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Grain Farms to Consolidate

January 7, 2013
By: Moe Russell, Farm Journal Farm Journal columnist
Moe Russell column
  
 
 

The word "consolidation" sends a shiver down the spines of many. Rural America is no stranger to the bad and the good that follows when school districts consolidate, small businesses close up shop or merge, or farmers go under or sell out.

Consolidation has been a part of production agriculture for more than 200 years. In the 1960s the chicken and broiler industry went through a period of consolidation, followed by the cattle feeding industry in the 1970s, the swine industry in the 1980s and 1990s and the dairy industry in the 2000s. Quite frankly, consolidation continues today.

The bottom line, in many cases, is that consolidation leads to increased efficiency. For example, a study conducted by the National Pork Board indicates that during the past 50 years the amount of water used to produce a pound of pork has decreased by 41% and the carbon footprint has decreased by 35%.

I think the next major consolidation will occur in grain production. To ready your operation, you need to recognize that change is on the horizon. It’s important to understand what you need to do to not only survive but prosper.

Three factors will drive the coming consolidation: technology, margin management and access to capital.

Technology—including larger and more sophisticated equipment, seed, precision farming and improved efficiency—will be a big driver. One of the most prominent ways to increase efficiency is around-theclock field operations. I have a client who covered 80% of his 6,600 acres by planting 24 hours a day. Interestingly, one of the partners in the operation came from an industrial background where 24/5 or 24/7 operations are common. Historically, we could not accomplish this in production agriculture, but now we can, thanks to technological advancements.

Years ago, we determined that the four greatest leverage points to improve your bottom line are machinery cost per acre, labor cost per acre, marketing and agronomic management. Recently, we observed through our client benchmarking data that machinery cost per acre has risen by 61% in the past five years and labor cost per acre by 32%. Around-the-clock operations can significantly reduce two of the rapidly rising costs.

Margin management, including marketing, is the second big driver. Those who consistently sell their  crops in the top third of the price range have a tremendous competitive advantage. If your marketing skills are lacking, work with or hire someone who can get you in the top third. Know your costs and margins, and take a profit when it presents itself.

Managing your production costs is another influencing factor. We participated in a study this summer that analyzed more than 15 farms totaling 33,000 acres. Cost of production ranged from $4.72 per bushel for corn to $3.40. Producers who have lofty costs and do not market their products well likely will not survive.

To see the payback from nutrient and precision ag investments, visit www.FarmJournal.com/economic

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Learn how to execute variable-rate technology with Farm Journal Field Agronomist Ken Ferrie. Then integrate those agronomic benefits into your balance sheet with Farm Journal columnist Moe Russell and Top Producer columnist Chris Barron.

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To register, call (877) 482-7203 or visit www.FarmJournalProfitCollege.com

Moe Russell is president of Russell Consulting Group in Panora, Iowa. He provides risk management advice to clients in 34 states and Canada. For more risk management tips, visit his website at www.russellconsultinggroup.net. To submit questions, call (877) 333-6135 or e-mail thebottomline@farmjournal.com.

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FEATURED IN: Farm Journal - January 2013

 
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COMMENTS (9 Comments)

- Waverly, KY
As a wise old man once told his grandson, bubby, there have been a lot of changes during my lifetime, and I was against every damn one of them!
8:48 AM Jan 30th
 
Ric Ohge - Belmond, IA
Smaller%20Farms?%20Going%20the%20way%20of%20the%20dinosaurs.%20Bigger%20Farms?%20The%20%22growth%20i​ndustry%22%20in%20Rural%20America.%20The%20Problem?%20Recently%20one%20of%20your%20own%20%22Top%20Pr​oducer%22%20Finalists%20had%20to%20go%20Bankrupt,%20disrupting%20the%20region,%20rural%20Communities​%20and%20lives%20of%20many%20that%20depended%20on%20direct%20or%20indirect%20income%20from%20it's%20​existence.%20WHY%20is%20this%20a%20problem.%20If%20you%20have%2050%20small%20farms%20and%2010%25%20h​ave%20a%20bad%20year,%20there%20will%20be%20an%20economic%20impact,%20but%20not%20as%20severe%20as%2​0that%20created%20by%20one%20Huge%20Industrial%20Farm,%20like%20the%20one%20mentioned-likely%20equal​%20in%20size%20to%20the%2050%20small%20farms,%20going%20%22belly%20up%22.%20More%20efficient?%20Perh​aps.%20Economically%20sustainable?%20No%20way,%20Jose.​
10:43 AM Jan 24th
 
