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Corn+Soybean Digest

Changing With The Times

Illinois farmer reorganizes to stay competitive As Skip Klinefelter walks across his farmyard, the history of his farm operation stands clearly before him. It's not necessarily a pretty picture.

Empty hog buildings remind him of the F1 gilt program he used to operate. The hogs are gone now, but the overhead remains on his books.

"What happens to me isn't always my fault," says Klinefelter, of Nokomis, IL. "But it is my responsibility how I react to it.

"Good managers make mistakes, too. But they tend to repair or overcome them and not make the same mistake again," he says. "It's ludicrous to keep repeating the same action and expect different results."

At age 47, Klinefelter knows it's time to get better or get out. He's planned for both. He's trying to change fast enough to stay alive in farming.

"In 1996 I was farming 3,000 acres of mostly rented ground and had a 175-sow F1 seedstock operation," he says. "With the way things were going, I needed to either rent more land or increase my hog numbers.

"I picked up another 360 acres instead of expanding the hogs, and that probably saved us."

Large breeding stock companies put many small operations like Klinefelter's out of business in the late 1990s. "I just wasn't efficient enough to survive," he says. "I lost $150,000 in 18 months."

Although he considered commercial hog production to fill the buildings, Klinefelter decided it made more sense to let them sit empty. "The dollars we had to risk with cash grain looked less risky than commercial hog production."

Labor was also an issue. "We have to compete with Caterpillar, Firestone and the state of Illinois for workers," he says. "The building could be used for a 300-sow farrow-to-wean operation. But there aren't many people who want to assume 75% of the management and labor risk for 25-35% of the potential profit."

Out of economic options for hogs, Klinefelter sold his best animals as breeding stock and the rest went to market.

Next, he looked for ways to make his cash grain operation more efficient. "We needed to drive costs out of the business any way we could," he says.

Danny Klinefelter, Texas A&M University ag economist and brother to Skip, has seen numerous farm operations face the same trials.

"It's the sort of situation where a peer advisory group can really be useful," he says. "You need a group of people who you trust and can lay all your cards on the table. It's also important for psychological support."

It helps when you can hear from someone who "has been there," the economist adds. "Skip and I talk about a lot of things, but it's not the same as talking to other guys who have been through the same thing."

Like many growers, Skip Klinefelter looked at specialty crops for added income. "We raised high-oil corn but really didn't see any net gain," he says. "Yield drag wiped out the market gains, and we had more risk with fewer marketing options."

Klinefelter also looked to reduce his debt load. "I had some equity in 120 acres about a mile away from the home farm. I cashed in my equity to help pay for some of the other losses. And I still farm the ground. On another 40 acres, I didn't have any equity, but the debt cost me more than $200/acre. I sold the land and now cash rent it for less than half of that."

While Klinefelter made plans to survive, he decided he also needed an exit plan in case things didn't work out. Ironically, it turns out that his exit strategy might be what keeps him in farming.

"I decided I needed to be in business with someone else," he says. "I figured if I did have to leave farming, that person could take over my part of the operation. That way I could get out of farming on my terms rather than having a fire sale."

So, in 2000, Klinefelter merged his 2,800-acre operation with a nearby neighbor, Dale Living-ston, and his 1,200 acres. "At this point, it's basically a machinery-sharing agreement. I have a new planter and combine that we use. This helps me spread those costs over more acres," he says. "Dale was able to eliminate a 16-row planter and a truck, plus reduce his lease payments on a tractor and a combine.

"We each pay the repair bills on our own equipment," Klinefelter says. "We compensate each other by the hour or the acre for equipment use and labor."

With the equivalent of a 4,000-acre farm, Klinefelter also gained bargaining power for input costs. "A dealer has to look at us and realize that, if he does not get our business, it's the same as not getting five farms just a few years ago. At 4,000 acres, I had four local suppliers plus some outside the community who wanted my business."

When he put his seed and chemical order out for bids, Klinefelter found he could save $4/acre on seed and $3/acre on herbicide over previous non-bid prices.

"I'm not big enough to get the biggest savings. But I'm buying for substantially less than some others. I'm still not big enough to deal directly with big companies. At 20,000 acres you probably are."

Dealing directly with big companies, however, has proved frustrating for Klinefelter. "I was one of about 13 farmers who met with a major chemical company to discuss what sort of alliances we might be able to create," he says. "We had some real serious discussions about what we could and couldn't do together. Then they suddenly canceled our next meeting and have never made contact with us again."

It's not unusual for setbacks to occur with successful farmers, according to Danny Klinefelter.

"Successful people haven't always been successful at everything they do. The difference between them and others is that they usually have an exit plan," he says. "Sometimes you win with pure persistence. But you have to be flexible and you have to have perspective."

In 2001, Skip Klinefelter looks to drive more costs out of his operation with his negotiating skills. "We'll refine and define our bids better this year," he says. "We'll also include machinery. Some areas we'll cover more specifically and go with fewer verbal and more written agreements."

So, as Klinefelter walks across his farmyard this year, he hopes he can look beyond the past and well into the future.

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