the receptionist buzzed me and told me my next appointment was here. I walked into the lobby to greet them and had to hold my breath to keep from laughing. You always hear about the shoebox full of receipts someone brings into the accountant to prepare their taxes. On this day it was not a shoebox but an actual wooden dresser drawer full of receipts.

Want to have less stress and a happier life? Good bookkeeping can go a long way toward reducing your anxiety over financial matters. You may not always be pleased with the results, but you will be able to make decisions based on the information, and dresser drawers are difficult to carry in your pocket.

Here are five bookkeeping tips to help you get started.

1-Do it!

This is the most important tip in bookkeeping and in life for that matter. If we never start the process we will never realize the benefits. Jennifer Kunst, Ph.D, wrote an interesting article on this subject:

Neville Symington puts forward the idea that a shift from the old routine to a new way of being requires what he calls an act of freedom. This kind of freedom means having a mind of one’s own, acting in faith in oneself and one’s good objects, and taking a chance. We must cut the ties to the old way in order to try something new. Whether we succeed or fail in that one moment, we have succeeded in the big picture because we have invested in real change. (A Headshrinker’s Guide to the Galaxy, 2012)

Being successful is difficult and takes courage to change. Many people desire to be financially free but are unwilling to do the work which is required. You must be consistent in the effort put forward and be aware what needs to be done. Start now, do not procrastinate.

2-Be organized

Spend some quality time and and think about your bookkeeping system. What do you need to keep everything assessable? Use an accounting program to track all of your business income and expenses. There are many programs to choose from: QuickBooks, Xero, Wave, Less Accounting and others. Identify a place for all of your documents and be diligent in filing and saving them.

3-Use a budget

Budgets are amazing. If used correctly your budget will help you make money. They will help you evaluate your current spending, help you set goals for your future and help you track where your money will be spent. At the beginning of the year complete a simple budget for each month. Each month compare your actual results with your budget numbers. If problems appear they say, “fix me.” You are able to take action and correct immediately. Each month as you adjust your spending to optimize your results with the budget you will spend less and will increase your bottom line.

4-Know your cash balance

This may seem obvious but do you know what your cash balance is? Check your cash balance everyday and know what transactions have not cleared the bank. Do your bank reconciliation every month. On the first day of a job I was asked to get the bank reconciliations caught up, they had not been done for over a year. I spent weeks working on them and in the end had to make some sizeable “adjustments” in order to balance. This company struggled with cash flow and one of the reasons was they did not know their actual cash balance. You must know your cash position and manage it accordingly.

5-Get help

Guess what? Your spouse does not want to keep the books. I know it is hard to believe. Too many spouses do it and in most cases it does not work. Do not wait until your tax return is due and ask your tax preparer to clean up the mess. Get someone involved on a daily, weekly or at least monthly basis. Ask your tax preparer if they would recommend someone or ask other business owners for suggestions. A qualified bookkeeper will make your life easier which will make everyone happy. Once you have someone helping with the books ask questions and expect answers you understand. It is your responsibility to make sure the bookkeeping is in order. Do not assume. If you do not know, ask.

Doug Hales-Guest Blogger from Accounting First is coming

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Good afternoon! It sure is hot out there! During weather like this I am thankful I have a job indoors. In today’s post I am introducing Doug Hales, owner of Accounting First. I asked Doug to be a guest blogger to discuss some of the lessons he has learned from doing accounting for those involved in agriculture. Doug graduated from Utah State University in 1993. He has been employed as a Controller, Senior Staff Accountant, CPA and currently is the Controller/Director of Finance for Huntsman Springs, Inc located in Driggs, Idaho. Doug loves to spend time outside and has raised chickens, honey bees and a large garden using a hoop house. He truly loves agriculture and understands the importance of using good financial tools.
I asked him to be a guest writer on my blog because of his education and experience. Doug has seen firsthand farmers and ranchers who bring in their receipts in a shoe box at tax time, and he has also seen other people come in with amazing records, knowing where there money is coming from and going to. There is a big difference in these two situations. It helps to have budgets created, followed and tracked in order to maximize the net return.
It is also important to reach out to professionals when needed. I will use the example of my 17 year old son who loves to buy old cars and try and fix them. My son buys these cars thinking he has the knowledge to fix the car and ends up having to call in a mechanic to help solve the big problems. This is very much the same in business and agriculture. Laws are always changing, and we must seek out those professionals who understand these changes and work with them on a daily basis. Another example is that I used to always do my own taxes. I had worked in a CPA office and graduated from an H&R Block tax class when I was younger so felt I was knowledgeable enough to do my own taxes. However, just for fun one year I let Doug take a look at my tax return before I submitted it. Through his knowledge of the law he increased my tax return by 30%. Needless to say I no longer do my own taxes. This principle does not just apply to taxes but to other professional services as well.
Please take a few minutes to check out Doug’s guest post, I know you will gain something from it. There is a picture of Doug at the bottom of today’s post.
WORK HARD, BE PATIENT, NEVER QUIT, ALWAYS BE HONEST, and HAVE FUN!

