From the road it may look like a traditional corn and soybean farm, but Jim Kline’s large commercial farming operation in northeast Indiana is anything but ordinary.
You learn this as soon as the conversation turns to business growth.
“I’m an ag economist first and a farmer second,” Jim says. “If it doesn’t work on paper first, we’re not going to try it in the field, and if it can’t drive revenue, we won’t do it.”
Most farms try to grow the business by adding acres. But the Klines have taken another route. “We want to grow by trying to answer what the consumers are telling us they want,” he says. “What we’re hearing from millennials is that they are willing to spend money on food that is safe and has specific traits. So we’re transitioning acres to organic and non-GMO, building smaller bins, and looking at alternative crops.
“If we can net $600 to $800 per acre as opposed to having to farm 20 more acres to make the same, why not investigate?”
Trying new enterprises to drive revenue based on data-driven trends is a cornerstone of the Kline operation. Adding organics may seem unorthodox, but it’s a natural progression for a farmer who never looks back and rarely plays it safe.
That business approach starts at the top. Jim lives and breathes numbers; as he says, “numbers don’t lie. Numbers always tell you the truth and the direction to go.”
His approach has been enthusiastically adopted by team leaders, including son Adam, agronomist Kyle Brumley and the farm’s chief financial officer, Mitch Glentzer.
Glentzer, who had no ag background, manages farm financials and marketing.
“How do we drive revenue? That’s the question we think about in the middle of the night,” he says. “Not only did we bring finances in-house when I was hired, it was an opportunity to bring more transparency to everyone on the farm. It was a chance to become budget-focused and help everyone understand that the goal is to optimize profitability on each acre.”
Farms today generate more data than ever before, but it takes like-minded thinking to drill down through that data to make good decisions. “Otherwise you just have computers full of data and no idea what to do with it,” Glentzer says. “If we can’t make it make money, what’s the point? Let’s look at the numbers.”
Those numbers were telling a story, mainly, that margins from bulk commodities were shrinking fast. They also showed that there are new profit opportunities based on product differentiation driven by consumer trends. So the Klines began to investigate non-GMO, organics, specialty wheat, direct contact with restaurants or grocers, addition of livestock -- even vertical integration.
And it doesn’t hurt that most of Jim’s team are millennials.
“The younger generation wants organic, farm-to-table, sustainably grown food — all or some of these attributes may be important, but mainly they want to know where their food comes from and how it’s grown,” Jim says. “This younger generation has information in the palm of their hands, and they investigate things much more so than my generation.”
“There’s a change in industry thinking about consumers,” Glentzer says. “Companies like Indigo [certified premium crops] are trying to connect farmers with consumers, trying to help farmers understand what consumers need in a grain. But it’s going to take a while to get there.”
Building new revenue streams was the first step for the Klines. They also wanted to do it better and cheaper than their competitors.
“We feel we’re tooled up with people and technology, so what can we do to differentiate ourselves from our conventional counterparts?” Glentzer asks.
Organic learning curve
While the main source of income still comes from commodity sales, the farm is now in its second year transitioning 5% of its acres to organics, with more planned for the future. USDA requires a three-year transition period where no synthetic fertilizer or weed control is used on those acres. And as Jim and his team learned, going organic has a steep learning curve.
“I was concerned about going through the three transition years, but I don’t think the organic market is going away,” Brumley says. “We’re learning you want to use your best, well-drained soils, square fields, for organic. It’s extremely hard to raise organic where you have point rows.”
The Klines attended field days to hear how others successfully transitioned to organic.
“In organic, we’re finding that machinery investment is substantial,” Brumley says, “and there may be a year you don’t even use that tool because conditions didn’t warrant it. We spent quite a bit of money hand-weeding, walking fields. I’m a perfectionist, so it was hard for me to even look at some fields.”
Thanks to a dry spring last year, the Klines were able to rotary-hoe organic fields three times, starting just days after planting. By using GPS, they cultivated safely between rows three times, starting when most beans have just emerged. Because they have highly erodible soils, they had to figure out how to do this and stay in compliance.
Then there was the matter of cover crop elimination.
“You can’t kill a cover crop with chemicals in organic, so we had to figure out if we could use cereal rye, crimp it and use that as weed control,” Brumley says.
