Key to Survive: Get Better, Not Bigger
In these continued tough times, what makes for a successful farmer? If you’re spending more time in the office and less time in the tractor or cab, that’s a good sign.
These are the times in agriculture for farmers to get better, not bigger, says Jim Knuth, a senior vice president with Farm Credit Services of America. Knuth spoke to a standing-only room at the 2019 Land Investment Expo on January 25 in Des Moines, Iowa.
Farm Credit should know what a successful farmer looks like. Farm Credit has 57,000 customers and serves one in every three farmers in the upper Midwest. According to Knuth, farmers are world-class in the production aspects of farming. It’s the “business of agriculture” that is the true dividing line between those that are succeeding and those that are struggling in this low-margin environment.
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“It’s not the seed, chemicals, fertilizer,” Knuth says. “It’s not production, not the color of your equipment… it’s not the biggest yields. It’s the farmers running their operations like a real business,” he continued.
Knuth and Farm Credit sees these attributes of farmers driven to succeed in such a challenging environment:
- Keep positive working capital. It’s been a shrinking line in most farmers’ balance sheets over the past three years. Your target should be 20% of gross farm revenue.
- Don’t let revenue go stagnant. Look at both on-farm income growth or add some off-farm income.
- Keep solid financial records. Knuth says professional farmers know their break-even, and they use accurate financial numbers to make key decisions.
- Proactively address your family’s living costs. Make sure your lifestyle costs align with the revenue and profit of your operation.
- Be a good negotiator. Proactively negotiate your cash rents.
- Get rid of underperforming or nonperforming assets.
- Get better at marketing. Create a specific marketing plan. Marketing, Knuth says, should never be “the last thing they do.”
Dwell on the important statistic: maximing profit per acre, not yield or minimizing inputs alone. Being too stingy on costs can rob you of yield, as well, Knuth says. “Find the sweet spot,” he says.
Focus on continual improvement and always making operational changes. “Get better, not just bigger. Bigger alone is not going to solve your issues.” Knuth says many farmers think the best day of the year is harvest – when putting grain in the bin. Not so, he claims. “The best day on the farm is when I am selling my grain, my inventory. That’s when a year’s work sees revenue and profit. Taking a profit is never wrong,” Knuth says.
Put in more time, and more attention on grain marketing. Don’t aim to sell at the market peak, either. That’s a dangerous and risky end game. He encourages farmer to go for the easier wins. “I’m here to hit singles,” he says. Here is his blueprint among the 57,000 customers of Farm Credit:
- Preharvest market 30-50-70% of your crop.
- Sell into a rising market.
- Understand the normal annual market cycles.
- Make your goal to sell the majority of your crop in the top third of the market.
It’s a constant disciplined effort to focus on the things that matter – the business of agriculture. How do we get better at the business of agriculture? Spend as much time running your business as you do the combine or tractor. That will give you a better chance of thriving in a challenging market, Knuth says.