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Corn+Soybean Digest

Opportunities Grow With Volatile Prices

We recently held our fifth annual Russell Consulting Group summer seminar at Lake Panorama, IA. More than 180 of our clients, spouses, guests and corporate sponsors attended.

Here are some of the risk management issues that were on the minds of our clients that week.

One of the biggest issues was weather. We purposely plan our summer conference during the time when, on average, we have the most price volatility. Last year, the high day of summer prices was the second day of our seminar.

Price volatility is a profit opportunity. One of the best ways to manage risk and capture that opportunity is to take action when crop prospects are uncertain. That's why we recommend crop insurance, even in irrigated parts of our territory.

Having RA or CRC crop insurance not only protects against reduced yields, but also allows you to capture a higher price due to reduced yields. More importantly, crop insurance gives you the confidence to make sales when production uncertainty is converted to price volatility.

That points to value of having gross dollar-per-acre goals that cover all costs, cash and non-cash, including a reasonable profit. You then estimate yield and divide it into the gross needed. That will give you the price needed to meet your goals. Most years present opportunities to meet gross dollar-per-acre goals.

Another issue that generated a lot of discussion was a presentation made by David Forsee and Gary Brummels of Machinery Link.

Nearly all producers are looking at ways to reduce machinery overhead and add dollars to the bottom line — while still getting the job done. After-hour discussions found farmers discussing possibilities of forming a limited liability corporation (LLC) and pooling their machinery resources to improve timeliness and efficiency.

We're working with several groups to help them accomplish this. In fact, groups have found they can share talents and specialize.

For example, one group has a member with a new machine shed and another is really good at mechanic work. A third was good at record keeping and office work. A fourth at crop scouting. They specialized and now are getting better quality results and more job satisfaction.

I always say, “If you're not good at it or don't like doing it, hire it done.” Another twist to that is to align yourself with those that can do what you're not good at or don't like doing.

Lastly, an area of great interest was the concept of establishing return-on-asset and return-on-equity goals in your farming operation. I shared data anonymously from five of our clients who had return on assets of 6-10% last year and return-on-equity results of 10-24%.

Interestingly, there was no correlation to size of operation. One was small, one large and three medium sized. We've found no profitability-to-size correlation through our customer base, which covers 17 states. However, there are four key areas we discussed that do affect profitability results. I'll discuss them in subsequent Riskwise columns.

We've observed that the attitude, knowledge, skill and profit gap among producers is widening by the day. Those who take advantage of the opportunities have a very exciting future. Those who don't likely will not be around.

Moe Russell is president of Russell Consulting Group, Panora, IA. Russell previously spent 26 years with Farm Credit Services as a division president. For more risk management tips, check his Web site ( or call toll-free 877-333-6135.

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