Working with landlords was another adjustment, as many expect “clean” fields each summer. The Klines used many of their own fields and found two landlords who enthusiastically signed on to long-term leases for organic acres.
“These transition years are important for us to figure out how to adapt efficiencies from commercial into organic — what lessons are easily applicable and what we still need to figure out,” Brumley says.
“Our goal with organics is just like with commercial — be better, do better, be more efficient,” he says. “There will be more and more organic acres produced. But just like conventional farming, if you can do it cheaper and better than your neighbor, you’re going to be successful.”
“When a traditional corn-soybean operation looks outside the box, there’s no limit to potential revenue streams,” says Jim’s son, Adam, who practices law at an Indianapolis firm but stays actively engaged with the farm. “Through my legal practice in the agricultural industry, I was able to see firsthand innovative ideas that work and don’t work.
“Frequently, what we find is producers who succeed have a niche or specialty. What we’re doing on the farm right now with row crops needs to stay. But we need to assess other opportunities and take some of the eggs out of the row crop basket.
“We’re not so big that we’re inflexible to change, but we could try something and put size behind the venture in order to be a market-maker. Anywhere that we can capture more market share than corn and soybeans is what I’m pushing from my armchair 60 miles away.”
That may include vertical integration in specialty wheat. The Klines are building relationships with bread makers, brewers, restaurateurs and grocers. The Indiana Economic Development Corp. provides incentives for new businesses, including a nearby opportunity zone where the Klines could build a processing plant to cut out middlemen.
“It’s central to making the leap and growing to the next level,” Adam says. “The urban family is two or three generations removed from the farm and that leads to concern about what they put in their child’s mouth. If we can articulate a story on how this grain was produced, that removes doubt from the consumer.”
And data is vital to this plan.
“With blockchain, Granular and some other technology, we can tell a story — sort of like a vintage wine,” Adam says.
“The consumer is speaking. They are telling us to identify what they are eating,” concludes Jim. “Consumers want more information. Now more than ever, I want to listen to what my consumer wants and try to satisfy that need.”
Working with an on-farm CFO
Some farms may only need bookkeepers. Some may need a tax adviser or accountant. For Indiana farmer Jim Kline, having a chief financial officer in the office next door was the only way to move the farm closer to its revenue goals.
“As the farm started to grow, I ran out of time to manage the numbers adequately, plus run the farm,” Kline says. “I had an accountant, but we outgrew that as well. We just needed someone in-house.”
The Klines hired Mitch Glentzer to not only manage finances, but also form and execute marketing strategy and analyze data. At the start of every year, Kline and Glentzer sit down to create a budget. They look at last year’s numbers and focus on what changes will be needed. They meet with agronomist Kyle Brumley to go over the crop budget. Equipment manager Kacy Clamme’s budget focuses on new machinery needs and repair expectations for the year ahead.
“Right now it’s more important than ever to know where every dollar is going almost before it goes there,” Glentzer says. “You can’t foresee everything, but we’re really trying to plan and know what kind of year we will have in advance, including marketing.”
Each month Kline and Glentzer discuss the budget. Everyone is empowered to manage budgets wisely, from Kline “down to the guy mowing ditches,” Glentzer says. “Jim has instilled that in all of us: We have to be profitable to be successful, and everyone has to understand their part.”
One data analysis tool Glentzer uses is Granular, which provides field-level financials, as well as analyzes cash rent and determines if some farms aren’t paying their way. “It helps us to more efficiently deploy our resources.”
On the marketing side, the Klines use revenue management software to help understand their board position and see where per bushel revenue is coming from. They use AgYield to run what-if scenarios.
“Understanding your costs is huge, so you can understand when you can take a profit,” Glentzer says. “We are not trying to chase the top of the market; that approach can and does hurt a lot of folks.”
Their marketing strategy tends to be aggressive. It has taken positions two years out and at times captured 20% margins “because we know our costs that far out,” Kline says. Last year corn and soybeans were 100% hedged by June.
“We’ve just come through a very successful marketing year, and sometimes you have to remove yourself from marketing the crop you raised,” Kline says. “As a farmer, you see what the conditions are outside your door, but you don’t know what’s going on in other states. Mitch, even though he sees numbers and expenses, is more removed from everyday production and must gauge decisions by what we expect production will be in the country. Letting him make more of these decisions takes the pressure off me.
“It has been one of our better moves.”