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Ideas Wanted for Five Year Crop Plan

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Hello and Good Evening from beautiful Northern Nevada.  Due to scheduling conflicts the farmer interview for today will be rescheduled for next week.  Since I am right in the middle of helping a friend with his five year farm plan and budget; I thought I would seek out some advice on what works for each of you.  Therefore, today’s post is going to include more questions than answers. 

The farmer and rancher interviews have been excellent.   I have learned a lot from them about hard work, patience, persistence and always being honest.   I have also learned that by exercising these attributes that things will always work out.  Even though these attributes are critical, farmers still must use good financial tools to ensure they are maximizing their net return.  This was the basis for the breakeven point analysis from a few posts ago.  One of my hopes is to help people sharpen these financial skills.

Due to the limited markets and climate I always knew what was going to be produced on the farm. I knew how many cows would be milked, acres of potatoes, wheat and alfalfa that would be planted.  However, on my friend’s farm, due to his moderate climate, rich soils, abundant water availability and being close to markets he has many different crop options.  This created a “cool” wrinkle to try and find and plant the crops with the highest net return.  My recommendation was to put together a five year crop rotation plan with the current contracts.  Next, identify how many available acres are not under contract.  Once he knows the number of available acres, he can put together crop enterprise budgets for each possible crop. 

The enterprise budgets create a certain dilemma because we do not know what the sales price will be for these crops in the future years.  In order to figure out at least an idea, I took the lowest possible sales price, the highest possible sales price, the projected yield, the total operating expenses, overheads and calculated the estimated net return.  The table below is an example of soft-white wheat.  The costs are just ball-park and not actual.

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From here the potential break-even point for both cash and non cash overheads can easily be known.  Is there a better way to forecast these sales prices when selling into an open market?  What works for you?  Will this just create analysis paralysis?   

The expense side of the enterprise budgets were straight forward, take into consideration what the historical costs have been and add in an escalator factor for the cost of inflation.  The other problem was if the overheads are being allocated correctly.  But, that will be a topic for another day.

Please feel free to comment on the blog, any advice will be greatly appreciated.  

WORK HARD, BE PATIENT, NEVER QUIT, ALWAYS BE HONEST, and HAVE FUN!

More on Farm Break-Even Analysis

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I have never completed two posts in the same day before, but I think it is important to get the formulas and equations to you as quickly as possible for the 2014 planning and budgeting season.  Next week I am hoping to add a new farmer profile.  I am trying to schedule Don Kracaw former owner of Winnemucca Farms, Inc, his story is amazing.

Back to the break-even analysis- To keep it simple we will assume we are only producing potatoes, and we are hoping the potato market is better this year than last year.  I always use per acre revenue and costs for analysis.

Assumptions-The potato farm is all rented ground and includes 1,000 acres, the potatoes are sold for $6 per cwt, the yield was 450 cwt per acre, total fixed costs were $700 per acre ($500 per acre rent, $200 per acre farm supervision, insurance, depreciation and machinery costs), variable growing costs are $1,800 per acre. 

1.Profit equation- Total sales revenue-Total variable costs-Total fixed Costs=Profit or Net Return

        (450*6=$2,700)-$1,800(variable costs)-$700(fixed costs) =$200 profit or net return

2. Break-even Analysis-(Unit sales price * yield)-(Unit VC*Yield(Y))-Fixed Costs=0

We will be solving for the break-even yield or Y using simple algebra

In order to use this formula we must convert the VC to cost per cwt ($1,800/450 cwt/acre=$4 per cwt), and subtract the fixed cost per acre.

($6/cwt*(Y))-($4  VC  per cwt * Yield (Y) cwt per acre)-$700 FC/ acre=0

$6Y-$4Y=700

$2Y=700

Y=350 cwt per acre is the break-even point, if we double check this number and plug it back in, the yield of 350 cwt per acre * $6/cwt should equal $2,500.

350*$6 = $2,100-There is a difference of $400…why?

This leads us to the conclusion that in agriculture there are no truly variable costs as in manufacturing where all the variable costs are known and measured.  These costs can be defined as mixed costs or semivariable costs.  These costs have both a variable and fixed component.  It is IMPORTANT to keep in mind the variable cost will increase or decrease based upon the yield.

Therefore, we must calculate the break-even point differently. 

VC per acre+ FC per acre / sales price per cwt

 ($1,800+$700)/$6

$2,500/$6 = 416 cwt per acre for the break even yield.

  Double checking the number 416 * $6=$2,500

3.Target Profit Analysis- Is an extension of break-even analysis that will tell us how the yield or what the total cost invested into a crop can be in order to make the desired profit.  This will have to be tweaked a little bit to accommodate for the semivariable costs.

(VC+FC)+Target Profit=Total Revenue

Lets assume we to earn a net return of $500 per acre, with the same cost structure as in the previous example.

(1,800 + $700)+500=$6 per cwt sales price

$3,000 total cost / $6 per cwt sales price

Yield must by at least 500 cwt/acre to reach the desired net return.

Let’s assume we have a good idea on what the yield will be, but are selling on the open market where there is not guarantee on the price.  But we want to earn at least $500per acre.