Ric Ohge - Belmond, IA
Smaller Farms? Going the way of the dinosaurs. Bigger Farms? The "growth industry" in Rural America. The Problem? Recently one of your own "Top Producer" Finalists had to go Bankrupt, disrupting the region, rural Communities and lives of many that depended on direct or indirect income from it's existence. WHY is this a problem. If you have 50 small farms and 10% have a bad year, there will be an economic impact, but not as severe as that created by one Huge Industrial Farm, like the one mentioned-likely equal in size to the 50 small farms, going "belly up". More efficient? Perhaps. Economically sustainable? No way, Jose.
10:42 AM Jan 24th
 
- NOBLESVILLE, IN
To Des Moines Iowa, we farm fields as much as 5 miles away from our farm stead. Just small fields with homes along the roadway or next door. Most of these homes have people who either are students or employed away from home. At home our grandchildren are the only students in the area. Yes, technical advancements have been a blessing for a 42 year old and his 76 year old father. Dad still plants all the corn and harvests all the crops using GPS. It just does not pay to be in the fields if the dew falls after sundown.
Thank you for your comments. It is good to know there are still small 2 person operations around.
3:45 PM Jan 22nd
 
Brett B - Des Moines, IA
To Noblesville, IN. You don't really have to worry about bothering all those families within a 1/2 mile of your farm anymore. This year there is 1 high school age or younger person within a 1/2 mile of the farm and next year there won't be any. That is down from 16 when I was growing up there 30 years ago. While farm profits are bringing new people into ag services (as shown by Iowa State's flood of ag students) high land prices and rents are not convincing many young farmers to take up the mantle. Our grain operation, that use to keep 6 busy during peak seasons, now has 2 and the other is 68 years old. Oh, and we still get it done faster with better results due to technology.
11:03 PM Jan 21st
 
- NOBLESVILLE, IN
Concerning "around the clock field operation."
Our fathers farmed with the sun, seasons, temperature, and moisture. An old adage is "Make hay while the sun shines."
How does "technical advancements" compensate for the dampness from dew.
In the spring we should not be in the fields with heavy equipment until the ground has dried enough to not cause compaction. We need to wait for the sunshine to bring that about each morning.
Spraying herbicides are dictated by daylight hours.
After a specific time in the evening the weeds shut down and will not take up the herbicide.
In harvest when the dew falls at night we can tell from the combine monitor that we are loosing grain.
The most important consideration when "working around the clock" is our neighbors. Night is a time of rest and rejuvenation for children and adults alike. The roar of the engines and bright operational lights are detrimental to the sleep time of anyone within one half mile of the field operation.
Our bodies were not designed to work around the clock even if we are working in shifts with time off. Night is the time to sleep. Plants behave differently during sunshine and during the night. Foremost we need to be practical.

3:10 PM Jan 19th
 
- Vermont, IL
perhaps we should consolidate consulters and other columnists who only provide opinions of agriculture​
9:13 PM Jan 16th
 
charless - Wake Co, NC
I doubt it will be too many years before we advance BACK TO collective farming. Since eating meat seem to be on the way out advanced by the vegan animal rights movement in favor of raising grain for humans to eat instead of meat. It seems the USDA is already pushing growing flowers, raising bees, selling all the veggies locally, anything but raising meat animals. The world is changing and not one I necessarily want to see. Between the environmental movement, animal rights and property needed for Agenda 21 infrastructure and climate warming which has been disclaimed by the "father" of climate change. Americans are in real trouble
5:42 PM Jan 16th
 
charless - Wake Co, NC
I doubt it will be too many years before we advance BACK TO collective farming. Since eating meat seem to be on the way out advanced by the vegan animal rights movement in favor of raising grain for humans to eat instead of meat. It seems the USDA is already pushing growing flowers, raising bees, selling all the veggies locally, anything but raising meat animals. The world is changing and not one I necessarily want to see. Between the environmental movement, animal rights and property needed for Agenda 21 infrastructure and climate warming which has been disclaimed by the "father" of climate change. Americans are in real trouble
5:42 PM Jan 16th
 



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