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Episode 40: Top Five Attributes of a Successful Farmer with Aaron Stoller

Aaron Stoller has been intricately intertwined in the world of agriculture from the very beginning. Growing up on a family farm in Paulding, Ohio, his farming roots run deep. Working side by side with his family on a farrow to finish hog operation and grain farm, Aaron learned all the joys and frustrations that came with running a farm. Little did he know that these experiences would shape his future career as an ag lender.

After completing a summer internship in Upstate New York where he was introduced to the diverse world of agricultural lending, from vineyards and apple orchards to greenhouse nurseries and dairy farms, Aaron’s passion for agriculture was ignited.

Now, with over 20 years of experience in agriculture lending, Aaron has a deep understanding of what it takes to succeed in the industry and the unique set of traits farmers must possess to thrive.

In this blog post, we dive into the five essential attributes that define a successful farmer. These traits, as identified by Aaron, are focused on the financial aspects of running a successful farming operation. From having a strong business acumen to prioritizing furthering education, these attributes play a crucial role in becoming a successful farmer.

1. Have Strong Business Acumen
In the world of farming, having a strong business acumen is the number one trait of successful farmers. As Aaron puts it, “Successful farmers have strong head knowledge.” He emphasizes that successful farmers spend a significant amount of their time focusing on three primary areas: “How to lower costs, how to grow at optimum capacity, and how to position themselves for the future.”

Aaron points out a critical aspect that sets successful producers apart from others: “We all grow the same product.” For instance, “A bushel of yellow two corn that I grew on my family farm really isn’t a whole lot different than a bushel growing on your farm.” The challenge lies in controlling the cost of production, as it can vary from farm to farm. Aaron emphasizes that “The lowest-cost producer wins. Always has, always will.”

When it comes to cost control, Aaron highlights the significance of equipment. Successful farmers have a clear understanding that “equipment is not an investment. It’s a cost of doing business.” Farmers may find it challenging to let go of the mindset that new equipment is an investment, but he advises farmers to focus on the bigger picture and consider the true costs of equipment ownership.


2. Understand the Value of Working Capital
Understanding the value of working capital is another crucial trait of successful farmers. Aaron explains that successful farmers know the importance of building and deploying working capital. He compares working capital to jello, saying “There’s always room for more.”

Quoting Dr. David Kohl, Aaron states, “Cash is no longer king. It's the queen on the chessboard.” Working capital is a powerful tool that can both block and attack. It can block by subsidizing poor business decisions, and it can attack by seizing opportunities with great timing. As a result, building working capital over time allows farmers to avoid being caught off guard when unforeseen problems arise, and additionally, ensures farmers don’t miss out on opportunities.


3. Know the Difference Between Good Debt and Bad Debt
Knowing the difference between good debt and bad debt, as well as striking the right balance between too much and too little debt, is another critical trait of successful farmers. According to Aaron, there are two reasons to borrow money: to build assets or to fund losses.

When borrowing money to build assets, successful farmers ask themselves whether they are investing in assets that generate income, reduce expenses, or appreciate value over time. These investment assets are considered good debt. On the other hand, borrowing to finance cost-of-doing-business assets, requires caution. Taking on excessive debt for cost-of-doing-business assets may risk turning a farm into a high-cost producer. Aaron urges farmers to have a clear purpose for borrowing, either to build assets strategically or to fund losses.

Aaron also challenges the concept of being debt-free by sharing an anecdote about a dairy farmer. Aaron says this farmer understood the value of leveraging a certain level of debt necessary for growth. He aimed to keep his equity between 50% and 80%, believing that having less than 50% equity was risky and that having more than 80% hindered his ability to responsibly grow the operation. Aaron encourages farmers to maintain a balanced approach to debt to drive growth.


4. Become Industry Experts
Aaron states that successful producers have a deep passion for their industry and demonstrate an understanding of it, including knowing the key players, trends, and developments. They are highly vocal about the industry and take on leadership roles. Aaron stresses that by actively leading and sharing their expertise, successful farmers contribute to the agriculture industry’s overall growth and advancement.


5. Prioritize Training and Continuing Education
Prioritizing training and continuing education is the fifth and final trait of successful farmers. These farmers continually invest in themselves and their operations by seeking ways to improve and refine their skills. They recognize the value of staying current with industry trends and developments.

Aaron highlights the value of peer groups in agriculture. These groups provide a supportive environment where farmers can interact with others facing similar challenges and opportunities.

Benchmarking also plays a crucial role in the success of farmers. By comparing their performance to industry standards and peers, farmers can gain valuable insights into areas that require improvement and strategies for sustained success.

Becoming a successful farmer requires more than just hard work and dedication; it demands a keen understanding of business dynamics, a strategic approach to debt, and a commitment to continuous learning. By embracing these five essential traits, farmers can cultivate a path toward long-term success and make a positive impact on the future of agriculture.

Here’s a glance at this episode:

  • [02:26] Aaron introduces himself, shares his background in agriculture, and how he got into lending.
  • [05:16] Aaron shares more about his career path in agriculture lending, which began with diverse ag industries in western New York.
  • [12:01] Discussing his current job title, Aaron walks through what his position entails and the day-to-day roles of his department at AgCredit.
  • [20:35] Aaron explains how farm size is not necessarily correlated to profitability.
  • [25:46] Discussing farm profitability, Aaron describes how good farm management is key to success.
  • [30:42] Aaron reveals the top five traits of a successful farmer beginning with high business acumen.
  • [38:26] Aaron addresses the mindset successful farmers possess around equipment. 
  • [45:26] Aaron explains how successful operations tend to understand that value is key to success.
  • [47:43] Aaron explains “The 5% Rule” and how it applies to farming operations.
  • [51:24] Aaron explains the importance of working capital and the difference between good debt and bad debt.
  • [1:04:33] Aaron explains how successful farmers tend to be experts in their industry and reinvest back into themselves.

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Voiceover (00:00:08):

Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must have information on all things from farming to finances and everything in between.

Phil Young (00:00:28):Welcome back, AgCredit Said It listeners. We are back in-studio with a great episode. I'm Phil and Matt is my co-host today, and we are live in the WERT 1220 AM studio in Van Wert. So, excited to be here. Matt, how you doing?

Matt Adams (00:00:41):Doing good, Phil. Yes, a big thank you out to Chris Roberts and his team for allowing us to use this facility. It makes us sound a little more professional. I mean, we're in a legit studio here.

Phil Young (00:00:51):Oh yeah, yeah. We've done this probably, what, two or three times now? So it's always nice to come in here.

Matt Adams (00:00:56):Just a great working relationship with these guys. So, Phil, even though this episode's going to drop in July, crops are in the ground, things are coming up, getting a little dry in northwest Ohio, but it's to be expected. When planting season goes smooth, you either have a wet spring, you get slowed down or a dry spring and we're just sitting waiting for rain. I actually had an older member stopping at the office the other day, I'm trying to remember, he told me, he says, "A wet spring will starve you to death." He said, "A dry spring will just worry you to death." So some of the old man knowledge, I don't know if you really can get much out of that, but hey, it's one thing to think about.

Phil Young (00:01:33):I've been stretching and I'm working on my rain dance routine and it's just something I'm getting ready for because it feels like we're going to need it. We're going to need that rain dance.

Matt Adams (00:01:40):So that's why you had to go home early yesterday.

Phil Young (00:01:42):It is, yeah.

