by Julie Douglas, Ed Clark, and Sara Schafer
Young farmers and ranchers gain business skills, marketing insight
The 2013 Tomorrow’s Top Producer conference was filled with speakers and information to provide farmers age 35 and younger the skills needed to grow their business, marketing and technology skills. More than 150 producers gathered in Chicago on the eve of the Top Producer Seminar to network and hear from leading industry experts.
Joanna Carraway was selected as the 2013 Tomorrow’s Top Producer Horizon Award winner. A native Missouri farm girl, she is now responsible for record keeping, financial goals, equipment operation, employee relations and crop management decisions for her multi-generation operation in Murray, Ky. Read more about Carraway on page 18. —By Sara Schafer
Be Leery of Investing in Land
Even though farmland value is expected to continue upward, at least for the short-term, that’s not necessarily where young farmers should invest their capital, explained Brent Gloy, a Purdue University ag economist.
"A great deal of pressure is on land values because incomes are up and interest rates are down," he said. This has been beneficial, but it can’t continue to fuel the fire for farmland values, long-term, Gloy said.
Pay attention to the Federal Reserve. "In the 1970s and 1980s, interest rates went up while capitalization rates went down," he noted. "When treasury bonds start going in the opposite direction, we need to be concerned."
Farmland values are pressured when incomes increase or land values fall. "Today people aren’t valuing farms based on income or prices, but what they think it will be worth in the future," Gloy said.
Farmers must be good risk managers. "It’s not risk when you make $100 to $450 of profit per acre," he said, asking young farmers to look at how they manage costs. Consider non-land capital investments, he encourages.
"You have the power of time and compounding working to your advantage," Gloy said. "Your capital will grow with time. Invest in operational excellence. This investment pays off no matter when you make it."
Gloy also advised young producers to build their management capacity, build a good understanding of the economics of your business, build relationships and invest in assets that have a high return. —Julie Douglas
Charts Offer Quick Read of Market Trends
The philosophy behind chart reading or technical analysis is simple: Past price trends are indicative of the future. But fundamentals still matter, said Ashley Gulke Leavitt, a market analyst for The Gulke Group.
"USDA reports inevitably move the market," she said. "When you look at a chart, it paints the picture," Leavitt said. "You can choose any time frame to chart, such as daily or weekly. It also allows you to make marketing decisions ahead of time with less emotion."
To begin charting, Leavitt suggested connecting the highs for a downtrend and connecting the lows for an uptrend. The more points that touch a line, the stronger the correlation. Wait for two consecutive closes on the opposite side of a trend line to confirm a change in trend.
In technical analysis, "you look for support and resistance," Leavitt said. —Ed Clark
Understand Your Marketing Toolbox
Using futures and options can be a more conservative marketing strategy than making cash sales. "Grain in the bin is speculating," said Brian Grete, Pro Farmer senior market analyst.
He stressed the importance of keeping downside price risk balanced with opportunity risk to match market conditions.
Grete said the first step is to define basis, which determines not only how you should market but also which of more than a dozen market tools is best. "One -hundred percent of the risk of true hedging is basis," he noted. "Track your basis, comparing it to three, five or 10 years."
To be an effective marketer, you also need to know yourself and how much price risk you are comfortable with. Are you bullish or bearish on the market?
One easy-to-make mistake is euphoria during price run-ups. If corn prices reach $7.50, it’s easy to develop the view that they will go to $8 or $9, he said. Last year, corn prices hit $8.43, but it took a drought to do that. "At $7.50, demand starts to erode," making sustained price increases difficult to achieve.
Grete prefers sales of 10%, 15% and 20% as prices rise, but that is hard to do when things are rockin’ and rollin.’ Graduated sales are far easier than putting in stops on the way down, he explained. —Ed Clark
Relationships Reap Benefits
Showing interest in others can pay off in big ways. "You need to be able to listen and be sincerely interested in other people," said Bret Oelke, a University of Minnesota Extension agricultural business management expert.
Success is powered by know-how, reputation and a network of contacts. "The formula for success is human capital, or what you know, times social capital, or who you know, times reputation, or who trusts you," he said.
Farmers should ask: What do my customers desire? What can I provide? How do I establish relationships? How do I improve relationships?
"Your employees are your customers," he said. "What’s important to them? Is time off more important than a bonus or vice versa? Employees want to be valued and respected as an important part of the business."
If you are a junior partner, Oelke said to ask what your supervisors want. "They typically want a job completed now and with minimal oversight," he said.
Most farmers don’t think of their partners and family members as cus-tomers, but they are, Oelke reminded. "What do they want," he asked. "They want your time and these are your most important customers."
When dealing with external customers, Oelke said to keep in mind how they are paid. "Grain buyers are not in business to get the most out of your production," he said. "They’re in the business to maximize their own profitability. Your task is to find out how you can help them achieve their goals while achieving your own." Try to understand what customers need from you, be responsive to their needs, find ways to lower transaction costs and do not waste their time. —Julie Douglas
A Trip to the Chicago Board of Trade
As a special extension of the Tomorrow’s Top Producer event, a group of farmers visited the historic Chicago Board of Trade. The group saw the opening bell activity, which is much milder now than in the past. In 2012, only around 50% of options volume came from open outcry on CME Group’s trading floor.
Learn more, download speaker presentations and see full coverage of the Tomorrow’s Top Producer event at TopProducerSeminar.com.
- March 2013