High Tech, Low Cost

November 26, 2013 06:47 PM
High Tech, Low Cost

Two Illinois farm entities pool their resources to stay on the cutting edge

Rooted in the millennial old concept of bartering is a new formula for success—trading custom work. You do this for me, and I’ll do this for you. This strategy has mobilized four northern Illinois farmers, allowing them to adopt the latest technology and keep debt levels low, all while adding sizeable increases to their land base.

"You could call what we’ve done a small co-op," says Aron Carlson, who grows corn, soybeans and wheat with his partner, Brendan Dolan.

Carlson and Dolan’s entity is known as CAD. They barter with Dolan and Klinger (DAK), which is comprised of Robb Klinger and Ben Dolan (Brendan’s brother).

The four partners believe that being early adopters of technology, keeping debt low and maintaining growth gives them a competitive advantage. Carlson says the key to accomplishing this triad of goals is dividing up ownership, sharing labor and equipment and maximizing machinery use. They put three to four times more hours per year on equipment than the average farmer.

"That keeps our per-acre costs low," Carlson says. "The downside is our equipment has more wear and tear."

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The two entities farm nearly 12,000 acres in northern Illinois and southern Wisconsin with 6,300 acres leased, a small percentage owned and the rest custom worked for other farmers.

"We adopted variable-rate planting as soon as it was introduced about 10 years ago and variable-rate fertilizer when it hit the market," says Carlson, who serves as an Illinois Corn Growers Association board member. "That lowered our costs."

Keeping costs down involves more than just sharing and using equipment efficiently. The two entities also pool their purchase of inputs.

"Each year, we bid out our fertilizer, chemical and other input needs," Carlson explains. "Because we represent high volume, we get lower unit prices. It’s cheaper for a supplier to deal with us."

Busy Boys. Even though the four producers are near or at age 40, they are still referred to as
"the boys" by farmers at the local Winnebago coffee shop. "They ask, ‘What are the boys up to?’" Carlson says, smiling.

Their partnership began in 2007. At that time, DAK had already been operating for 10 years. Since then, the two entities have built their land base to nearly 12,000 acres spanning northern Illinois and southern Wisconsin. Of that, 6,300 acres are leased by DAK, a small percentage is owned and they custom work the remaining acres for other farmers.

The concept for this arrangement didn’t spring out of a textbook or come from a consultant. In 2007, CAD owned about 300 acres and was equipped with a four-wheel drive tractor, a second tractor, a planter, a drill, a vertical piece of equipment and a liquid applicator. DAK had about 5,000 acres, but when a chunk of land came up for rent, it wasn’t in the budget for DAK to take it on.

"It just struck us that working together was right," says DAK’s Ben Dolan. Initially, CAD was in a better position to provide labor, with DAK owning most of the equipment.

Dolan found comfort in knowing that the CAD crew had skilled operators who would treat each piece of equipment as their own.

At that point, CAD’s Carlson and Dolan upped their equipment investment. "It took a lot of faith from all of us," Carlson says.

Efficiency at Work. This year, the arrangement has been especially beneficial. With three 24-row planters, they could plant as much as 1,000 acres per day. Despite all their custom work and a wet spring, they were done planting in a relatively timely manner. On average, they can harvest 300 acres per day.

"Our efficiency is huge," Dolan says. "That gives us a little extra." They’ve reinvested these "extras" to boost efficiency. For example, they have a truck equipped with an air compressor, fuel and all the necessary tools that can be dispatched to any field to service equipment.

Between the two entities, they typically don’t own equipment more than four years old. They have found that the best purchases are often one-year-old pieces of equipment with low hours.

Dolan says this gives them a leg up on productivity, per-bushel costs and yields. To further their competitive edge, CAD is installing a new grain-handling system with excess capacity.

"There are other opportunities for growth, but at the end of the day, it has to show black ink," Dolan says.

So how do both entities make sure they’re compensated for their time and contributions? Both Carlson and Dolan admit that sometimes it’s not always black and white.

Because both entities do custom work for the other, the lines sometimes blur, they explain. To make it work, at the end of each year, the two units carefully document use and hours for all equipment.

They base their rates off of custom published rates, which are agreed upon prior to each growing season. For example, the custom rate for a tractor with auto steer and a guidance system is generally $1 per hour per 10 hp. This means that the charge for CAD’s 400-hp tractor is $40 per hour.

Things don’t always work out perfectly. The boys agree that it sometimes gets complicated and that they still have some finessing to do. Sometimes, two different custom charges are calculated for a specific task, such as when the tractor one entity owns pulls a planter owned by the other entity.

Lessons Learned. Taking on thousands of acres and working across entities doesn’t come without its share of lessons.

Dolan and Carlson agree that they learn something new every day, but both point to communication as an essential ingredient in making their partnership work.

"It’s inevitable; there will be disagreements," Dolan says, noting that they each have very different personalities. "Everyone’s point of view is sought after and important. We have to talk with each other all the time to make it work."

Part of communication is just passing along new information, whether it’s marketing or technology. "It doesn’t matter whether you’re 5 or 65; you have to keep learning," Dolan says. "Farming is an expensive, high-capital business. It requires millions of dollars of investment, and while there’s a lot of opportunity out there, there’s even more risk today."

While margins have been good as of late, it wasn’t that way when Dolan and Carlson started. "Corn prices were $1.80 to $2 per bushel," Dolan recalls. "By teaming up and pooling our resources, we were able to negotiate better deals, take advantage of opportunities and spread the risk."

The boys’ bartering skills proved to be good for business. 

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