Steady Hand

August 30, 2011 08:52 PM
Steady Hand

Despite stormy days, this Indiana farmer stays the course toward a profitable future

If Jim Kline wasn’t so clearly destined to be a farmer, he would make a good ship captain. A captain is responsible for the ship’s navigation along with the safety of the crew and cargo. He makes sure codes of conduct are observed and budgets met. Most importantly, he stays calm through stormy nights, steering his ship into the light of day.

Kline might be thousands of miles from the sea, but he has successfully guided his family and farm through troubled waters. He built a business in Hartford City, Ind., over three decades while facing trials that would wreck other men: production shifts, land competition, bank challenges, farmer envy and the long illness and painful death of his wife, Suzanne. During her illness, Kline was her sole caregiver while raising their teenage children, Adam and Kayla, plus running the farm.

TPOYJim Kline,
Hartford City, Ind.

As the 2011 Top Producer of the Year, Jim Kline won a Challenger tractor for 200 hours. He also received an iPad, courtesy of Asgrow; a Toughbook computer from Bayer Crop Science; and a digital camera from SFP.

Kline not only survived his dark time but went on to grow his operation to 7,500 acres of corn, soybeans and wheat while earning a reputation as an ethical and progressive farmer. His debt-to-asset ratio is better than ever, and love found him again in the name of Lou West, a beautiful woman whose laughter and wit mended his spirit.

Thousand-Acre Goal. Kline knew early on he was a farmer by nature and nurture. He rented his first 100 acres from a neighbor as a freshman in high school and bought his first farm four years later as a senior.

During his time at Purdue University, Kline kept farming and honing his business skills. He returned after college to work with his father and brother. Both Kline and his brother purchased equipment throughout the 1980s, and in 1990 they bought their parents’ machinery. Kline soon purchased the family farm.

His brother left the farming operation for a career in education, and Kline formed Kline Family Farms Partnership. There are four entities in the partnership, all owned in various percentages now by Jim, Lou, Adam and Kayla. The separate entities support custom farming, seed wheat, corn and soybean production and the family partnership. Brasil Farms LLC was formed in 2006 as a joint venture with investors and Brazilian farmers (see sidebar).

Throughout his career, Kline has kept two goals in mind: increase the net worth of his corporations by 10% per year and own a minimum of 1,000 acres debt-free by age 65.
"My goals have not changed drastically over the years," Kline says. "I’m still working toward increasing farm size, increasing net worth of my corporations and improving return on our investments. But I won’t do it at the cost of my ethics or by outbidding neighbors. It’s been slow going."

There is a quiet ambitiousness about Kline, like an athlete who shows up for practice early but doesn’t expect to be noticed. "I consider Jim to be one of the top farmers I work with," says Brian Kline (no relation), a CPA with Kline’s CPA Group, P.C., in Huntington, Ind., and Kline’s accountant for 20 years. "He is constantly working to improve his business skills. He is the rare farmer who has been open to using various farm operational structures."

Business Innovation. For example, Kline added an S-corp and combined two corporations into a general partnership to gain advantages with the Farm Service Agency as he grew, notes his accountant. Kline also added a trucking company to separate some of the highest liability from his farm operation and to use it as an additional profit enterprise. He pores over detailed financial spreadsheets and works with AgriSolutions LLC for financial consulting.

In 2010, Kline decided to lock down long-term interest rates. He devised a plan that uses the equity in his real estate as collateral to obtain operating money at an attractive 20-year fixed rate. An added benefit was little prepayment penalty in the first five years and no prepayment penalty thereafter.

"This appealed to me because the cost of interest on our real estate mortgages had been higher than the cost of our operating money," Kline says. "I felt that a historical review of interest rates demonstrated that this could be an opportune time to lock in operating money for 20 years."
Kline presented this opportunity to eight different lending institutions and let them compete for his business. The process took eight months. In the end, Kline’s current lender earned the business by taking the time to learn about his farming structure.

"Our current lender is able to understand our short- and long-term goals and provides us the security to take advantage of growth opportunities," Kline says. "Though they offered us a very competitive interest rate, our decision was not based on rate alone."

In the end, this transaction represents approximately 65% of his total operating needs.

The heavy Hoosier soils of northeast Indiana create plenty of challenges for Kline. As a result, he was an early adopter of no-till farming, experimenting with the concept back in 1990 when other farmers smirked at the idea. He developed a planter that worked a narrow band of soil in front of each row, allowing him to successfully no-till corn into the cool, damp soil. Shortly after incorporating this practice, he started fall strip tillage, developing a warmer, mellow seed bed for planting.