Matt Adams (00:01:42):Okay, gotcha. Gotcha.

Phil Young (00:01:44):Practicing my rain dance routine.

Matt Adams (00:01:45):So, Phil, why don't we get started and let's introduce who we got today.

Phil Young (00:01:49):Yeah, so we have a special AgCredit guest in today, Mr. Aaron Stoller. Aaron is the Director of Capital Markets and Agribusiness at AgCredit. Aaron has been in ag lending for a while and has had the opportunity to work with all types of farm operations, small to big, as well as simple to complex. Since Aaron has been able to experience different farming operations, we asked him to come in, share his insights on what characteristics and attributes make a successful farming operation. We're excited to have him with us to share his insights, experience with you, and venture through any other topics we come across. Excited to have him. So welcome, Aaron. Welcome to the podcast.

Aaron Stoller (00:02:22):Yeah, thanks, guys. It's a privilege and honor to be here. Appreciate you having me.

Phil Young (00:02:26):So like we always like to do when we have someone on, jump in, tell us about yourself, how you got started in lending.

Matt Adams (00:02:32):Get your background story a little bit.

Aaron Stoller (00:02:35):Yeah, absolutely. So my personal background, I grew up on a family farm in Paulding, Ohio. The roots go pretty deep in my family. The farming roots go pretty deep in the family. My dad is a full-time farmer. My grandpa and my uncle, they were both full-time farmers. Three of them ran the business together. Grandpa and uncle have since passed, but now it's my dad and my brothers. I help out a little bit. We have some hired help on the farm. When I was growing up, we had a thousand sows, a farrow to finish hog operation, and also a grain farm. I know a thousand sows really isn't much today, but back in the '90s that was enough to keep a couple of young boys busy on the farm all year.

Phil Young (00:03:16):Yeah.

Aaron Stoller (00:03:18):It was farrow to finish. So you learn to do everything, even the jobs you really don't want to do. At the time I didn't know it, but looking back it was an absolute blessing to grow up working alongside my brothers, my grandfather, and my uncle, my cousins. It was a very special childhood memories growing up. I learned to drive a tractor from my grandpa on an old International 1486 with a five-bottom plow. Did that when I was pretty young. Yeah, I remember hauling hogs up to the old Lugbill livestock sale up in Archbold, for those of you that might ring a bell. That's long gone since then.


(00:03:57):So all the joys, all the frustrations, all of the excitement, all the disappointments, working in a family business, that was my environment growing up. I will say growing up in that type of environment really helped prepare me for my lending career. It just allows me to understand the dynamics of a farm family as it relates to our customers. So I really appreciate that background and growing up. Still involved with the family farm today, although we backed out of hogs and focus mostly on the grain now.

Matt Adams (00:04:30):Aaron, on your guys' family operation, correct me if I'm wrong, but a little bit of diversification is going on, I guess. You ventured into some other opportunities to supplement the farm income a little bit.

Aaron Stoller (00:04:42):Yeah, that was kind of a journey. What had happened actually is my uncle had passed away early. It was a farming accident and wasn't on the radar screen. So after a year or so it kind of passed by, it was clear that the hogs were probably going to wind down and that left an opportunity to replace it with something else. So actually my brothers and my dad started a retail propane business. That's been going on for over 10 years now, 10, 11 years.

Matt Adams (00:05:12):Oh, great.

Aaron Stoller (00:05:13):Yeah, that keeps him pretty busy in the off-season of farming.

Phil Young (00:05:16):I just always imagined propane, the Hank Hill, I sell propane and propane accessories. Obviously, you're in lending. So tell us about your lending journey. How did you go from family farm operations to where you are now.

Aaron Stoller (00:05:33):To where we're at now, I guess.

Phil Young (00:05:34):Yeah.

Aaron Stoller (00:05:34):Yeah. Well, I'll tell you it wasn't by design. I'll tell you how I got started. Back when I was in college, there was a requirement to do an internship if you wanted to graduate. It was a requirement, you had to do it. I actually stumbled across a farm credit association up in New York, Upstate New York. What it was, was a CEO from there was a Buckeye graduate. He liked to come back to Columbus every year to recruit Buckeyes to come to work for him. So that summer they offered me an internship and I thought, "Well, if I want to graduate, I suppose I’ve got to do something."


(00:06:10):When I got up there and just started getting a taste of this agricultural lending space, that's where I say I got bit by the lending bug. I don't know if people understand the western New York area, the agriculture up there, but it's just incredibly diverse. Tons of different ag industries up there. I spent the whole summer that year just going around visiting farms that I knew nothing about.


(00:06:34):There are a lot of grape farms up there where farmers there will raise concord grapes that they'll crush for the juice, jam, and jelly. Learning about vineyards and grape farming was absolutely fascinating to me. We went around and visited a couple of apple orchards and just learning the process, how they harvest it, and then how they preserve them over the off-season through these cold storage facilities was amazing.


(00:06:58):I still remember, I was doing a visit to a cold storage when the owner of the cold storage throws me an apple and he says, "Here, eat it." I'm like, "All right, I'll take a bite of it." He said, "That apple has seen its birthday. That apple's over a year old." I remember thinking, "No way, this literally tastes like I just picked it off the tree." Understanding how that cold storage facility, just brings the temperature down, sucks all of the oxygen out of there, the way it preserves the crop, the science behind that was just really fascinating to me.

Phil Young (00:07:28):That's cool.

Matt Adams (00:07:29):That's very neat.

Aaron Stoller (00:07:31):Got involved in some greenhouse nursery operations up there, and some retail garden centers. That was my introduction to dairy farming. For a hog farmer growing up thinking hog farming was pretty hard work, I got to tell you, dairy farmers take commitment to a whole new level. Very much loved my time working with dairy farmers. I often say that I cut my lending teeth on dairy farms.


(00:07:57):Then there were just a bunch of other operations, very large-scale vegetable farms, onions, cabbage, peas, snap beans. There were some family-owned wineries back in the day. I mean back then, still are, but that was back when the wine trails really kind of got popular. So you're really working with true family-owned wineries and just learning that process. As I said, as a hog farmer from Corn County, Ohio, this was just fascinating to me.


(00:08:24):I'll tell you, that was the summer, that was a year where I fell head over heels in love with American agriculture. As I think about this and the journey I've been on, and I look back at how I got into the business, I often say, "I did not choose this career. This career chose me. I was made to be an ag lender." And I'll tell you why.


(00:08:47):Because we have the privilege of working with the best group of people on the planet, the American farmer. They're the most resilient, they're the most hardworking, the most trustworthy group of people on the planet. I am convinced of it. They're the backbone of this country, and it is an honor and a great privilege to be able to serve them. I feel blessed to have this opportunity to live out these passions in life.

Matt Adams (00:09:11):Oh, yeah.

Aaron Stoller (00:09:14):I will say for listeners out there that are considering a career in the ag finance world, I'll tell you this, in order to have a fulfilling career as an ag lender, it's good to like numbers, but it's far better to have a passion for agriculture and a passion for helping others. That's built with one farm, one family, and one relationship at a time.

Matt Adams (00:09:37):Oh, yeah. I think even I can speak just for my shorter career in ag lending, it's building that relationship, but it's seeing that you almost feel like you become a part of that operation with the member. It's not a cash-and-carry deal. This is, we're in it for the long haul and we hope to carry on to the next generation with that operation.

