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Sharpen Your Competitive Edge

March 2, 2011
 
 

More than 900 people attended our annual Top Producer Seminar in January to learn about issues impacting agriculture and to gather tips to sharpen their competitive edge.

Young farmers 35 and under kicked off the event with our Tomorrow’s Top Producer program, and the momentum built throughout the week, capping with our Top Producer of the Year Award banquet.

The following excerpts are highlights from this year’s exciting event. Mark your calendar now for the next Top Producer Seminar, to be held Jan. 25 to 27, 2012.
 

Indiana Farmer Wins Top Producer of the Year 2011

Top Producer recognized three farmers for their entrepreneurship and excellence in the business with its Top Producer of the Year Award, presented by Challenger and cosponsored by Asgrow, Bayer CropScience and SFP. The award was given in Chicago on Jan. 26.

Jim Kline of Hartford City, Ind., won the 2011 award. Kline got an early taste of farm ownership when he rented land and bought his first farm while in high school. Today, he farms 7,500 acres of corn, soybeans and seed wheat.

In 2006, Kline invested in a joint farming venture in Brazil that currently focuses on eucalyptus, a crop he and investors found to be more profitable than soybeans. While Kline has successfully
expanded his farming operation, he has also faced personal setbacks.

He lost his wife, Suzie, in 2006 after a long illness. In the midst of his grief, Kline continued to build the farming operation and raise two children. He remarried in 2007 to Lou West. Together, they serve on many community boards and mentor local youth. They also publish a farm newsletter that goes to landlords and suppliers.

As the 2011 Top Producer of the Year, Kline is awarded a new Challenger MT700 Series Track Tractor for 200 hours or six months and a trip to the 2012 Top Producer Seminar. Kline and
finalists also received an iPad, courtesy of Asgrow; a Toughbook computer from Bayer CropScience; and a digital camera package from SFP.
 

Risk Escalates in New Ag Landscape

High commodity prices are good for grain producers’ pocketbooks, of course, but they also increase risk factors that you must guard against to successfully ride financial waves. For example, when Russian grain demand doubled in the early 1970s, corn prices went from $1.50 to $2.50 and even $3. "That shifted risk up and nearly doubled volatility," says Sterling Liddell, vice president, Rabo AgriFinance.

"In 2006, we started to see the same kind of event, and with it higher prices and volatility," he adds. "Risk has changed."

In recent years, ethanol has played a role in boosting corn prices, but it introduces risk because it links commodity prices to the price of energy. Outside investors are putting money into agriculture, introducing new risk, Liddell adds. As a result, the S&P 500 is becoming increasingly important to crop prices.

Meanwhile, supply and demand have fundamentally changed. For example, the Black Sea area has substantially increased grain production—19% of the growth in grain production in the past 10 years has been from this area, Liddell says. As a result, what happens in Russia, Ukraine and surrounding countries has increased global price volatility.

Due to the past year’s poor wheat crop, Russia banned exports and asked Ukraine and Kazakhstan to do the same. "All of a sudden, 16% of the world grain is gone," Liddell says.

Stocks of corn, soybeans and wheat are tight. "All of these will have to compete for land, and that makes volatility an issue," Liddell says.
 

Farmland: Big Funds Like What They See

There’s a new kid on the farmland investment block: Wall Street. Investment funds are increasingly looking at farmland as a place to diversify their portfolio, and that means new competition for traditional buyers.

Farmland has outperformed stocks and bonds on an annualized basis during the past 18 years, based on the National Council of Real Estate Investment Fiduciaries farmland index, according to Biff Ourso, director of global private markets for TIAA-CREF.

The fund is one of the largest U.S. financial services companies, with $400 billion in assets. Ourso contrasts TIAA-CREF’s view with that of other institutional investors. "Hedge funds have a shorter-term investment horizon, while we take a more long-term view," he says. TIAA-CREF looks at farmland as a 30-year investment.

Several factors make global farmland attractive to funds. "Agricultural producers have to double output by 2050, and the middle class is growing in developing nations," Ourso says.

In addition, the impact of using crops for fuel is having an impact on farmland value. Other factors that entice TIAA-CREF to look at farmland are supply and demand constraints, climate change and China, which needs to feed 20% of the world with 7% of the world’s arable land. Farmland investment also is an inflation hedge. "Farmland is a hard asset that can’t disappear," he states.

Currently, land comprises less than 1% of TIAA-CREF’s investment portfolio, but the company plans to become a bigger global farmland player in the future. It’s important that TIAA-CREF be
viewed as a good partner when it comes to management and conservation issues, Ourso says. He says the company seeks tenants who have expertise and equipment and are well capitalized.

Most of TIAA-CREF’s tenant arrangements are on a fixed cashrent-per-acre basis.
 

Will You Survive Global Competition?

U.S. agriculture is in the middle of a supercycle, but these cycles are deviations. "There have been four supercycles in the past 100 years, and each has lasted 2.8 to 3 years," says David Kohl, president of AgriVisions LLC and former economist at Virginia Tech.

