now may be the time to GROW YOUR FARM

Po­si­tion your farm now for bet­ter times in the fu­ture.

Successful Farming - - FRONT PAGE - By Gil Gul­lick­son, Crops Tech­nol­ogy Edi­tor Il­lus­tra­tion by John W. To­mac

“How many of you have sat down and made a list of the two or three or five op­por­tu­ni­ties that you should be ex­plor­ing now?” asked Mike Boehlje of those at­tend­ing a re­cent Pur­due Univer­sity Top Farmer Con­fer­ence.

The prover­bial pin dropped in that room would have echoed off the walls after the Pur­due Univer­sity agri­cul­tural econ­o­mist posed the ques­tion. Boehlje slowly scoured the room, look­ing for any tak­ers. Slowly and sheep­ishly, three hands emerged fol­lowed by a few sec­onds of awk­ward si­lence.

“So how many of you will think it will stay crappy for­ever?” he asked to rau­cous laugh­ter.

Con­sider Op­por­tu­ni­ties

That’s a typ­i­cal re­ac­tion. “We have a ten­dency when eco­nomic down­turns oc­cur to get so fo­cused on the down­side that we ig­nore the op­por­tu­nity side,” says Boehlje. Re­mem­ber the fi­nan­cial and hous­ing in­dus­try melt­down

of 2008? Huge can’t-miss banks missed. This left stock­hold­ers – and even­tu­ally tax­pay­ers – with a mone­tary mess.

In­vestors pan­icked. The S&P 500 stock in­dex cratered from 1,255 points on Septem­ber 19 of that year to 735 points on Fe­bru­ary 27, 2009 – a 41.5% de­cline in just a bit over five months.

In­vestors, though, who stayed the course and dou­bled down were richly re­warded. The S&P 500 in­dex zoomed from that gloomy Fe­bru­ary 2009 low to 2,729 in late June 2018 – a 371% boost.

That’s akin to dou­ble-digit-per-bushel corn, soy­bean, and wheat prices in­creases from to­day’s lev­els oc­cur­ring in less than a decade. This seems like a bil­lowy blue-sky dream, con­sid­er­ing cur­rent com­mod­ity prices.

Then again, who in 2002 ever thought farm­ers would be sell­ing $7-per­bushel corn and $15-per­bushel soy­beans in 2012’s farm­ing bo­nanza?

Up and Down Times

Ray Gaesser started his farm­ing op­er­a­tion with wife Elaine in Iowa dur­ing

the glory days of the late 1970s, just be­fore the farm econ­omy crashed in the 1980s.

“In hard times, we learned a lot of things,” says the Corn­ing, Iowa, farmer. “I learned that ag is cycli­cal, that there are ups and downs.” In up times, Gaesser says farm­ers need to think about the down times and vice versa when the econ­omy is down.

Ad­ver­sity brings op­por­tu­nity, he says. He and his fam­ily grew the farm dur­ing the mid-1980s through the early 2000s, dur­ing times of tough farm­ing prof­itabil­ity. Rather than grow dur­ing the boom times of 2007 to 2013, they paid down debt. Even though prices skim be­low breakeven prices for many, bullish signs in agri­cul­ture ex­ist.

In Casey Hook’s area around Lake City, Arkansas, farm­land prices have moved op­po­site of slump­ing grain and oilseed prices, he says.

That’s backed by Univer­sity of Arkansas farm­land re­ports that have showed an av­er­age an­nual 9.3% uptick since 1998. A de­cline only oc­curred in one year – 2009 – at 3.3%.

“A lot of peo­ple are

bet­ting on agri­cul­ture right now,” says Adrian Percy, who heads re­search and devel­op­ment for Bayer Crop Sci­ence.

Com­pa­nies rang­ing from IBM to Google to ven­ture cap­i­tal com­pa­nies are pump­ing money into agri­cul­ture. Dur­ing the sec­ond quar­ter of 2017, the U.S ven­ture com­mu­nity com­mit­ted a record $530 mil­lion to agtech start-ups, ac­cord­ing to a 2017 Agtech In­vest­ment Re­view by Fin­is­tere Ven­tures.

Heart-to­heart talk

It’s scary to zig while every­one else zags. Done im­prop­erly, farm ex­pan­sions can end up in bank­ruptcy court and cause fam­ily heartache. That’s why fam­ily mem­bers need to have a heart-to-heart talk about the farm’s goals be­fore grow­ing the farm.

“We ask bor­row­ers what the plan is for the farm five to 10 years into the fu­ture,” says Bill John­son, pres­i­dent and CEO of Farm Credit Mid-Amer­ica. “A big part of the fu­ture is if they will have chil­dren who plan on com­ing back to the farm.”