Aaron Stoller (00:10:04):Yeah, yeah, absolutely. So go back to my internship. On the last day of my internship, my CEO takes me out for lunch. He says, "Aaron, I got to tell you, this really wasn't a 12-week internship." I'm thinking, "Well, I actually thought it was."

Phil Young (00:10:20):He's like [inaudible 00:10:23].

Aaron Stoller (00:10:22):He says, "You're not understanding, Aaron," which I wasn't. He said, "Aaron," he said, "this was a 12-week job interview, is what this was." He said, "You're going to go back to college, you're going to have all kinds of job offers." He said, "I'm going to make it real easy for you." He said, "You're going to come back and work for me and we're going to do some great things." I said, "That sounds pretty good. I think I like that."

(00:10:45):So my action, my very first year of my career, my very first official, year one as an ag lender was spent in the northeast part of the country, mostly in Connecticut where I was going through their loan officer training program. After that first year of training, I moved back to Western New York for my first official job as being a loan officer.


(00:11:07):So I was there for a few years and actually got contacted by a large national bank, actually right here in Van Wert. It gave me an opportunity to move back closer to family, closer to the family farm. It seemed like a logical step. In hindsight, I was very thankful for the experience, even though it may not have been the best experience, but it taught me really the importance of company culture. Some lessons you got to learn the hard way. Reminded me of the importance of being a mission-based lender.


(00:11:35):So I was with them for about four years before I had what I call a smart attack, kind of smartened up. I had an opportunity to come back and be part of this great association here at AgCredit. So I think I've been with AgCredit now for 14 years. I've been a lender for 20 plus. My first five years here with AgCredit were working locally at the Van Wert branch. Then the last nine years have been with the capital markets department.

Phil Young (00:12:01):Probably has one of the coolest titles at AgCredit, Director of Capital Markets and Agribusiness. This is kind of a fun title.

Aaron Stoller (00:12:06):A title's a title.

Phil Young (00:12:11):I know. So can you kind of walk us through, I guess, what do you do now in that department? Yeah.

Aaron Stoller (00:12:16):All right, speaking of titles, agribusiness, capital markets, those words, commercial banking, middle market banking, there's a lot of words that are used for this space and they all tend to be really vague. They're not super clear, they're not super well-defined as to what it is. So this is what I like to say is that if you cannot explain to my eight-year-old daughter what you do for a living in a way that she understands it, you're probably a fraud.

Phil Young (00:12:45):Never thought of that.

Aaron Stoller (00:12:49):Okay. So keep it simple. I love keeping things simple. Simply put, agribusiness, capital markets, we provide large businesses with the money that they need to run their business. That's what we do. Okay. Now how we do that usually falls into one of three categories. We'll originate loans or make loans, we'll buy loans and we'll sell loans. That's it. Originate, buy, sell. Those are what I often refer to as the three legs of our three-legged stool within the department.


(00:13:19):That first leg, the originations, making a loan, that's what we often refer to as agribusiness. The process of buying and selling loans is what we often call capital markets. So the second and third legs are essentially done through loan syndications, loan participations. You do that with master participation agreements and all kinds of stuff that we can nerd out on within that space. At its core, we do three things in this department. We make loans, we buy loans, and we sell loans.


(00:13:52):I'll add this too, I think it's important to know that loan-making is not an event. It's a process. Especially on the larger ones to do lots of volume, borrowers and lenders need specialization. That's really the purpose of having this agribusiness, capital markets division. So there are really two primary drivers within agribusiness capital markets. They really involve size and complexity.


(00:14:18):Size is a relative term and it's loosely defined, but basically, when you need more than one bank or more than one lender to finance your operation, that tends to fit the category of size. In the lending world, we call that concentration. So there comes a point in time where too much business with one particular customer will inherently bring on a different element of risk compared to just all the other risks that we normally have, on this side of the desk. Even if it's a really, really good customer, too much of a good thing is still too much.

Phil Young (00:14:54):Gotcha.

Aaron Stoller (00:14:55):It's just simply good business and good discipline to limit the amount of capital exposure to any one loan or one borrower. So in those instances, we'll reach out and engage our network of lending partners and begin this process of selling loans. That's mostly to other farm credit associations or other farm credit funding banks. It's what allows us to tap into the capital markets that allows us to provide our customers with all the capital they need to run their businesses.


(00:15:28):Then conversely, when other lenders have large borrowers, any additional financing, then we will look to buy into their loans as a way for us to diversify our risk and grow our portfolio. So buying loans is a great way to complement our primary line of business. I often say that God never made enough good ag lenders, so we're always on the lookout for good ones. We treat our lending partners, it's a special relationship and we've got a very, very deep background with a lot of those.

Matt Adams (00:16:02):I was going to say, I could think that's just almost a job in itself. You built the relationship with the member, now you have to find and build that relationship with the next lending partner that you're going to be involved with. I’ve got to think that kind of has its own set of problems there probably to work through.

Aaron Stoller (00:16:19):When I realized that, about two years into this position. I literally had the light bulb epiphany moment where I realized I spent many years of my career pursuing, engaging with customers and prospects and working for them, and building rapport and relationships with them. The light bulb moment was realizing I take that exact same approach and now I've got to do that with all of our lending bank partners.


(00:16:49):So literally, we will treat our bank partners the same as we do customers and prospects and pursue them in that same way. It's important. Farming ain't what it used to be, and a big farm ain't what it used to be. The really cool part about it is the farm credit system over the years has evolved to a point where they realize that we have a very unique offering to farmers. When you get half a dozen or a dozen different lenders together on a deal that are all pursuing the same thing with the customer, it's a pretty neat thing.


(00:17:33):So I mentioned size as being one driver. The other driver is really complexity. Complexity again is a relative term, but generally, a complex loan requires more controls or more reporting in order to monitor the performance. That can sometimes be driven by the industry, and sometimes can be driven by the type of customer.


(00:17:57):Some examples of a complex loan, these would be loans that require a monthly borrowing base report where we would have to verify there's enough trading assets to support the amount that they're borrowing against, say their operating line of credit. Loans that require different reporting like inventory reporting, accounts receivable, agent reporting, or monthly financial reporting. It allows us the ability to track year-to-date performance, year-over-year comparison, and year-to-date versus budget. One more area of complexity is probably focused primarily on loan covenants. Again, keeping it simple, what's the loan covenant?


(00:18:38):I like to look at loan covenants simply as a tool used to measure risk within a business. That's all they are. Yeah, I'm a big college football guy, so I like to use sports analogies. So if you think of a field of play where businesses operate in, a hundred yards long, 53 yards wide. There's a field of play where everything's kind of free game. Loan covenants will mark the out of bounds territory. Loan covenants will also serve as the official that throws a flag.


(00:19:15):It's important. The businesses have a lot of freedom, flexibility to run whatever play they want, whatever they think puts them in the best position to score. If a business commits a foul or if they go out of bounds, there's going to be a whistle blown and the team's going to need to come back, huddle up, figure out, "Hey, what went sideways here?" Loan covenant will blow the whistle when the ball goes out of bounds, it'll throw the flag when there's been a penalty.


(00:19:42):If you ever listen to the post-game press conferences, the head coaches, oftentimes you hear a lot of the same messages. Penalties and turnovers, penalties and turnovers that killed us, shot ourselves in the foot. It's a lack of discipline. So covenants are used to help set the rules for the game so the game can be played sustainably and that everybody's got a chance for success.


