We review 8 tips from Nick Horob of HarvestProfit on how to increase your farm's profitability.
8 Ways to Increase Farm Profitability
December 5, 2016 Nick Horob
As we’ve mentioned numerous times, we like to talk about actionable ideas that you can implement in your operation.
Here’s a list of eight things that you can do to strengthen your operation for 2017 and beyond.
8 - Meet With Your Local Grain Merchandisers
Most grain merchandisers I know are a wealth of local market knowledge. Most are willing and enjoy sharing this information with their farmer suppliers. Here are a few things to ask them about.
* Inquire about local basis patterns. Basis follows certain local patterns and grain merchandisers can identify certain times of the year for you to target your basis “sales”.
* Ask them how they manage their spreads. This is an intermediate/advanced topic that many producers should learn more about. Futures spreads play a large role in the P&L of a commercial grain facility. You owe to yourself to learn about them.
* Ask what you’d need to do to be the producer they call when they really need bushels. You want to be the person they call when they are filling a train, a short sale, etc. Ask them what it would take to be that producer for them.
Schedule a meeting with your local merchandisers this winter.
7 - Study Your 2019 Split Tests
Most successful producers I know conduct split tests throughout the growing season. It’s your job to sit down with anyone involved in your agronomy decisions (including sales people) to evaluate and learn from your tests.
As you likely know, every growing season is different. You don’t want to completely change your plan from year-to-year based on results that were based solely on a year-specific weather issue. You should try to identify trends in your tests from year-to-year rather than making a rash decision (eg. to completely throw out a company’s seed).
“If you don’t measure it, you can’t improve it.” You’ve measured it, now learn from it and improve it!
Also, I’d be completely open and share your results with neighbors and peers. Knowledge is going to spread regardless so why not learn as much as possible as soon as you can.
6 - Don’t Buy Shit You Don’t Need
No explanation needed! That includes stuff from us. If you don’t think we’ll add value to your farm, certainly don’t buy our course or software.
5 - Shop Your Chemical Plan
Resistant weeds are costing producers a lot of money these days. They need to be dealt with but it’s my opinion that some producers are scared into buying an A+ mode of action (A+ = expensive!) when a B-quality mode of action (or generic) will work just fine.
My recommendation is to solicit a bunch of advice this winter on what chemical plans are working best in your area with a focus on both effectiveness and cost-efficiency.
4 - Set SMART Long-Term Goals
In a business with as much uncertainty as in farming, it is difficult to make confident decisions. During good times, it’s easy to think that they are here to stay and vice versa (today!).
These goals can include anything but they should follow the S.M.A.R.T guidelines below.
* S - Specific
* M - Measurable
* A - Attainable
* R - Relevant
* T - Time-based
Becoming a better grain marketer is a good goal in theory but it’s not a SMART goal as it’s very hard to measure and it’s not time-based.
Having more working capital is another good goal in theory but it’s not a SMART goal as it’s not specific or time-based.
Write down your goals and track them! Our favorite old friend, a spreadsheet, is great for simple goal tracking.
3 - Send Personalized Letters to All of Your Landlords
Most landlords love to hear from their tenants. They also want to hear how the growing season went on their farm this year.
I’d send two personalized letters to your landlords every year. One in the summer and one in the winter.
Include details relevant to their farms, such as:
* Details of Improvements
* Suggestions of Improvements
* Yield maps
* Fertility tests
* Thoughts on the current ag markets
* Flex rent hints
* You get the point….
You should be using these letters as an opportunity to solidify your business relationship while building and strengthening a personal relationship.
Landlords typically don’t give you a lot of advanced notice when they are looking for a new tenant. If they do, they likely already “have one foot out the door.” Spend a few hours a couple times per year building a relationship with them.
The key here is to be consistent with your communication. If you promise regular newsletters but fail to deliver, you’re doing more harm than good. If you start, keep it up!
2 - Build and/or Update Your Balance Sheet
This is very relevant to setting SMART goals. You owe it to your operation to have an easy-to-use balance sheet in place so you can track your goals and evaluate finance/risk management decisions.
At the end of the day, your farm’s balance sheet is a no-BS view of your farm’s finances. You should know it backwards and forwards.
Don’t rely on the bank to do this for you. You should be in a position to bring a completed balance sheet to your bank with “ownership” (understanding) of every line item.
Most of you are likely already doing this but it’s important. So keep it up!
Before #1, sign up for our free e-mail newsletter below if you haven’t already.
1 - Have a “Living and Breathing” Farm Budget
I’ve thoroughly reviewed the financials of farms raising crops on 1+ million acres.
The #1 trait I’ve seen in the most financially successful operations is the ability to make unemotional, numbers-based farm business and risk management decisions.
It’s true that grain markets don’t care about one producer’s cost of production or balance sheet, but….
…..it’s our opinion that farming is more profitable and productive (and fun!) for proactive, numbers-focused operations.