More optimism exists in agriculture for the next 10 years than the past 30. "There is also more opportunity to fail," Kohl adds.

U.S. and European economies have stumbled. Meanwhile, Asian countries have been "hotter than pepper sprouts," Kohl explains. Asian food demand and the weak U.S. dollar are largely responsible for boom times for the American grain industry. If China’s economy cools off, that could dampen exports.

Kohl has concerns about how economically unhealthy the U.S. livestock industry has been recently and the potential impact on the grain industry.

Inflation has been under control in the overall economy, but it is not under control in agriculture, Kohl says. "Do not get caught in the trap of [believing in] low inflation. Higher interest rates could knock us off of survival island," he says.
 

Make the Management Step

Farmers looking to expand their acreage are not uncommon. Those who are willing to do what it takes to get there, however, are another matter altogether, says Allen Lash, CEO of Family Farms LLC. Lash says there are four basic principles farmers should embrace if they want to break through to a management level that allows their farm to grow. For a typical corn and soybean operation in the Midwest that is approximately 10,000 acres.

The four factors are:

  • Organization Success. Developing a management attitude is often the most difficult task for many farmers to embrace, Lash says. Most farmers are used to doing the tasks of farming and not managing the people who do these tasks. "This is not unique to agriculture," Lash says. "It’s the same with any business. It’s not about managing the task doers, it’s about managing the people who manage the task doers." Those who don’t want to move to that level are often faced with hitting what Lash calls a glass ceiling on farm size. Delegating tasks to employees makes it possible for farmers to develop a sound entity structure.
  • Entity Structure Issues. Businesses need to consolidate their entities and coordinate activities across their entities.
  • Capital Access. As farms grow larger, financial partners must be evaluated and farmers must come to the realization that the same financial partners may not fit the needs of a larger operation. At the same time, the information farms provide to its financial partners may not be adequate anymore. With higher financial requirements, the more information your financial health will require.
  • Control Systems. This is a major concern for many farmers who grow to the point where they aren’t the task doers. By giving up the day-to-day work, they are losing control of the factors that drove them to their original success.

 

Beat the Bad Succession Odds

Look at these numbers: 70-90-96. Do you know what they represent? They stand for the likelihood that passing the farm from generation to generation will fail. The first transfer, from one generation to the next, has a 70% failure rate; the second, 90%; and the third transfer will fail 96% of the time. Farmers think it will never happen to them, but Farm Journal Succession Planning Expert Kevin Spafford reminds farmers they have access to land because of those failures.

"Don’t for a moment think it doesn’t happen. You’re farming the Johnson place, the Roberts piece and the Hill property. Those farms failed to transition to a next generation," Spafford says.

This is why succession planning is so important: Only with a proper plan in place can farmers beat these succession odds and keep their farm in the family for generations. The first step is to institute regular family meetings.

Download the "Conversation Starters" tool under "Get Started" at www.FarmJournalLegacyProject.com.
 

Biofuels and Food Security: A Balancing Act

The needs of a hungry world may be met by keeping food security, energy production and natural resource use in balance, says Daniel Gustafson of the Food and Agriculture Organization of the United Nations (FAO). According to FAO, poverty and hunger are linked two ways. Malnourished people don’t get ahead since they don’t do as well at work or in school because they are weak and famished.

Food production is a key player in relieving world hunger, although many areas with malnourished and poor people are areas of high agriculture production. In fact, according to FAO, 72% of starving people live in middle-income countries, such as Brazil and India, with successful ag production.

During the food crisis of 2008, the number of hungry people peaked, devastating millions even though it was the highest year in food production ever. Did ethanol production contribute to world
hunger? Gustafson explains that an extremely high amount of corn produced for use in ethanol was just one factor; other factors, such as the weak U.S. dollar and the high price of oil, also contributed to the problem.

So what’s going to happen to world hunger on the global front? Gustafson suggests that investments in biofuels could help rural development and energy supply in poor countries. He also suggests that employment and rural incomes as a result of biofuel production in these countries would aid in relieving hunger. Small farmers in poorer countries who currently produce grains for food could use biofuels to regenerate a stagnant agriculture sector.

"There aren’t simple answers to energy and food prices or how they are linked," Gustafson says. "The world can produce enough food. It is a serious challenge, but it’s achievable."
 



Thank you to our Top Producer Seminar 2011 sponsors:

Premier Sponsors: Agrigold, Agrotain, Asgrow, BASF, Bayer CropScience, Challenger, Dow AgroSciences, Farmers Feeding the World, Pioneer Hi-Bred, Syngenta, SFP

Cosponsors: Cargill, EMD Crop BioScience, Integris, Kennedy and Coe, MANA, Michelin, Nationwide Agribusiness, Rabo AgriFinance, SoybeanPremiums.org, Top Third Ag Marketing, Water Street Solutions

 

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FEATURED IN: Top Producer - March 2011

 
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