(00:20:07):Really it preserves the integrity of the business and the integrity of the lending relationship and just makes sure that mostly the profits are being appropriately used to keep the business moving forward and they're able to capitalize on future growth. So that's a big part of our day-to-day, monitoring, measuring, and picking which ones to use. There are all kinds of different ones to use.

Matt Adams (00:20:35):You talked agriculture and I feel that we are probably one of the, I'd say the most fast-advancing industries out there. I mean, I look at where we were at in production agriculture 10 years ago versus now, and as lenders trying to keep up with the evolvement of operations. So when you look at some of our characteristics, the controls we put in place, I'm sure those have had to adapt continually with these operations, Aaron. So I guess, where do you see things going in the future when you look at some of the stuff?

Aaron Stoller (00:21:17):Yeah, as a producer, it really, all we have to do is look upstream and see, or even look downstream and see that there's a much bigger process within agriculture. So we look upstream and we look at the inputs that we receive in the farm. We'll see seed for larger chemicals. So those all need to be manufactured and processed. You look downstream at the product after we sell it.

(00:21:39):Our commodities are handled, processed by co-ops, elevators, feed mills, ethanol plants, livestock integrators. All of these businesses are absolutely crucial to the ag industry and they need capital just like we do as farm producers. The industry has changed, but tell me what industry out there hasn't in the last 23 decades. I hear the comment all the time, "Farming ain't what it used to be. It's this picturesque, the old red barn with some chickens."

Matt Adams (00:22:16):We're not the guy with the pitchfork standing out in front of the farmhouse anymore.

Aaron Stoller (00:22:21):I think people would just be utterly blown away, and fascinated with what I would call cutting-edge farming, and agriculture these days. It would go toe to toe with any industry out there. It's again, guys, we have the privilege of lending money to that industry. We got the best jobs in the world. You know that?

Matt Adams (00:22:46):We really do. That's one thing I want to reiterate what Aaron just said, privilege. It is a privilege for us to work with agriculture. One thing you can do in this job from day one, it's a privilege that I get to walk on your farm and hopefully help you take your operations to that next level.

(00:23:02):So, Aaron, we're talking about through the ag business side and even at the branch level you were at. So from the beginning of your career, you've seen a lot of different operations, big, small. What are some similarities and differences that you see with this, I'd say a small operation versus a large, multi-generation, family operation?

Aaron Stoller (00:23:30):Yeah, it's a great question and it's one certainly worthy of discussion. I may go down a different route on this one and just simply say, from my experience, I think the number one correlation between profitability on farms is not size. In fact, I'm going to propose the idea that profitability is not really a function of size. Profitability is normally the result of doing something well.


(00:23:58):Now, size certainly has some advantages and can bring with it economies of scale, but size does not equal profit and size does not guarantee success. Those that have been around me for a while know that I've often said over the years that bigger is not better. Better is better.

Matt Adams (00:24:17):Better is better.

Aaron Stoller (00:24:18):A good strategy that I've seen is that when you focus on becoming better before getting bigger, and when you become really good at what you do, growth then tends to be the natural output. Size can be your friend, but if you're not ready for it, size can be your biggest foe. I remember, this is year one, year two in my career, one of my mentors that we were working on a lot of dairy loans back in the day. An old mentor once said, he said, "Aaron, if I'm losing a nickel for every cow I have in the barn, the more cows I have, the more nickels I'm going to lose. It's really that simple."

Matt Adams (00:25:02):Harvest is right around the corner. It's time to start thinking about grain inventory loans to allow you to access capital needed to purchase inputs and reduce taxable income without having to sell your grain before year-end. Contact your local ag credit office for more information.

Aaron Stoller (00:25:21):I want to camp out on that size thought that bigger is not always better, better is better. My experience from my side of the desk I've seen over the years is that when an operation becomes better at something, usually, growth happens. Growth is the natural output of that. Here's the practical concept and all that.

(00:25:46):Running a successful business does not mean you have to run a big business. Some of the most profitable businesses that I've worked with, as you define by financial metrics, return on equity, some of the most profitable businesses I've worked with have actually been on a smaller end-scale spectrum. So the number one correlation between profitability and farms is not size. I am going to propose the number one correlation is management.

Matt Adams (00:26:13):Okay.

Aaron Stoller (00:26:14):Oftentimes I'd like to use the word stewardship. I think that fits really well. I'll tell you why. Whoever's faithful with little will be faithful with much. If you're a successful manager in a small operation and you can lead well, you're probably going to be a good manager at a larger operation. The people that learn to do the ordinary things extraordinarily well tend to have pretty bright futures. So think about that.

(00:26:45):Why does major league baseball have spring training? These are the professionals. They're the utter, utter professionals, best of the best that are out there in that field. They still go back every year and do batting practice. They do the same thing that we did as kids, learning the sport from day one. First thing you did, batting practice, the coach puts you in there, "Okay, here's how you hit the ball. Here's what you got to do." Major league baseball players every year still practice the basics. NFL has a pre-season camp. Why? Because they get back to the fundamental blocking and tackling.

Phil Young (00:27:24):Refining the fundamentals.

Aaron Stoller (00:27:26):Same thing that I was taught on day one of football practice, practice of fundamentals and professionals are no different. So it's just a concept that never grows old. Keep focusing on doing the right thing and let the results happen.

Matt Adams (00:27:45):That is great.

Phil Young (00:27:47):So I guess when you say stewardship and management, can you break that down? I guess in my mind, I think of you're a farming operation, you're a producer, your job is to produce a crop. It seems like the successful farming operations I've witnessed are ones that are, number one, great at that. They're great at producing a crop. They're great at putting seed in the ground and getting a great yield out of it. Then there's the management side of it, there's the paperwork side of it, there's the metrics side of it. It seems like the people that do well are the ones that know how to farm, but also, like you said, know how to manage, know how to do the other, how to do accounting, how to work the numbers.

Aaron Stoller (00:28:27):I think it just helps set the proper view primarily in terms of ownership and also sustainability. You can be an owner and a manager. You could be the CEO of the farming operation, and you could go about your business in that capacity. You can also be one of the key employees within an organization that would still take, what I call, the owner mindset.

(00:28:54):"I'm going to make a decision that's best, that makes the most sense. It's the right thing to do, whether I own it or somebody else owns it. I want to be a good steward of somebody else's resources." It's that owner mentality that when that's prevalent throughout the entire organization, great things are going to happen. So management, stewardship, ownership, they're similar, but they're not alike.

Phil Young (00:29:21):Yes.

Aaron Stoller (00:29:23):I like the word stewardship. I think it applies.

Matt Adams (00:29:25):Surrounding yourself with the people that have that same mindset and the same goals as you, I think is a big thing in today's operations where it is not just a farmer and his wife now. I mean, there are quite a few operations. We have multiple employees that you hope you get the people that have the same mindset and goals you do, or else then I could see that being just a battle to end to go nowhere looking at that.

Aaron Stoller (00:29:55):Really, guys, in my mind, success is not about how much you have or how little you have. To me, success is defined by what are you doing with what you’ve got. What you do with what you have. How are you using it and how are you growing it with the gifts, the talents, the resources that have been given to you? To me, Phil, that's good stewardship.

Matt Adams (00:30:17):I hope all the listeners out there, if you're driving in the truck, don't be jotting notes down, but get our show notes later. This is stuff that doesn't apply just to farm operations. This applies to everything. So just good advice here for you guys.

Aaron Stoller (00:30:33):Farm, business, personal, it all mashes together. That's how we’re wired.

