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A graduate of Iowa State University studying Ag business, economics, international Ag, and political science, Dakota went to work for a large diversified farming operation and private equity group in central Iowa. Working in Business Development, Dakota aided in the growth of the farm in additional states through development, acquisition, and management. Today, Dakota works with professional farms in the western Corn Belt helping them reach their potential and meet their growth goals (including Farm Expansion).

Dakota Hoben Photo farm expansion

Dakota Hoben


How do you define farm expansion?
Farm expansion is often defined as “getting bigger,” but the action of expanding is actually far more complex than that. Most farmers today can quickly identify the farms in their area that are growing in acres, people, facilities, or even equipment. But what about their balance sheets? Expansion and growth still refers to visible, physical aspects, but now more than ever farmers also want to grow profits, find new revenue streams, or even build new capabilities.
Farm expansion does not have to mean added complexity— with the right tools and processes in place, farm expansion can be “business as usual” as opposed to increased difficulty and headache. Rest assured a 2,000-acre farm without the right tools and processes can be more of a headache for the CEO than an operation that is 20,000 acres with the right systems and organization.
Why, and how, is farm expansion critical to the long-term success of a farm business?
Let’s be very clear, consolidation in farming is real, and it’s not slowing down. Sadly, right now there are a number of farms going out of business in today’s commodity market. But on the other side of struggle is opportunity. Farms are expanding all over the country, even in economic environments like these.
The key to taking advantage of these growth opportunities is understanding your own financial health, having the right processes and tools in place, and the discipline to take advantage of only the opportunities that fit your vision. It’s not about acres, size of the bin site, or number of people. It is about meeting the long terms strategic goals of your business and strengthening your balance sheet accordingly.
Based on your experience working with farms, what are the 5 best practices that any farmer should keep in mind to make sure they’re tackling farm expansion effectively?

  • Get your house in order. Know your cost of production, your profitable acres, have established streamlined SOP’s (Standard Operating Procedures), and understand your business top to bottom and inside and out. It’s hard to manage 5,000 acres well when you can’t manage your existing 4,000 acres very well. Getting bigger will not make you a better manager.
  • Find better friends. Remember what your mom, dad, or mentor would always say growing up: “You’re the average of those you surround yourself with.” The same goes for your farm and benchmarking it against others. Many land grant universities create extension budgets to help farmers know where they stand, but these tools are not good enough for the best farmers. If you really want to grow your farm, benchmark yourself against the best. The best farms are pushing new boundaries on cost management, marketing discipline, and operational efficiency.
  • Have scalable processes. Look around you, specifically at other non-farm businesses running revenues of a comparable size (or better yet, the size you’re aiming for). Are they tracking their inventories on pieces of paper in cabs of trucks? Are their settlement sheets buried in a pile of magazines from their suppliers? You need tools and processes in place to structure, track, and optimize the everyday workings of your farm. At a humble size some processes may seem excessive and unnecessary, but if 5,000 acres came up for rent right next door, would you be ready? The tools to help with that are available to every professional farm today.
  • Cash flow. Cash flow. Cash flow. One of the most important analyses farms will do when evaluating growth opportunities is a cash flow projection. New opportunities need to cash flow for farms, but how do you project cash flow if you have no idea what your cost of production is, or how your 5-year marketing average compares to the market? Know what’s coming in and out (and when) so you know which kind of opportunities you’re looking for.
  • Evaluate growth opportunities in the context of your goals. If you don’t know where you want your farm to be in 5, 10, or 20 years it is really hard to make the right turns and decisions to get there. Opportunities for growth presented or pursued need to fit your overall long-term strategic vision for your farm. Maybe that includes bringing additional family members back to farm, maybe that includes a cash-out, maybe that includes transitioning into niche markets. Growth needs to fit your strategic vision for the farm; otherwise it just becomes an expensive distraction.

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I grew up on a grain farm in northern Illinois and earned a Bachelor’s degree in Agricultural and Consumer Economics from the University of Illinois.  After college I took a job with an ag consulting firm in Indianapolis where I worked on market research and strategic planning projects.  I made the move to Granular because I wanted to get back to my roots, so to speak, and work more closely with farmers. I was looking for a faster-paced, more autonomous work environment. I currently work with 26 farms that range from the midwest to the west coast and grow anything from almonds to corn and soybeans, and everything in between!

