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Corn+Soybean Digest

Will You Be A Farm Executive Or Ex-Farmer?

As crop prices began to drop this summer, farmers and bureaucrats alike began to sound the alarm that the 1995 Freedom to Farm legislation is failing.

Not so, says Dave Kohl, farm management guru from Virginia Tech, Blacksburg, VA.

Many good-manager farmers and ag economists agree.

They point out that we've had tough times before Freedom to Farm, even when corn and soybean crops in the U.S. and South America have been considerably smaller.

On top of that, the Asian farm crisis has impacted farm prices like never before.

"Some of the folks who are screaming right now were having trouble making money in the good times," says Kohl. "From 1990 to 1998 we had a lot of upside potential in agriculture and very little downside risk. The average producer did fairly well.

"From 1998 through 2005 we're going to see some upside potential but quite a little downside risk, and the average producer isn't going to do very well. There are still profits in agriculture, there are just fewer farmers getting them. The ones who are doing it are excellent risk managers."

Kohl's point is driven home by Gene Gantz of Rain and Hail L.L.C., West Des Moines, IA.

"The February Chicago Board of Trade average for November soybeans was $6.64," Gantz points out. "By October, the price had dropped low enough that in central Iowa the average loan deficiency payment (LDP) was 44 cents.

"Using available marketing tools and government programs, farmers could have locked in $7.08/bu on soybeans. If you look at the same situation for corn, farmers could have locked in $3.51/bu. If you add on the additional government payments available, some farmers will receive $4.04 for their corn."

The difference between $4 corn and "screaming" about Freedom to Farm, is management ability - particularly risk management, these specialists point out.

Such pricing opportunities may not be in the picture for '99 crops - making it tough for all farmers. Whether or not this situation in agriculture is "right" from a humanistic standpoint, it's happening on Main Street and in all U.S. businesses.

Nevertheless, Freedom to Farm still has many proponents.

"I'm a staunch supporter of Freedom to Farm," says Maple Park, IL, farmer Steve Pitstick. "Under Freedom to Farm, you have to take on the risk management responsibility yourself. If I fail, so be it."

Pitstick is typical of farmers who Kohl refers to as "ag executives." They look at their farm operations as businesses rather than just growing crops.

A perfect field doesn't mean that farmer is a profitable operator, points out Pitstick. On 800 acres of corn this year, a few key management decisions could easily have meant an $80,000 difference in profitability, no matter what the field looked like.

Ag executives are good strategic planners who watch bottom-line profits through cost controls, but also focus on top-line growth, says Kohl.

"It's a matter of visionary thinking. They see opportunities others don't. They view change as opportunity, and they don't see themselves as victims."

Today's ag executive farmers tend to think in terms of a systems approach, he continues.

"They tend to have the best systems of production, from inputs through delivery. They understand the importance of strategically aligning themselves with industry to stay on the cutting edge. But they tie their production system in with marketing and financing. They tend to do 1,000 things 1% better, rather than one thing 1,000% better than other farmers."

Those are lessons that Pitstick learned early in his farming career.

"I used to feed a lot of cattle, and that taught me more about farm business than anything," he says. "I worked hard and didn't make any money. I was spending 90% of my time on the cattle, but they only made 10% of my profit. It taught me you can't farm a certain way just because that's the way you've always done it."

Pitstick started running computer business software in the late '80s to make enterprise analysis more practical.

"If you make money, you need to know where it came from. And you have to look at several years' data," he says. "You have to be willing to quit the part of your farm business that isn't making money before it quits you.

"I do a P&L on every field," says Pitstick, who cash rents 800 acres and custom farms another 800. "If a landlord wants $10/acre more rent, I know if I can cover it or not. So far I haven't given up any land."

Like many ag executives who fit Kohl's profile, Pitstick is more concerned with control of assets than with ownership. He owns almost no land and takes a conservative approach to equipment.

"I don't measure success with a new line of equipment. My corn doesn't care how old my tractor is. There's plenty of equipment available. When I'm looking at expansion, I figure my machinery needs and then go get it. It's nothing more than a line item on the budget."

Instead, Pitstick focuses on the financial needs of expansion and putting together alliances that will make those finances available.

"It used to be you might add 100 acres to your operation. But with farmers going out of business now, it's possible sometimes to add 1,000 or 1,500 acres at once."

Pitstick's goal is to be a general manager, not a tractor driver, as agriculture evolves in the 21st century.

"Ag companies aren't spending billions of dollars without an agenda. If less than 2% of the U.S. population farms, and 20% of those farmers grow 80% of the crops, that's a controllable entity. I don't want to be somebody's hired man," he declares.

While he likes to be on the cutting edge of agriculture, Pitstick doesn't try to lead the pack.

"I like to watch over the shoulders of the guys on the very front edge. Fifty percent of the time, they get burned. I want to be ahead of the spike on the bell curve for ag technology."

That explains why Pitstick had Bt and Liberty Link corn planted in his fields before most farmers knew what they were. It's why he's a Certified Crop Advisor, has a license to sell crop insurance, works with software companies to develop new products and has his own Web page advertising his availability to work with companies growing special-use crops.

Ag executives like Pitstick tend to be risk takers, but also excellent risk managers, according to Kohl.

"Sometimes they're more highly leveraged and more willing to try new ventures," says Kohl. "But they also have sound marketing plans and the necessary insurance to mitigate production risks. They also think more about the long term and have business plans and estate plans in place."

Part of the ag executive profile that both Kohl and Pitstick talk about is a farmer's ability to "think outside the box."

"It's not out of the question that we may not raise soybeans in Illinois some day," Pitstick surmises. "So what happens if we can't raise soybeans anymore? Or what happens if we have to raise beans for $3/bu?

"Weather is going to become less of a factor because of biotech. Some day we'll spray a promoter on a crop that will activate genes to help the plant survive different weather conditions. I think farmers are going to be overwhelmed by the news of what's going to be coming in the year 2000."

Pitstick would like to help make part of that news.

"I'd like to be on the committee that writes the next farm bill," he says. "The industrialization of agriculture will change who the next farm bill is aimed at. Somebody has to write it, and I want to be part of the team that puts it together."

For some people, that might be thinking a little too far out of the box. For Pitstick it's just part of looking at farming from an executive's point of view.

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