Twin-Row Ready. Last year, Kline planted twin-row corn and soybean crops for the first time. Before making the decision to use twin-row technology, Kline spent 18 months investigating data that compared hybrid yields planted in 30' rows, 20' rows and twin rows. He also planted his own
on-farm test plots.

"Jim is an innovative and progressive farmer who does his homework," says Terry Raver, manager of AgBest LLC, a fertilizer distributor in Blackford County, Ind. "He has always seemed way ahead of his time."

Kline has installed or hired contractors to install at least 80 miles of tile in the past decade; he estimates he has installed more than 300,000' of tile in the past three years alone. In 2009, he purchased tiling equipment and now improves drainage on his farm as well as his landlords’ farms. He is willing to install tile himself at a lesser cost than a contractor to add value to the bottom line.

Employees and Landlords. Kline’s master management plan includes plenty of employee development. Most of his employees have been with him for more than a decade. "Overall management is where Jim excels," says CPA Kline. "Jim understands the fine line between micromanaging and giving employees training and responsibility to do their jobs."

Kline developed a chart detailing employee responsibilities and chain of command. Recently, he hired a "non-ag" business consultant to provide additional leadership, guidance and objectivity for employees.

Part of Kline’s success might be because he started farming early. "He was doing business with us when he was in college," notes AgBest’s Raver.

Landowner Bob Jones met Kline more than 30 years ago, when a colleague identified the young farmer as a candidate to rent Jones’ farm. He has rented land to Kline ever since. "He keeps excellent records and has established a reputation in the community for his excellent farming and honesty," Jones says.

Kline has developed a method for establishing cash rents with his landlords. To be fair, he starts every landowner at the same base rent.

"We all know every farm is not created equal, but explaining that to a landowner is difficult," Kline says. He pays a premium after harvest based on actual yield and uses three categories of yield with a step up in premium. If he has a multiple-year lease and rental rates rise significantly during the year, he will go back and adjust payment upward to equal payment for the new lease.
This is beneficial because the landowner takes more interest in the farm’s productivity, since it could translate into more net income. Owners are apt to invest in improvements to their land. In addition, this lease agreement exposes Kline to less risk. "We may pay more during a good year, but in a year when production falls, we don’t pay the rate a traditional lease requires," he says.

Through the Dark. Long-term business relationships also helped support Kline during the years of Suzie’s breast cancer. Even while farming full-time and managing two teenagers, he made his role as caregiver a priority. Kline built his ailing wife a master suite with French doors and wheelchair access to a patio facing the farmyard so she could always see the sunshine, even when bedridden.
"There were times I didn’t think I’d make it, both personally and in business," Kline says. Toward the end of Suzie’s long battle with cancer, Jim found comfort in going for a run with the children. During these runs together, Jim sought to console his children, and the time they spent together was invaluable for building their relationship. "It was a dark time in our lives," he says.

Today, light is shining again in Kline’s life and his future looks just as bright. He remarried in 2007, and his wife, Lou, brings new energy to the farm. She helps at planting and harvest and is quick with a clever retort that often makes Kline blush.

Kline’s steady hand and meticulous planning has paid off. If he gets a good crop this fall (it was a wet spring), he will come out of 2011 with much of his debt retired.

Kline and Lou
Jim and Lou Kline live and farm in Hartford City, Ind. Lou is a nurse practitioner in the area.
PHOTO: Jeanne Bernick

Kline Family Farm Partnership at a Glance

Family: Jim Kline has two children, Adam and Kayla, who are finishing college. His first wife, Suzie, passed away from breast cancer in 2006. Kline is remarried to Lou West, who has two daughters, Sarah and Maggie.

Business Structure: Jim is principal owner and manager of Kline Family Farms Partnership, Hartford City, Ind. There are four entities, and four partners (Jim, Lou, Adam and Kayla) own various percentages. Kline Family Farms Partnership controls all operations, including the farm, trucking, custom farming and tiling business.

Eucalyptus in Brazil: In 2006, Kline partnered in a joint farming venture called Brasil Farms LLC with two Brazilians and three other U.S. investors, including farmers he met at a Top Producer Seminar. Originally, the company raised soybeans in Mato Grosso, followed by corn or grain sorghum. Today it exclusively raises eucalyptus for either firewood or charcoal for fuel. It takes seven years for the eucalyptus tree to grow from a sapling to a tree that produces a log 40' long. Kline expects the return on investment once the trees mature to be approximately 15¢ to 18¢ per tree per year.

Betting on Twin Rows: Kline planted part of his 2010 crop in twin rows. He saw a ½ bu. to 1½ bu. increase per acre in soybean yields along with seed savings of $7 to $8 per acre. Due to extremely wet conditions, corn yields varied depending on nitrogen availability. He is looking forward to evaluating results from twin-row technology used in the 2011 crop.

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