Phil Young (00:30:42):I think, I guess I don't know if you can speak to characteristics of a successful farmer. I just love the fact that you've been outside of the state of Ohio, you've seen different grape farming to dairy to different unique things out in New York. Then you've come back and just the size and complexity of what you've seen. What is unique, or not unique, what is a similar characteristic you see across the spectrum of how someone is successful, like practically? How's that executed?

Aaron Stoller (00:31:10):Absolutely. Yeah, that's a great question. Again, it's one of these things that over time you just realize that as lenders, we have a very unique position within a marketplace where we get to work with, like I said, the best this world has to offer, the American farmer, and we're also blessed to work with a lot of different farm families. That's a unique trait of this position.

(00:31:41):Over time as you work with more and more families, you learn what can work for them. You can learn that the same thing that worked for them is not working over here with this other family. So those of us that wrestle with that, think about that. God gave us a brain to use so that we can think through strategically and think big. As you peel that onion back a little bit and start to realize there are a few things that kind of come to the top.


(00:32:14):All right, I've got a list here. I'm going to call it the five traits or five attributes of a successful farmer. These are things that over my experience, these are consistent traits that have risen to the top that I have found that are consistent from operating big or small, successful farmers tend to have these five traits. Now, I also want to throw out a disclaimer on this too, that it's not my desire to come at this from the perspective of somebody that has it all figured out and that I'm an expert on this topic because I don't.


(00:32:49):In fact, it's quite the opposite. I've spent my entire career seeking out wisdom from others that are experts in this field, and then I just simply watch what they do, guys. Talk is cheap, actions matter. When you stop listening to what people say and you just start watching what successful people do, you're going to end up learning something.


(00:33:07):So with that in mind, some of these thoughts, my list of five are going to be what I call descriptive, not prescriptive. So meaning that some of these thoughts, and some of these comments on this topic are what I have found to be effective in the marketplace, but they're not the only way. They're not the only traits of a successful farmer, and certainly not an exhaustive list. They're just simply some or a few of many traits. They may not all work the same in different situations.


(00:33:39):So for example, somebody may come up to me and say, "Aaron, I adamantly disagree with your thoughts on," fill in the blank. My response to that is, "Great. Tell me, what are you doing? How's it working for you? How's that apply to your operation? Help me understand. Great." For purposes of this discussion, we'll talk about successful farming in the sense of financial metrics and financial performance. Okay?

Phil Young (00:34:07):Okay.

Matt Adams (00:34:08):Perfect.

Aaron Stoller (00:34:09):I also understand that success isn't always about making money, and in the broader sense, success to me is leaving the woodpile higher than I found it. It's giving back more than you consume. As I mentioned, one of the ways that we do this is by using the gifts, talents, and resources we've been given and using them to grow and multiply. Again, for purposes of this discussion, we're just going to focus primarily on the measuring stick of financial performance. That almost always starts with profit.

(00:34:38):So number one trait of successful farmers. Successful farmers have what I call high business acumen. Great businesses, they have strong head knowledge. Dr. Dave Kohl likes to call this the sixth C of credit, cranium. What I see successful farmers doing is they usually spend most of their time in three primary areas. How to lower costs, how to grow at optimum capacity, and how to position for the future.


(00:35:10):So in the first area, how to lower cost. I think it's really important to realize that we, as producers of an ag commodity, are so different than other businesses in this country, primarily in the sense that we all grow the same product. So, Matt, a bushel of yellow two corn that I grew on my family farm really isn't a whole lot different than a bushel growing on your farm.

Matt Adams (00:35:35):Right.

Aaron Stoller (00:35:36):What I found is that generally speaking, what I sell that bushel for really isn't that much different than what you're able to sell yours for. What I have found is that my bushel of corn may have cost me a lot more to grow than perhaps it would've cost you to grow yours. That's one of the biggest differences that we see from farm to farm.

Matt Adams (00:35:55):That is an interesting way to look at it. We are, like I said, a very unique industry in that we all produce the same product and sell it for the exact same price. So it's hard to say what's going to stand you apart from the neighbor down the road that's growing the exact same thing and you're hauling to the same market.

Aaron Stoller (00:36:17):Yeah. The flip side of that coin also is in recent years, relatively recent years, there's been more demand, more effort, and more focus on traceability, non-GMO, and organic. Those are all very active parts of our ag industry that I would say don't fit that bucket. They inherently carry a premium value.

(00:36:46):I'm going to go way back to my college days when they talk about the definition of a commodity. The purest definition, Matt, is your commodity is the same as my commodity is the same as Phil's. It's all the same. You know what happens with your truckload of yellow number two corn? You dump in the pit, I pull behind you, I dump mine in the pit. You know what? It all goes to the same place.

Phil Young (00:37:06):Yeah.

Aaron Stoller (00:37:08):That's what happens. So successful farmers have a crystal clear understanding that in commodity agriculture, the lowest-cost producer wins. Always has, always will. Successful operations are quick to identify the areas that increase their cost production, and they're constantly looking for opportunities to lower the per unit cost or to improve their asset utilization. I often say money constantly swirls around a business just looking for a place to get lost. It's very easy, very easy to allow expenses to creep up.

Phil Young (00:37:47):Oh, yeah.

Aaron Stoller (00:37:48):Some traits of successful farmers, they're pit bulls when it comes to tracking expenses and allowing those dollars to leave the farm. So before farmers just go out, break out the yardstick, and start whacking their input suppliers down on price, before everybody goes and does that, can we talk about the elephant in the room when it comes to cost control? That big shiny new elephant, the one that has the new coat of paint on it, is really nice to look at. Equipment.

(00:38:26):I heard a comment years ago. Farming builds character, new equipment builds egos. I don't know if I'm allowed to say that or not, and I know I'm kind of going from preaching to meddling here when I say that. All right. There's also, I've heard it said, I think Dave Kohl talks about this, the little-known scientific fact about farmers that all farmers are born with three chips in their brain when they're at birth. That thou shalt not pay income tax. Thou shalt buy more equipment than what is necessary, and thou shalt buy as much land as possible.

Matt Adams (00:39:02):Sounds about right.

Aaron Stoller (00:39:06):These chips have a great influence on our thinking and the way that we run our businesses. I've tried over the years to rewire that program, but it really is a fruitless exercise. So you learn to adjust and work with it. Equipment. I digress. Equipment is the number one influencer of costs on a grain farm, and it's the one cost that we can see vary greatly from one farm to the next.

(00:39:30):So when it comes to equipment, the thought I have is that if you're going to have more than what is necessary, just make sure you know what it's costing you. It's okay for a business to have a loss-leader. It's not okay to not know that you have a loss-leader. That's not okay. So once you identify that cost, then it becomes pretty clear. Can you afford it? Assuming so, are you okay carrying that higher cost? Yes, is an acceptable answer to that question.


(00:40:04):One of my travels years ago, I was going down the interstate and I passed this massive boat that I don't know, it was bigger than what it looked like to be on the road. Beautiful boat. I passed it and at the very last end I glanced over, and you know how all boats have a name on the back of it? This big, huge, beautiful, massive boat. The name of it was Negative Equity. I'm like, yeah, that guy gets it. He totally understands and they've got the proper view of it.

Phil Young (00:40:34):Yeah.

Aaron Stoller (00:40:36):It was more than a chuckle. It was like, okay, there's a guy or gal that they get it. I think maybe I just came off a farm visit where I was having this conversation with the... I remember thinking I would love for our customers to have that proper view.

