March 16, 2021
The decade of the 2020s will be one of economic and financial divide. During a recent webcast, two highly respected lenders, one from Farm Credit and one from the banking industry, asked an interesting question. They inquired, “What are the situations that result in the top one-third of profitable producers falling back to the middle or bottom one-third?”
These lenders had some interesting perspectives on the conditions that could lead to movement when compared to peers. On the crop side, the cause was usually centered around a local or regional weather event that targeted a specific farm. Adverse weather conditions impact yield and quality or result in additional cropping expenses such as re-planting costs. However, the lenders strongly suggested that while these producers may experience one or more years of reduced profitability, they will eventually bounce back due to their strong management acumen.
The impact of local conditions on the livestock side was also discussed. Large swings in net farm income could be a result of a change in herd health. For example, a disease outbreak on a particular farm can hinder production and marketing. This situation could result in a drag on net farm income for multiple years.
Both lenders pointed out that issues in labor and management, including family issues, were difference makers for profitability. They noted that a difference between great and average was a result of a productive workforce, strong management team, and a good work culture.
Peer financial benchmarking using a farm record system is one of the best management practices and investments a producer can make for the decade of the 2020s. These systems usually segment producers into top, middle, and bottom profitability categories. After observing these economic and financial profiles over the decades, I have found that producers in the top one-third of profitability will usually be there 60 to 70 percent of the time. The same is true for the median and low categories.
What are the overall characteristics that keep the top one-third of profitable operations in that category?
Strong production and operational efficiency
Well executed marketing and risk management plan
High-quality, productive labor and management team, including family members if it is a family business
Use of advisory teams including crop and livestock consultants, lenders, and peers
Long-term management transition program that consistently upgrades the management acumen with the next generation
Source: Dr. David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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