Don't let the government programs control your destiny.
Fall is here and with that, you're busy in the field. It may seem like a hectic time, but it also allows you a lot of “windshield time” to do some strategic thinking about where you want your farm business to go. From a risk management standpoint, it could be some of your best-spent time.
This summer there has been much discussion about the new Farm Bill. I don't know what the new bill will include, and you as an individual farmer won't have much influence. There are, however, a lot of organizations with influence that will determine what the new Farm Bill looks like.
I'm not sure the welfare of you as an individual family farmer will always be the most important consideration. Budget constraints, conservation and public opinion have an increasing influence. Even worldwide trends will have an influence.
As a commercial corn and soybean producer, one of your greatest risks is reduced government subsidies.
While in Great Britain this April I read an interesting article in the London Times. The title was “Sowing Of Farm Subsidies Fails To Bring A Harvest.” The author predicted a “radical shake up in a system of hideously complicated and arcane subsidies, governed for the most part by emotion rather than profit and, above all else, desperately in need of reform.” This is in a European country where most believe subsidies are sacred. Apparently not so anymore, and in my opinion subsidies won't stay.
What if the new Farm Bill provides considerably fewer subsidies to your operation? You have to know what you want to do with your farm. No one else will care much about you and your success. As Jack Welch, past CEO of General Electric, once said, “Control your own destiny or someone else will.”
Those best positioned to prosper without the government payment may be diversified crop and livestock operations. About half of those operations have “green lights” in the area called “% of net income” from government payments.
In an analysis, a green light indicates government payments under 20% of net income. A red light is government payment over 50% of net income. The analysis is based on the AMTA payments not including LDPs. Add LDPs to AMTA payments and the total often exceeds all net income and approaches 20-25% of gross income. Most likely changes would occur over time to allow one to react.
What can you do now to control your own destiny? There are many tools and strategies depending on your skills, location, resources and management. I think those who grow #2 yellow corn and commercial soybeans in the future have the most to risk.
One strategy is to go to an end user of your crops and find out the quality traits they want, when, and in what quantity. Then you can put a plan together to meet their needs.
You can also use the precision farming tools available today to keep better records that will allow you to have identity-preserved grain and traceability of all inputs. This will be required in the future merely for food safety and liability reasons. You can get ahead of the trend, but you likely will not be able to avoid it.
Other tools that now are available include biogenetics and computer-based management systems on the Internet. A decade ago, farmers didn't have those options. These are tools that are available to everybody. Their value to your business is limited only by your willingness to accept new ideas.
These tools have the potential to increase your income and reduce expenses. In total it could add as much as $50/acre. Most of that additional income will come from increased production and reduced costs rather than a higher selling price for your product, which is where most people seem to think the improved profitability needs to come from. I don't agree. Worldwide competition and agricultural companies' relentless pursuit to reduce costs won't allow large increases to our grain prices.
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 (www.russellconsulting.net) or call toll-free 877-333-6135.