Phil Young (00:40:52):I was listening to a Dave Ramsey podcast the other day, and Matt and I have talked about this before. Dave talks a lot... He's a personal finance guy, and he was talking about people buying the once in life and one of those is a boat or a camper or something like that. He's like, "Those types of things, if you were in a financial position where you can go take the money that you're going to pay for that item," let's say it's a boat.

(00:41:19):He said, "If you are okay with stacking that money in your driveway and lighting it on fire, then you can go buy a boat." He's like, "If you are still financially okay after you burn that money, then you can still buy that boat." He's like, "If you cannot visualize lighting a match to that cash that you're going to spend on that boat, then you probably shouldn't buy the boat." I was like, that is a phenomenal way to say that.

Aaron Stoller (00:41:44):I like to come at the extreme. I know I'm working extremes here, but I like to come at from that perspective on the topic of costs because I just think it's a counterpoint that perhaps doesn't get talked about enough within our industry. I'm not saying a farm tractor is the same as a boat. I'm not saying that at all. The concept is just healthy. It's a healthy concept to think of it that way.

(00:42:14):I've said over the years as a lender, it's my job to show you that cost. It's your job to defend it. Again, I'm meddling a little on this, but I have found farmers go to the ends of the world to justify some of these costs. I get it. When I say farmer, I'm also a farmer. I have both a banker hat and a farmer hat myself. So I do eat my own cooking when it comes to this stuff. Here's the key concept, guys. Successful farmers understand that equipment is not an investment. It's a cost of doing business. The ultimate goal is to lower the cost of utilizing that equipment as much as possible.


(00:42:58):Now, I know there's probably some folks out there, because I've had this conversation many times, they'll argue, "Hey, what about those times when equipment goes up?" Talk about that 1486 International that my grandpa taught me how to plow, that 1486 is worth a lot more now than it was back then.

Matt Adams (00:43:17):Oh, yeah.

Aaron Stoller (00:43:17):Okay.

Matt Adams (00:43:19):So if you look at the return on investment, that's a heck of a return on investment there.

Aaron Stoller (00:43:26):I think there's been maybe two times in my farming career, I think I got this right, two times where we saw an inverse in the equipment market where, not the old, old stuff, but the stuff that's used, not super old, start getting really hot price. I think it's happened twice in my career. I think it's maybe happened three times in my dad's career. Could be wrong on that.

(00:43:51):Here's the thing. So suppose that was the case and you had that Case IH 7120 tractor and it went up in value. The argument is, well, no, it's an investment. Here's my question. Here's my statement. I suppose if you sold it, you would've had a realized gain. I get that. My question is, but what did you do with the money? You probably took the money and upgraded to a tractor that cost a lot more.


(00:44:26):In my mind, investments are typically held for 40 or 50 years. I struggle with the concept that something that can rust is considered an investment. Again, successful farmers look at the mindset of equipment not being an investment, but it's a cost of doing business.

Matt Adams (00:44:45):It's a cost, just a fixed cost.

Aaron Stoller (00:44:47):If you're going to be in the business of farming, you’ve got to have it. It's a cost of business. The proper view. Knowing that, how do we lower it? There are actually some different strategies for lowering the cost. If you talk about equipment, some farm businesses will, they'll pay for that cost through depreciation, some out there will pay it through repairs, run a little bit older stuff, but they’ve got higher cost of repairs. Some just pay it with a rent or lease expense, but everybody pays it in some form or fashion. Everybody has a cost of using the equipment. So again, the goal is to lower the cost as much as possible because over time, the lowest cost producer wins.

(00:45:26):Now, I am going to switch gears a bit and talk about the flip side of that coin of low cost. The flip side of that coin of low cost is called value. The goal isn't always to beat down your suppliers on price, like that whack-a-mole game, because I'll tell you why, because it's pretty hard to pay bottom dollar and expect top shelf advice or top shelf service. So successful farmers, trait number one, we talk about business acumen and head knowledge. Successful farmers understand strong value when they see it. They're willing to pursue it rather than chasing that very last dollar of savings.


(00:46:08):So this then is a challenge out to all the suppliers. So if you're charging a premium for your product or your service, then you best be bringing premium value. That's not defined by you, but it's defined but the value that you are able to articulate to your customer, and it's got to be the value that they see in your product or service. Sometimes we'll see a low cost producer choose to pay a huge premium for a product or a service or to hire a person, but the value that they get from that product, that service or that person, far surpasses the price they pay.

Matt Adams (00:46:42):Okay.

Aaron Stoller (00:46:44):Price is what you pay. Value is what you get. Let me give you an example. We've seen this happen in different industries. Automation, it's a great example. Automation can have a very large upfront ticket price, and can have a huge upfront cost. The long-term savings of automation are literally priceless, especially in this period of high inflation and a tight labor supply. The value of automation gets in there and doing its thing, the value's priceless.

(00:47:14):Nobody really wants to pay full price without getting value, but farmers are really good about sniffing that out. As they should be. When we stumble across a product or service or people of great value, we have got to fight hard to keep them part of our business. Value is key over the long haul. Successful farm operations realize this. I mentioned earlier, successful farmers with this high business acumen or strong head knowledge spend most of their time in the three areas.


(00:47:43):Number one, lowering the cost. We kind of beat that horse enough here. The second area is how to grow at optimum capacity or how to become more efficient. This reminds me of Danny Klinefelter's 5% rule. For those of you that don't know Danny, he is widely regarded as just a trailblazer in the ag economic space and a true visionary of American agriculture. He founded the TEPAP program 30 years ago as a training program for some of the best and brightest minds in agriculture. Then he went and followed that up by leading the Apex Association for many years. So Danny's been a great mentor and he is truly a wealth of knowledge.


(00:48:27):One of the Dannyisms that he said over the years, he calls it his 5% rule. It's simply this. A 5% increase in production, a 5% decrease in cost, and a 5% increase in price can increase your bottom line by over a hundred percent. It's really this idea of aggregation of marginal returns. We've talked about that internally here with AgCredit, small improvements made within a business done consistently over time, add up to very big gains.

Matt Adams (00:49:05):Oh, yeah.

Aaron Stoller (00:49:06):It doesn't take much. We have seen this on our side of the desk. It does not take much to go from average to above average or to go from above average to a leader of the pack. Danny's concept, it's just this, a 1% improvement compounded 15 times over, 1%, 15 different times, it'll double your net income. A lot of people out there are looking for the big wins, and that's good to spend some time there. True success, sustainable success requires a great focus on the small wins.

(00:49:46):We call this majoring in the minors, strong attention to detail. Implementing this 5% rule in your operation, it's a great way to become more efficient, have better asset utilization, and it allows you to grow at optimum capacity. So the third area that I mentioned, how to position the farm for the future. Successful farmers tend to be opportunistic. I like the visual, I call it being the watchman on the wall, a first-class noticer. It's constantly having your eyes on the horizon and looking for opportunities as they come up before it becomes obvious to the average producer.


(00:50:28):Maybe another way to put that is, heads-up farming versus heads-down farming. Sometimes we all need to have our heads down, making sure that everything's getting done. Oftentimes you need to be running with your head up, looking for those opportunities that will help position your business for the future. Spend a lot of time on this number one trait, business acumen, strong head knowledge, because I think it's pretty important.

Matt Adams (00:50:53):Oh yeah.