In-depth fam­ily dis­cus­sions can also re­veal the up­sides and down­sides of work­ing with fam­ily, says Boehlje.

“You can say,

‘Well, I don’t have em­ploy­ees, but I do have kids,’ ” says Boehlje.

In essence, fam­ily mem­bers are of­ten harder to man­age than em­ploy­ees, he adds.

“You can tell the work­force what to do and they might not like it, but try do­ing that with a spouse,” he says.

Fol­low­ing are 11 con­sid­er­a­tions and tips for grow­ing your farm.

1. De­cide Whether to Buy or Rent

While grow­ing up in Kansas, David Wid­mar was al­ways stumped by a neigh­bor who seem­ingly didn’t make money but stayed on the farm.

“He had old ma­chin­ery,” says Wid­mar, an agri­cul­tural econ­o­mist and co­founder of Agri­cul­tural Eco­nomic In­sights. “He was the last one to plant and the last one to har­vest, and he never was ef­fec­tive spray­ing the weeds in his fields.”

So how did he stay in busi­ness? He owned his farm. “He rode the in­crease in his as­sets (land), so he was in a good sit­u­a­tion when he de­cided to re­tire,” Wid­mar says.

Re­mem­ber that when it comes to grow­ing a land base. Grow­ing a farm through cash rent­ing doesn’t re­quire as much cap­i­tal. Con­versely, farm­ers may be locked into high rents that don’t re­flect re­al­ity.

“Cash ren­tal rates tend to be pretty sticky and tend to lag pretty badly com­pared with farm fi­nances,” says Jim Min­tert, a Pur­due Univer­sity Ex­ten­sion econ­o­mist.

Ren­ters – par­tic­u­larly smaller ones – also tend to have dicey fi­nances. A 2017 Pur­due anal­y­sis by Boehlje and Michael Lange­meier, a Pur­due agri­cul­tural econ­o­mist, ex­am­ined 550-acre farms with a 25% debt-toas­set ra­tio. The anal­y­sis found that 75% of the farm­ers who owned 85% of their land had a pos­i­tive cash flow. Mean­while, just .3% of those who owned 15% of their land had a pos­i­tive cash flow.

“If you own your own land, who do you pay rent to?” asks Ja­son Hen­der­son, who heads the Pur­due Ex­ten­sion Ser­vice. “Your­self.”

This also pro­vides farm­ers with an as­set.

“Those who ex­pand (al­most ex­clu­sively) with cash rent can­not fall back on their own land when times get tough,” adds Lange­meier.

Farm­ers bor­row­ing money to buy land may find the Fed­eral Re­serve Bank’s lat­est in­ter­est rate hikes to be a com­pli­cat­ing fac­tor. With two hikes al­ready this year, it’s likely that in­ter­est rates will be .75% higher at year’s end than they were at the start of 2018, says Farm Credit’s John­son.

Yet, in­ter­est rates are still at his­toric lows. “It’s a great op­por­tu­nity to lock in longterm fixed in­ter­est rates,” he says.

2. Try Cus­tom Farm­ing

Gaesser was a new­ly­wed when he and wife Elaine left the small In­di­ana farm he grew up on and moved to Iowa. Gaesser had fallen in love with the state after he trav­eled there from In­di­ana in 1974 to visit the Farm Progress Show. He and Elaine pe­rused state news­pa­pers and even­tu­ally bought 240 acres on con­tract with the owner and rented an ad­di­tional 320 acres near Corn­ing in the south­west­ern part of the state.

Be­sides rent­ing that ini­tial farm, he also cus­tom farmed.

“I got to know the land­lords that way,” he says.

Grad­u­ally, this worked into more land rentals and pur­chases. Their son, Chris, along with daugh­ter Jen­nifer, rented 160 acres as a col­lege fund­ing source. Jen­nifer now teaches at At­lantic High School in At­lantic, Iowa. Chris be­came a seed com­pany agron­o­mist and helped on the farm.

In 2010, Ray and Elaine made a con­tract with Chris to pur­chase into the farm at a 5%-per-year clip. In 2019, the plan is for them to be 50-50 part­ners.

3. Build Work­ing Cap­i­tal

Farm growth re­quires ad­e­quate cash on hand (work­ing cap­i­tal). War­ren Buf­fet knows all about that.

“His bal­ance sheet is $100 bil­lion cash,” says Wid­mar.

That gives him pro­lific cash to ac­cess op­por­tu­ni­ties, as hap­pened dur­ing the 2008 fi­nan­cial melt­down.

“Gold­man Sachs asked, ‘Do we have enough eq­uity with lower net in­come and val­ues down from all of our toxic as­sets?’ ” says Wid­mar. “So, the com­pany picked up the phone and called War­ren Buf­fet. He paid $5 bil­lion for a stake in the com­pany. That also pro­vided Gold­man Sachs some cush­ion to help weather a slow­down.”

