5 Tips For Profitability In 2019

10:00AM Sep 10, 2019
Banker Meeting

four bankers from different regions of the country to share how profitable farms in their portfolio manage to do it.( Farm Journal )

The rural economy is struggling. In fact, the July Rural Mainstreet Index (RMI), a monthly survey of bank CEOs in a 10-state Midwest region, fell below growth neutral to 46.5, its lowest level in almost two years.

“Despite a $16 billion federal government support package coming soon, a drop-in farm income is negatively affecting the Rural Mainstreet Economy,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. 

Despite falling farm income, some, albeit few, farmers are still profitable. How do they do it? Below, four bankers from different regions of the country to share how profitable farms in their portfolio manage to do it. 

1. Pay attention to details. “[Profitable farms] sweat the small stuff,” says Lynn Paulson, senior vice president of Bell Bank in North Dakota. “Profitable farms in my portfolio do a lot of things 5% better that in aggregate add up to be something significant.” 

They are laser focused on expenses, know their cost of production, and have a marketing plan that they execute to take advantage of opportunities, he says. Additionally, they place an equal emphasis on production, financial management and commodity marketing strategies. 

“They make most financial decisions from the head and not the heart,” he says. 

2. Seek progress. Similarly, profitable farms Alan Hoskins, president of American Farm Mortgage in Kentucky, works with strive for continuous improvement. 

“They understand even though they may have done something the same way for a number of years, there may be a better, more efficient and more profitable way to do it,” he says.  

3. Control costs. Sam Miller managing director of ag lending at Wisconsin’s BMO Harris Bank says profitable farms he works with are continually looking for sustainable opportunities to lower their break-even.

“They have a dashboard of production and financial metrics and monitor, adjust and react to changes,” he says. “This includes revenue and cost-effective intensive management.” 

4. Control debt. Kevin Gabbert, vice president of the Commercial Farmer Team at FCS Financial in Missouri, says the biggest mistake he sees unprofitable farmers make is over-leveraging their operation, which results in high overhead costs. 

“Key areas to stay focused on to avoid this issue include land rent or mortgage payments, debt service on equipment, and labor including draws for family living and management,” he says.  

5. Believe you can. “The biggest mistake less profitable farms make is acting too slowly to adjust to market conditions- believing they can’t make many changes,” Miller says referencing farms in his portfolio.