Aaron Stoller (00:50:55):So the second trait of a successful farmer. Successful farmers understand the importance of working capital and successful farmers are disciplined in building it, and they're very disciplined in how they deploy it and how they use that. Here's the thing, guys, about discipline. Discipline is something that none of us like, we don't like it. We don't enjoy it. The awesome part about discipline is that we all love the result of it.

Matt Adams (00:51:22):Right.

Phil Young (00:51:23):Yeah.

Aaron Stoller (00:51:24):We all love the result of it. So successful farmers understand the importance of working capital. What is working capital? We're talking about the top half of the balance sheet. So think about your balance sheet. Think about the top half, top left-hand side is your inventory, your receivables, your prepaid expenses, your cash. Top right-hand side. You take the total of your top left and then subtract it off of the top right. Your top would be your payables, your crude expenses, operating loan balance. That difference is what we as lenders call, working capital.

(00:52:00):Dave Kohl in one of his presentations years ago said that cash is no longer king. It's the queen on the chessboard. Why? Because working capital can both attack and it can block. It can do both. It can block by subsidizing a bad decision within the business, but it can also attack by capitalizing on great timing and opportunity. I will say this, the longer that I sit on this side of the desk in this profession, the more convicted and convinced I become in my view of building larger and larger levels of working capital.


(00:52:36):Now, I'll tell you why. Because usually when you deploy and use up most of your working capital, Mr. Murphy comes knocking on your door. It's usually really bad timing. I'll tell you this much too. If you've ever lost an opportunity because you weren't prepared for it or you hadn't maintained a strong enough liquidity position to be ready for it, that moment is going to burn the discipline back into you. It'll burn back into you. I often say that working capital is just like jello, there's always room for more.

Phil Young (00:53:16):Some of the younger audience might need to do a little research on that joke.

Matt Adams (00:53:19):That's a good quote we're going to put out there.

Phil Young (00:53:22):That's phenomenal.

Aaron Stoller (00:53:23):So the first trait of a successful farmer is strong business acumen. Second trait is understanding the value of working capital. Then the third trait of successful farmers is to understand the difference between good debt and bad debt. If I could take that a step further, they know the difference between too much debt and too little debt. So let's unpack that a bit.

(00:53:47):Good debt versus bad debt. There are two reasons to borrow money and really only two reasons to ever borrow money are to build assets or to fund losses. So borrowing money to build assets, the question you ask yourself is, are you buying an investment asset or are you buying a cost of doing business asset?


(00:54:10):Again, I go back to our talk on investments. Investment assets in my book are ones that either produce income, they save on a per-unit expense, or they regularly go up in value after you buy it. The best investments do a combination of those.

Matt Adams (00:54:28):Oh, yeah.

Aaron Stoller (00:54:29):Buying an investment asset and borrowing against it tends to be good debt in my book. I like that kind of debt personally, and professionally with my customers. That's good debt in my book. Buying investment assets. Buying a cost-of-doing-business asset, like we mentioned, it's a necessary evil. If you're going to be in the business of farming, there are certain assets that are just a cost of doing business and you've got to have them. So buying a cost-of-doing-business asset, you need to be careful about loading up on too many of them because it may run the risk of bumping into the high-cost producer category.


(00:55:07):So be intentional about those types of assets. Be careful about the amount of debt that you borrow out against them. Personally, I really like the business strategy of once you've built this very large working capital position, use the excess then to pay down the debts that you owe on the cost of doing business assets. Pay them off ahead of schedule. Then once those debts are paid off, then you work equally hard at that time of replenishment to replace them with your own capital and not lender capital. It's that snowball approach and it takes time. Once you get into that rhythm, it's one of the most sustainable ways to manage a business, in my opinion. It's really a fun way to manage a business.


(00:55:56):Speaking on this topic of buying assets, great businesses are not only disciplined in how they spend the money, they're also disciplined in how they earn it. Do they want to spend money on this project or do they need to spend money on this project? I've often said, "Who spends more money? A drunken sailor or a sober farmer?" Over the years, my answer used to be, "I don't know." Even though I've never met a drunken sailor, I'm pretty sure I'm going to put my money on that sober farmer. So I encourage our farmers to take a disciplined approach, a fool and his money are easily parted. So be wise in that approach.


(00:56:37):Profits can stay in the business to build working capital and they can be used for CapEx. Profits can pay down debt. They can be distributed out on owner draws, family living. There are a lot of different things you can do with profits. They can also be used to load up on lazy assets. So great businesses, they're disciplined with the capital spending and how they allocate the profits.


(00:56:59):So again, two reasons to borrow money, build assets. Second reason to borrow money is to fund losses. Obviously, that's not a good reason to borrow, but it happens. It seems self-explanatory, but sometimes people borrow thinking that they are building assets, but in reality, it's just masking a weakness by funding a prior year's loss. So having clarity on the purpose of borrowing is very important. Again, it points to the value of having a strong working capital position.


(00:57:33):In addition to understanding good debt versus bad debt, successful farmers also understand the difference between too much debt and too little debt. So the example I like to use is a crowbar. In the lending world, we also use the word leverage. My Grandpa Stoller would always say, "You’ve got to have the right tool for the right job. Got to have the right tool for the right job." He said that so many times I got sick of it. Oftentimes a crowbar is that right tool and debt can be an excellent tool to lift and move your business, but have you ever used a crowbar that was too small?

Phil Young (00:58:13):Yeah.

Aaron Stoller (00:58:14):Didn't work.

Phil Young (00:58:15):No.

Aaron Stoller (00:58:16):Didn't get the job done. Left you frustrated. Have you ever used a crowbar that was too big?

Phil Young (00:58:21):Oh yeah.

Aaron Stoller (00:58:22):It's the same thing. Didn't work. It's too bulky. You got frustrated or worse yet, you end up dropping it because it was too heavy. Debt leverage is like that crowbar. Too little doesn't get the job done, too much and it's just going to weigh down the business and you can't grow and thrive because of it.


(00:58:39):I also kind of feel the need to address this debt-free mentality. I will say there are absolutely situations out there where it makes a whole lot of sense to be debt-free in business. Typically, this could maybe be in a situation where there's a mature business and there's no next generation coming back to take over the business, it makes sense to get the debts paid off and give you more flexibility and more options.


(00:59:01):They say the best stories are the true stories. I want to tell you a story about when my theology of debt-free got completely turned upside down. We had to get in the way back machine, way back to 2003.

Matt Adams (00:59:16):Way back.

Phil Young (00:59:17):20 years ago.

Aaron Stoller (00:59:20):Yeah, 20 years ago. I remember this like it happened yesterday. 2003, our lending team, our branch office, we went out to visit one of our dairy farmers up in Upstate New York. This dairy farmer had just a great reputation within our company as just an operation that just knew how to dairy farm. Made lots of money over many, many years and they just know how to milk cows and make it work. I would consider this dairy farmer as having these attributes, of having these traits of a successful farmer. We knew it before we stepped foot on his farm. We went out there just to learn a little bit more.


(01:00:01):I remember somebody on my team asked him the question. They asked him when he thought he'd have all of his loans paid off because he really seemed dialed into this business and was just doing really well. I'll tell you, the look on his face was utter surprise. His response, very stoic, he says, "I don't have any plans for this farm to ever be debt free." I'll tell you, that comment rocked me, absolutely rocked me.