Granted, few can match War­ren Buf­fet’s trea­sure chest. Yet, it shows the im­por­tance of hav­ing work­ing cap­i­tal.

“The value of cash is for risk mit­i­ga­tion, not the re­turn on it,” says Pur­due’s Boehlje. “It’s the first line of de­fense against fi­nan­cial stress. It gives you a buf­fer if things don’t go well.”

Work­ing cap­i­tal can help

An op­tion to procur­ing more land is to im­prove ex­ist­ing land.

make that once-in-a-life­time op­por­tu­nity (such as that 80 acres that bor­ders a farm) a re­al­ity.

4. Im­prove Ex­ist­ing Farm­land

An op­tion to procur­ing more land is to im­prove ex­ist­ing land. “We don’t have lots of op­por­tu­nity to buy more ground,” says

J.R. Bollinger, Sike­ston, Mis­souri. “We have to make more off the acres we have.”

It all starts with sound soil fer­til­ity, he says. He’s ap­ply­ing lime to de­crease the soil acid­ity that ham­pers nu­tri­ent up­take. “We also are ap­ply­ing more split ni­tro­gen (N) ap­pli­ca­tions,” says Bollinger. Spoon-feed­ing N en­ables crops to use N when it’s needed, he says.

“With lower prices, it’s tempt­ing to cut back on P (phos­pho­rous) and K (potas­sium),” says Mike Gaul of Straw­berry Point, Iowa. “You can see it with soil tests com­ing in from the Mid­west. P and K lev­els are com­ing down. Huge crops are be­ing taken off, yet pro­duc­ers are putting on nu­tri­ents for 180-bushel corn the way they al­ways have. High P and K lev­els will con­tin­u­ally pay you back.”

Mean­while, live­stock pro­vides Gaul with ma­nure that helps build up soil fer­til­ity lev­els.

“If soil fer­til­ity is cor­rect, it can take care of a lot of prob­lems,” he says.

5. Scale Back?

Ever feel a bit in­fe­rior at your high-school class re­union when it comes to who farms the most acres? Fairly or not, the amount of acres farmed is of­ten the yard­stick of a suc­cess­ful farmer.

Or not.

“Some of those acres may be low-pro­duc­ing and could be drag­ging down the rest of your farm,” says John­son. Now’s the time to see if scal­ing back some of those acres could po­si­tion you to buy bet­ter farm­land in the fu­ture, he says.

In other cases, those low-pro­duc­ing farms may pay div­i­dends if bought at a bar­gain price and steps are taken to im­prove fac­tors like drainage or soil health.

“We can’t af­ford ice-cream land,” says Hook. “When we’ve picked up land, it’s of­ten the land that no one else wanted. My dad al­ways said, ‘Let’s try it and make it prof­itable.’ ”

6. Con­sider Off-farm Cap­i­tal

Think­ing about ex­pand­ing your farm, but you don’t have the cash?

Tech­nol­ogy com­pa­nies take care of this by seek­ing out­side cash.

“Say you are Elon Musk, who had an idea to build an elec­tric car (Tesla). He sat down with in­vestors to see about putting money into the busi­ness,” says Wid­mar.

The idea isn’t for­eign to agri­cul­ture. Pur­due’s Min­tert re­called a farm his grand­fa­ther al­most lost in the win­ter of 1933.

“He went in to re­new the note, and the bank said no,” he says. “So, he went to fam­ily mem­bers and got out­side con­tri­bu­tions, and that is how he saved the farm.”

Grow­ing your farm also re­quires mak­ing smart de­ci­sions about what works and what doesn’t.

7. Page Casey Sten­gel

It would be great if your banker would say about your farm what Casey Sten­gel said when he be­gan man­ag­ing the New York Yan­kees in 1949: “There is less wrong with this team than any team I have ever man­aged.”

In re­al­ity, all farms have their weak spots that can threaten growth. The most com­mon one John­son sees is fi­nan­cial record keep­ing.

“Ac­count­ing on an ac­crual ba­sis helps you un­der­stand how much money is go­ing in and out,” he says. “If you had that in­for­ma­tion on at least a monthly ba­sis, your con­ver­sa­tions with your banker would go up a strate­gic level.”

Ac­cu­ral ac­count­ing also makes it eas­ier for farm­ers to bench­mark their farms’ bal­ance sheets against oth­ers, he adds.

John­son has no­ticed that high-per­form­ing farm­ers also tend to do a lit­tle bet­ter in all ar­eas.

