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Tuesday, January 06, 2009

Have You Adopted The Skills Of Successful Farm Operators?



 

Faced with lower crop prices than a year ago and higher input costs than a year ago—with the potential for profitability in doubt for many farmers, what expertise do you have that will contribute the most to your success? Is it machinery management? Is it the ability to select the right corn hybrid and get it in the ground on the perfect date? A recent survey identified those skills, so let’s see if you agree with some of more successful farmers in the Cornbelt.

Chief Executive Officer. That is the name plate on your desk and your office door. And Purdue’s Mike Boehlje says farmers need to become more like corporate CEO’s to successfully compete in today’s environment. He says that includes leadership, relationship management, and strategic thinking. Boehlje assembled the survey taken by the organizers of Purdue’s Top Farmer program, and in their December newsletter Jason Oliver and Bruce Erickson said farmers rated financial management skills and risk management skills as most important to their success, but when those were analyzed, success in financial management was dependent upon production management and personnel management.

As a result, Boehlje says, “While those CEO-type skills are likely important going into the future, the survey indicated that for farmers in business today, their success appears to be more built on the basics of producing their crops, tending to their livestock, and managing their work force.” What are those skills? They include:
• Production management
• Procurement and selling
• Financial management
• Personnel management
• Strategic positioning
• Relationship management
• Risk management

Those seven characteristics or skills were offered to several hundred farmers in survey to find out what they believed were the most important to have to be successful, and if they had actually adopted those skills. The scores indicated the respondents in the survey were short of adopting the important skills by 8%-15% for six of the seven. Personnel management was only rated 51% as an important skill, compared to the 81% given to financial management. At the same time, only 31% of the farmers indicated they put personnel management skills into practice on their farm.

The farmers who completed the survey were also asked a number of other questions that revealed information about their financial success, and when that characteristic was crossed with the importance placed on the skills, it was obvious that the more successful a farmer was, the more emphasis was placed on implementation of that given skill. For each of the seven, the greater the profit, the higher the adoption of each of the seven characteristics. While there was only a 9 point spread in the adoption of risk management skills from the under $50,000 profit to the more than $200,000 profit farms, there was a 21 point spread on personnel management and an 18 point spread on production management.

The Purdue researchers say prior studies have shown that farm profitability increased until the operator reached the age of 50; and that younger farmers who take on more debt are willing to adapt more skills to grow their business.

Summary:
Management capabilities are critical for success, and farm operators should look at their skills to determine which they have adopted and where improvements could be made. Financial and risk management often seem to receive the most attention, a subset of production management issues can easily bolster the potential for financial management success.

Posted by Stu Ellis on 01/06 at 01:40 AM | Permalink

Comments

20/20 trying to see 80/20 The problem or blessing of the future is that it is unknown. In the future some will be out of farming, some growing and some struggling to hold on. A dynamic 10 year period occurred from the mid-seventies to the mid-eighties. This time period saw farm consolidation in Iowa twice the rate that has occurred from the mid-eighties to 2006. In the context of another interesting period is coming, the crystal ball was pulled out to see what row crop farming in Stephenson County (IL) might look like 10 years down the road if the 80/20 rule were applied. (An example of the 80/20 rule is 80% of the people do 20% of the work or 20% of the people pay 80% of the taxes. Here 20% of the operators would farm 80% of the acres; by no means a research based or scientific approach.) There currently are about 1,000 farmers farming about 240,000 acres of corn and soybeans in the county. The largest 160 operators (about 16%) are guesstimated at farming around 50 % of that ground. The top 320 (around 32%) are guesstimated at farming around 75% of the ground. Should the top 160 operator (no particular reason for choosing that number just a “what if”) make up 20% of the farm operation, 200 people would have to leave the business in the next ten years. The growing 160 operations would need to grow at 4.4% per year to farm 80% of the land at the end of a ten year time frame. The remaining 640 grower (1,000 at start minus 200 out minus 160 growing) are projected to loose on average half of their acre basis to the growing operators over that ten year period. It is hard to imagine this shift in acres not causing a larger number of individuals leaving the industry. A relatively large percent of “small” farm that could/would hold their acre base requiring a larger shift in the remaining growers. (This is one of the problems of working with averages.) Likewise should no one leave the industry the top 200 producers (20 % of the growers) would need to increase their operations by 3.15% per year for 10 years to operate 80% of the counties corn and soybean ground. In this scenario, the remaining 800 growers on average are projected to loose over 60% of their size. (Again because of a large percentage of “small” farms that could/would hold their acre base the remaining operations are projected to loose more than that 60% percentage. This loss in acreage base would most likely to result in the exiting of the industry.) The time frame of consolidation would be much longer should economic volatility not occur as expected. However the belief is: globalization is here to stay (look to May 15, 2007 “Farm Gate” blog for more insight). The crystal ball has never had and will never have 20/20 vision. It only provides a glimpse of possible outcomes; motivation to action is one advantage of its use. Is it time to develop or update business and personal plans?

Posted by: Freeport, IL at January 7, 2009 2:02PM

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