Why are some farmers more profitable than others? How do some farmers find opportunity in tough times? “Production is important, but focusing on the business side of farming has become the dividing line,” says Jim Knuth, senior vice president, Farm Credit Services of America.
The continued low-margin environment farmers face means they must have a goal of being a high-revenue and low-cost operation.
“Today’s farmers need to spend as much time running their business as they do running their combine or tractor,” Knuth says. “Focus on getting better, not just getting bigger—bigger alone won’t solve issues.”
Focus on Financial Acumen
With today’s thin profit margins, a guess at your financial standing won’t cut it. “You cannot look at your financials or business management practices only once a year,” says David Kohl, professor emeritus of agricultural finance at Virginia Tech University. “You have to constantly monitor them. What created deviations? Was it related to a management decision or external factors out of your control?”
Manage Time Wisely
Farmers should follow the 80:20 rule, advises Danny Klinefelter, professor emeritus and Extension economist at Texas A&M University. “Around 80% of your results come from 20% of what you do,” he says. “It’s that way on almost everything. Do first things first. So many people never reach their long-term goals because they spend too much of their time doing second things first. Prioritize. Delegate or hire it done; you can’t do it all.”
Execute a Marketing Plan
To be successful in grain or livestock marketing, farmers must make it a priority by dedicating time, Knuth says. “Marketing should not be the last thing you do, but one of the first things you do.” Knuth encourages farmers to study normal market cycles and do preharvest marketing. Also, don’t try to shoot for the highest market price—just a profitable price. “If you try to chase the last dollar, you rarely catch it,” he says.
Aim for Continual Improvement
The most dangerous phrase in business, Klinefelter says, is: That’s how we’ve always done it. “It’s an economic reality that for your business to succeed and continue successfully beyond you, management must learn, adapt and continuously improve at the rate set by the leading edge of the competition and not by your comfort zone,” he says.
Today’s successful and profitable farmers are lifelong learners, Kohl says. He encourages farmers to attend three to five educational opportunities annually. This will help you look beyond your farm and garner new ideas.
Be Proactive in Cutting Costs
Farmers who are surviving and even thriving in this tough era are using a few key business strategies, Knuth says. “They have found the sweet spot by focusing on maximizing profits versus maximizing yields or minimizing costs,” he says. “To adjust to this low-margin environment, they have sold under-performing or non-performing assets.” Also, they have proactively negotiated cash rent prices and are using or exploring flex leases.
Kohl encourages farmers to look at their business and identify three areas to improve, such as your grain marketing, asset use or yields. “Try to be 5% better in about three areas—never more than three—or you lose focus,” he says.
“A 5% increase in price received, a 5% decrease in costs and a 5% increase in yield will often produce more than a 100% increase in net returns,” he says.