(01:00:29):Here's why. I think that comment coming from somebody who I knew we knew understood how to run a successful business, and knew how to make money farming. If that comment had come from maybe somebody else that we all knew just loved to buy new stuff all the time, maybe that would've meant something differently. This guy, he knew exactly how to run a profitable dairy business. That full tilt. That comment rocked me because I just kept thinking at that stage in my life like, "Oh, debt free is the way to go, just get this stuff paid off." Then he went on to explain it, and this is...I totally agree. He said he always tried to manage his business over the years being somewhere between 50% equity position and 80% equity position. He said anything less than 50% made him feel uncomfortable. Here's why.


(01:01:19):He said, "I never want the bank to have more of their money in my business than what I do." So he always wanted to stay above 50% equity. He said, "Anytime I get above 80%," he said, "I have a real hard time looking myself in the mirror and answering the question, am I doing everything I possibly can to grow this business in a sustainable way that preserves it for my family and future generations?"


(01:01:46):At over 80% equity, he didn't have a clear conscience answering that question, because he knew he had been given the gifts and talents, the resources to grow a business. He knew the resources to expand the business and thus needing debt to do it, he knew that it was at his disposal. He could do it. Choosing not to made him feel very uncomfortable. He didn't feel like he was using his gifts and talents in the way that he could.


(01:02:09):So I am going to challenge the thinking a bit on being debt free as this be all, end all, Holy Grail of farming that we all should aspire to because it's not. You can't save your way into prosperity as fast as you can grow your way into it. I think that dairy farmer from 2003 is a pretty good example of that.

Matt Adams (01:02:31):Oh yeah.

Aaron Stoller (01:02:34):It's just the mathematics of comparing your ROE to the cost of borrowing money. I often say if you choose to fight math, you're going to lose. I would say some of the wealthiest farmers that I know are the ones that borrowed the most amount of money.

(01:02:50):I hear this quote today when I go out and do my farm visits. They say, "Aaron," he said, "My dad always said, it's not about how much money you have in the bank, it's about how much you can get out of the bank." It's important to know that these borrowers did it strategically, and appropriately, and they loaded up on the really good assets, the really good ones, not the bad ones. Conversely, I'll say it, some of the poorest farmers that I know that I've worked with are the ones that never borrowed any money or rarely borrowed money because they didn't want to, and dare I say, they felt a little too proud to.

Phil Young (01:03:30):Okay, okay.

Aaron Stoller (01:03:32):I don't say that critically.

Phil Young (01:03:33):Interesting.

Aaron Stoller (01:03:34):I say that just as an observation. So final comment on this. Good debt, bad debt, too much, too little debt. Final comment I'll say is being debt free is a good and honorable goal, especially on the personal side, but borrowing money in the appropriate way, in the appropriate amount has been a great way to grow a business.

Phil Young (01:04:01):I think the important thing from your story you just told about the guy, the dairy farmer, is that he knew his equity position. I think it's knowing where you're at and knowing those numbers.

Aaron Stoller (01:04:12):He didn't know it. He was crystal clear.

Phil Young (01:04:14):Exactly.

Aaron Stoller (01:04:15):On what it was.

Phil Young (01:04:15):Exactly.

Aaron Stoller (01:04:15):There's a difference.

Phil Young (01:04:16):Yes, he knew that sweet spot and he knows knowing it and having that information and using it as a tool like your grandpa said, having that tool of knowing that your metrics is a big deal.

Aaron Stoller (01:04:33):So first trait, having strong business acumen. Second trait, successful farmers have strong working capital. The third trait, knowing the difference between good debt, bad debt, too much, too little. A fourth trait that I've got, successful farmers are industry experts. So if strong business acumen is the head knowledge, then this tends to be the heart of the business.

Matt Adams (01:04:55):Okay.

Aaron Stoller (01:04:55):These are the farmers that have a real passion for the industry. They know it inside and out. They know the key players. They tend to be the ones that are most vocal about the industry. They're the leaders. They represent the industry well. They push for support in sustainability. They're out advocating with elected officials, engaging with others in the industry, and industry organizations. They truly are leading the industry as experts.

(01:05:25):Then the fifth and final trait of successful farmers is they reinvest back into themselves. They continue to hone their craft. They're always looking to get better. They'll prioritize training and continuing education. Something that I've seen happen recently, say in the last 10 years or so, is peer groups that have come up within agriculture. I can't say enough good things about peer groups. The value is there and successful farmers will surround themselves with others that are in a similar capacity or similar industry. It puts the old proverb into action that iron sharpens iron. Just like we all know, peers have a great way of pointing out your blind spots.

Phil Young (01:06:14):Oh, yeah.

Aaron Stoller (01:06:16):Their opinions matter because they're down in the trenches fighting the same battles that we are. Reinvesting back in themselves, back in the operation. Peer groups are a great way to do it.

(01:06:26):Benchmarking is another great way. It's a fabulous way. I love benchmarking and really in my view, benchmarking is a tool that allows us to sharpen our strengths and improve our weaknesses. I say that because it's very rare. It's pretty unusual for a weakness to just magically turn into a strength. It's pretty rare. If you can start with a weakness and then improve it along the curve, going from poor to just even below average, that improvement along the curve has a huge impact. Goes back to Danny's 5% rule. Aggregation of marginal gains, small wins, big impact.


(01:07:10):My experience has also been with benchmarking is that it has a way of humbling some of us, it has a way of showing producers who think or feel that they're really good in one area, only to find out that their peers are just crushing them in that area and they're doing a much better job. Ironically, I've seen the exact opposite happen too. I've worked with farmers who are just convinced that they're horrible in this certain area or this certain category, only to find out that they're leading the pack in the entire category.


(01:07:41):This type of feedback, this type of information, gives them confirmation to keep at it. I say, keep doing what you think is a horrible job, because it's working. The data backs it up. So this type of information, this type of feedback, it's just invaluable and it establishes the roadmap, how to improve over time. Successful farmers will reinvest back into themselves.

Matt Adams (01:08:07):I think the peer groups are something I find interesting, too, Aaron. It's one thing we've discussed even in our local Farm Bureau meetings where to a point, it feels like we've lost some of that in agriculture. One, I think because of social media and just technology. How many times are you not stopping along the road and talking to the neighbor anymore or getting together Saturday mornings for breakfast at the coffee shop with the rest? We have a lot more fast-paced lifestyle. It is, that peer group thing is something that I feel we really need to get back to as an industry.

Aaron Stoller (01:08:41):Two attributes within a peer group that are must-have non-negotiables, there's got to be trust and there's got to be respect. Because if you're going to step out into the deep, step out and be uncomfortable, you got to do it with people that you respect and that you trust. Some of the best feedback is when people tell you stuff that you need to hear, not what you want to hear.

Matt Adams (01:09:04):Right. Yep.

Phil Young (01:09:05):Yep.

Matt Adams (01:09:06):Well, Aaron, we want to thank you today for being part of our podcast with us today. As we were talking at our commercial break, I got some questions down. I think we might be ready for round two come next season, so be prepared for that. I want to thank all of our listeners again and be sure anything we talked about today will be in our show notes.

(01:09:26):Be sure to tell your friends, listen to us on all your listening platforms for AgCredit Said It. Anything else information wise, be sure to look us up on or contact your local branch. Phil, I think that wraps her up for today. So I want to thank everybody and we'll catch you next time on AgCredit Said It.

Phil Young (01:09:43):Yep. Thank you, Aaron.

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