(VC+FC+Targeted Net Return)/Expected Yield

$1,800+$700+$500/400 expected yield= $7.50 per cwt sales price is needed.

My time is gone and the fun is only beginning…..more to come

Feel free to comment on what what works the best for you.  Comments are always welcome.

Work Hard, Be Patient, Never Quit, Always be Honest and Have Fun!

Farm Break-Even Analysis Getting Closer-But Still a Long Way to Go

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The last post, I focused on some tips and tricks at the 30,000 foot level.  In this post I want to bring it down to the 10,000 foot level.  I will outline the basic financial definitions, and focus on knowing our cost of production.  I always look at my cost of production on a per acre basis, and then I take it down to the cost of production per unit (bushel, cwt, or tons per acre)

Definitions-

  1. Fixed Cost-Costs that remain the same regardless of activity level.  Examples include farm payments, machinery equipment, depreciation, irrigation equipment and other hard physical assets (shops, offices, warehouses, misc crop storages).  An easy way to tell a fixed cost is if the cost remains the same regardless of what crops or livestock are raised.  It is important to divide your total fixed costs by the total number of acres being farmed or livestock produced.  This makes it much easier to see the big picture, and much easier to manage and make decisions.
  2. Variable Cost-Costs that change depending on activity levels.  Examples include seed, fertilizer, cost of electricity, planting and harvesting costs.  Just as the fixed costs are broken down to cost per acre, so should the variable costs.  Farmers and Ranchers are in the business to make a profit, it does not matter how much you sell your crops for, if your expenses exceed your income, you will not be in business very long.
  3. Differential Costs-Costs that influence a specific decision and will change depending upon which decision is chosen.  Examples include cost difference between different crop inputs, such as seed, fertilizer and chemicals.  Once a crop is decided upon it is hard to change our mind until the following year.
  4. Total Cost=Fixed costs +(Variable cost per unit *Production level)
  5. Contribution Margin- The difference between sales revenue and variable costs.  Contribution margin looks at your net proceeds before taking into account the fixed costs.  To begin with we are going to stick with this assumption.  However, sometimes depending upon the situation we assign a higher percentage of fixed cost to certain crops.  For example, a potato farm may allocate a higher percentage of their fixed costs to potatoes because that is their primary crop.  For starters let’s not go down that road yet, when we discuss overhead allocations this will come into play.
  6. Break-Even Point- Is the point where total costs = total revenue.  All of our analysis should center on this point and which crop will provide the highest net return.  If we just break-even all we are doing is completing an exercise and heaven knows there is too much work and worry involved for just an exercise.

Since these definitions took up more space than I planned on, I will write two posts for today.  The next post will introduce the formulas and equations for break-even analysis.   

Work Hard, Be Patient, Never Quit, Always be Honest and Have Fun!

Now what do I do?

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I hope everyone is having a great July 4th weekend. This post focuses on the importance of financial analysis and record keeping. These are two of the most difficult tasks to get done, and to get done right. There is always something more important to do, such as working ground, planting, spraying, spreading fertilizer and the list goes on and on. During prosperous times in does not matter much. However, that time is long gone. Alfalfa farmers maybe experiencing record high prices, but dairy farmers are struggling to figure out how to reduce their cost and at least break-even.
The following are tips I learned from my dad and his good friend Owen Shaw.
Tips and Tricks-
1-Always keep good records. These records should not just be about prices, yields, fertilizer costs, and good buyers, but should also be a record of the problems we have had that year. What we did to fix it, if it worked, and what we have done differently. Then when the problem comes up again, we can look back and have a better idea on what to do.
2-Save for a rainy day, and put a little away for retirement. I know several successful farmers who do not believe they will ever be able to retire. These farmers have an incredible balance sheet with little debt and many physical assets. These farmers always planned on selling part of the farm to help them retire but now find their children needing more and more ground to remain competitive, resulting in a retirement cash crunch. It does not have to be a lot, a little bit every year will add up. In the book “The Richest Man in Babylon” the author encourages his readers to pay themselves 10% from each paycheck, and invest these dollars. Honestly, 10% maybe the wrong number for you but decide on the right number and get to saving and investing. This will create diversity, security, and savings for retirement. It is always better to be safe than sorry.
3-Do something you love and you will never work a day in your life.
4-Know your cost of production. Study the markets, subscribe to trustworthy market reports. Know the factors affecting your fixed, variable, and differential costs. This is good to know for many reasons, I listed just a few examples-
a.Will it pay to apply 20 more units of N at the current or contracted sales price of the crop? The opposite is also true, will the return of the crop be so low that it may be more profitable to reduce inputs by a certain margin in order to break even.
b.Will it pay to buy heifers to feed some weedy or rained on hay instead of selling it on the open market at a discount?
c.Will it pay to plant right behind the disk or groundhog and save a pass across the field and reduce your fuel costs.

Darn-It! I have rambled on and did not get to the basic formulas, and did not even mention capital budgeting. TO BE CONTINUED…..

WORK HARD, BE PATIENT, NEVER QUIT, ALWAYS BE HONEST