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Business Matters: Help for Managing Margins

February 7, 2012
By: Chris Barron, Top Producer Columnist
 
 

As farmers look to the coming years for new opportunities, there will be challenges that we must all be prepared to face head on. One of the best ways to deal with these challenges is through strategic planning, implementation processes and concise analysis. My mission for this column is to bring you current and thought-provoking business information along with the tools to improve your overall business efficiency, sustainability and profitability.

An Introduction. I am a corn and soybean producer in northeast Iowa with a passion for helping farmers increase their profitability. I am also an independent farm business consultant and author of the blog "Ask a Margins Expert" on AgWeb.com. My youth was spent on a diversified crop and livestock operation. After graduating from the University of Dubuque with a degree in communications, I came back to the family farm full-time. My wife, Lisa, and I have three teenage sons.

Today I farm with a number of neighboring producers in a unique partnership called "The FUN Group," which stands for "Farmers United Network." We chose this name because we thought the acronym "FUN" would be a constant reminder of how important it is to enjoy life, especially your career. Our mission is to create a sustainable alliance in order to provide opportunities to increase profitability as well as the quality of life for all the partners and their families.

We each have our own independent farming business, but have formed an operational structure where we farm together as one system. We share information, equipment, suppliers and labor. This arrangement allows us to tap into diverse marketing, mechanical, business, risk management and agronomic skills and various other resources. It is a multigenerational business model, which I’ll expand upon in future articles.

Can Good Times Last? Strong commodity prices, reasonably good yields and annual double-digit land value gains have put many farmers in the strongest financial position they’ve ever experienced. Strong financials, however, can create planning challenges for taxes, cash flow, farm transitioning, risk management and growth. It’s a more complicated system to manage in an increasingly complex world.

It’s inevitable that the economic conditions within agriculture will change at some point. Profit margins during the past several years in grain production have generally ranged from 10% to 40%. What happens if/when margins get back to 0% to 4%? It’s the market’s job to find a level at or below the cost of production. Historically in production agriculture, the market spends more time under the cost of production than above it. It’s hard to remember $3 corn at a time when we expect to receive $6 corn. When our cost of production for corn is approaching $5 per bushel, it’s critical that we develop the appropriate risk management strategies in order to survive during volatile times.

My intention with this column is to motivate producers to strap on a seat belt for the coming roller-coaster ride. We’re sure to see a lot of ups and downs in the coming years. The more prepared you are, the smoother the ride. Volatility always creates opportu-nity, provided your long-term plans are geared for efficiency, sustainability and profitability. Managing your business with attention to details might never be more important than it is today.

I’m looking forward to providing you with unique ideas, timely information, sound business concepts and decision tools that will put you on the right track for a successful ride. Don’t hesitate to contact me with questions, comments or concerns.

Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a farm business consultant and the author of the AgWeb.com blog "Ask a Margins Expert." To submit questions and comments, e-mail Chris at cbarron@cb-farms.com.

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FEATURED IN: Top Producer - February 2012

 
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