“They are the up­per onethird of pro­duc­tion and mar­ket­ing among farm­ers, and make good fac­tual de­ci­sions, he says. “They tend to make bet­ter (agro­nomic) de­ci­sions based on soil tests, and they have bet­ter records on seed. They also fine-tune things a bit more.” 8. Es­tab­lish SOPs

busi­ness that

don’t know any manu“Ifac­tur­ing doesn’t have SOPs (stan­dard op­er­at­ing pro­ce­dures),” says Boehlje. Even though farm­ers don’t have brickand-mor­tar busi­nesses, they are en­gaged in bi­o­log­i­cal man­u­fac­tur­ing, he says.

For ex­am­ple, changes in the weather can post­pone a field op­er­a­tion such as spray­ing.

“SOPs can help you form a con­tin­gency plan,” says Boehlje. “Be­fore a cri­sis hits, you can go to plan B rather than ask­ing, ‘What do we do now?’ ” 9. Buy Bet­ter

This sum­mer’s crop price slump shows that farm­ers have lit­tle abil­ity to con­trol prices. What they do have more con­trol over, though, is the prices they pay for in­puts. This con­tri­bu­tion to fis­cal sta­bil­ity can pro­vide the frame­work to grow a farm.

“You have to have a pro­cure­ment men­tal­ity where you have more con­trol over what you buy and what you pay for in­puts than for what price you sell your prod­uct,” says Boehlje.

Grow­ing your farm also re­quires mak­ing smart de­ci­sions about what works and what doesn’t work.

“One thing about tight eco­nom­ics is it makes you tighten your belt,” says Gaul. To bet­ter fer­ret out which prod­ucts work and don’t work. Gaul re­lies on on-farm test plots and third­party data.

Us­ing such sources can help farm­ers and an­a­lyze prod­ucts that ac­com­pany hot trends like soil health, says says Sean Evans, Mon­santo tech­nol­ogy devel­op­ment man­ager. The lat­est en­try in this space are mi­cro­bials touted to help soils func­tion bet­ter.

“Look at the num­ber of times stud­ies were repli­cated and what sort of con­di­tions the tri­als were con­ducted un­der,” he says. “If you can’t ac­cess data, that tells you some­thing. Mul­tisite, mul­ti­year data is re­ally im­por­tant.”

You may glean dis­counts through bun­dled seed and chem­i­cal mar­ket­ing pro­grams. Yet, these sav­ings can pale if the pur­chased prod­ucts aren’t match­ing up with weed pop­u­la­tions in in­di­vid­ual fields.

“Are you will­ing to live with yield loss and an in­creased weed seed­bank?” asks Bill John­son, Pur­due Univer­sity Ex­ten­sion weed spe­cial­ist.

10. In­vest in Pock­et­bookPadding Tech­nol­ogy

Money that farm­ers spend on new tech­nol­ogy can end up sav­ing them money in the long run.

Michael Koenig, who co­founded ScoutPro, an Ur­ban­dale, Iowa, firm, says farm­ers us­ing the firm’s scout­ing app can help them show land­lords ex­pected crop-pro­duc­tion lev­els.

“It can show ar­eas that need bet­ter drainage or where lower pro­duc­tion ar­eas tend to oc­cur,” he says. This in­for­ma­tion can be used to bet­ter ne­go­ti­ate cash rents fair to both the landowner and farmer, he says. Buy­ing an un­manned aerial ve­hi­cle (UAV or drone) also pays, says Bob Nielsen, Pur­due Univer­sity Ex­ten­sion agron­o­mist.

It can be used to de­tect prob­lems ear­lier rather than later in the year after har­vest is com­plete.

“I am con­vinced that a farmer who buys a UAV could get the in­vest­ment back in a year,” he says. 11. Con­sider Con­sumer Tastes

Younger U.S. con­sumers tend to be less con­cerned about food prices and more con­cerned about qual­ity and sus­tain­abil­ity. This trend can open mar­kets for farm­ers.

“We have to fo­cus on adding value, know­ing what cus­tomers like, and sell­ing at a price they are will­ing to pay,” Hen­der­son says. “I like my food cheap and plen­ti­ful. But how many mil­len­ni­als are clam­or­ing for buf­fets these days? Let’s give them what they want but make them pay for it.”

This isn’t just about hu­man food; it’s about break­ing out of the com­mod­ity mind-set, he says. An ex­am­ple is grow­ing or­ange corn. This type of corn is used in mak­ing deer at­trac­tants.

“This isn’t just about ethanol,” he says.

Gil Gul­lick­son is the Crops Tech­nol­ogy Edi­tor for Suc­cess­ful Farm­ing mag­a­zine and Agri­cul­ture.com. You can reach him at Gil.Gul­lick­[email protected] mered­ith.com. Fol­low him onTwit­ter at @GilGul­lick­son.

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