Madelyn Walters

Madelyn Walters


How do you define operational efficiency?
Operational efficiency refers to managing your farm’s cost of production in a way that enables you to be profitable and minimize waste.  You can always improve your operational efficiency, but you have to start with at least a good understanding your costs as they relate to the revenue they play a part in driving.  For example, I won’t know if buying another combine is a good idea until I know how many additional acres I’ll be able to harvest with it.  Do I have enough acres to maximize (or at least come close) the use of one more machine?  If I hire an additional truck driver, what will that cost me, and how much more hauling can be done as a result?  Do the potential revenue or time savings surpass the cost of another truck driver?
Why, and how, is operational efficiency critical to the long-term success of a farm business?
Operational efficiency is critical because it can mean the difference between a profit and a loss in years like 2016 where farm margins are tight, even if you think you’ve got a good handle on your cost and revenue.  A loss this year means a tough start to next year’s crop, and then things can quickly start to spiral out of control.
Based on your experience working with farms, what are the 3-4 best practices that any farmer should keep in mind to make sure they’re being operationally efficient?

  • Understand field-level profitability. Measuring profitability at a farm level is table stakes – you need to get to the field level in order to really improve. If you can identify fields that are continually not profitable, it may be time to re-negotiate those leases or consider giving those fields up to free up resources to take advantage of better opportunities.
  • Streamline communication.  A lot of time is spent on the phone or radio directing people where to go and what to do every day, at all times of day.  Efficient farms understand where work needs to be done, and are able to communicate and assign it to their crew without a ton of back and forth. Work order systems, when supported by the right technology like Granular, can cut down on misunderstandings and lost time.
  • Eliminate extra office work.  Time spent in the office is time that 1) most farmers don’t enjoy, and 2) can be spent on activities that are worth more in terms of potential revenue. Most operators write down what they do in the field on pen and paper, and then hand those notes off to a bookkeeper in the office. This person, in turn has to spend more time entering that same information in another system. Look for ways to transfer information directly!   In hectic times like harvest, a bookkeeper can spend 20 – 25 hours entering ticket information – we streamline all of that for customers, so that information is captured in real-time directly from the field, scale, delivery location, etc.
  • Do your homework to manage input costs. Successful farms understand when they’re getting a good deal on their inputs or not. They request quotes or have a bid process in place to purchase seed, chemicals, and fertilizer. Counter to what most farms may be susceptible to, they don’t rely on relationships alone to make purchasing decisions

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With farm profitability at historically low levels, most farms are carefully scrutinizing their budgets and looking for ways to improve their bottom line. In this post we’ll take a look at a major business decision that many farmers face each year: should I plant more corn or soybeans? While many acres are typically not open for consideration due to rotational concerns or lease agreements, when we talk to our customers we find that they usually have some fraction of their acres that are open for a decision on which crop to grow. While there have been some recent posts projecting profitability of corn versus soybeans, here we’ll take a slightly different view by looking at historical differences in profitability. While past performance is not a promise of future returns, it is often a good place to start.

In this analysis, we use summarized national data on profitability (we understand that profitability of each crop ultimately varies by region) gathered by the USDA ERS, and adjust all numbers for inflation. Figure 1 below shows the net profitability of corn and soybeans across the U.S. for the last 41 years. Several observations stand out:

    • The average profit per acre for corn is $79/acre, while the average for soybean is $98/acre – on average, soybeans have been $19/acre more profitable
    • While corn and soybean profitability are generally correlated, there are some years where one is significantly more profitable than the other
    • Yield increases since the 1970’s (~2 bu/year for corn and ~0.6 bu/year for soybeans) have not translated into profitability increases for the farmer

      Figure 1: Profitability of Corn & Soybeans*

Screen Shot 2016-08-09 at 9.07.11 PM

*Profitability  = (crop revenue – all cash expenses), inflation adjusted, from 1975-2015 for corn and soybeans. Government and insurance payments not included.

 
To better understand the relative differences in profitability from year to year, we plot the difference between the profitability of the two crops in Figure 2 below. From this chart we can conclude that:

      • Soybeans were more profitable than corn for 26 of the 41 years measured – 63% of the time (bars below the $0 mark)
      • Corn was more profitable than soybeans for 15 of the 41 years – 37% of the time

 

Figure 2: Difference in Profitability Between Corn & Soybeans

Screen Shot 2016-08-09 at 9.13.22 PM

 
The numbers that came out of this analysis were quite a surprise to us: if soybeans have been historically more profitable than corn, why does the industry focus so heavily on corn production? We will focus on the historical ROI of each of these crops in our next post and evaluate trends in input costs, yield, and price.  Stay tuned.

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Karl Wozniak, Role
  |  
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