Diversification and value-added. That doesn't say the half of it for Kip Tom and Tom Farms. The Leesburg, IN-based grower worked to dodge much of the impact from the price plunge and input inflation over 2008 through a dynamic combination of both.
Tom has built an agribusiness venture that goes far beyond getting a crop planted and marketed. He grows corn and soybeans for commercial sales and for seed, tailors seed genetics for specific needs, manages his own small-grain handling facility, uses three separate marketing entities to manage risk and more.
Tom Farms includes more than 15,000 acres of rich black and sandy loam soil in Indiana. Then there's the additional 4,000 acres tilled in Argentina for growing seed for Pioneer. “With the volatility in all markets and the increase in our inputs, you have to step back and take a new view of our risk management plans,” says Tom.
That attitude wasn't developed in just the past two years. It's one he has maintained three decades. His parents Everett and Marie Tom started the operation in the 1950s with just a few hundred acres and some cattle. He joined the farm full-time in the mid-1970s. It has grown steadily since then, with his sons, Kyle and Kris, now also involved in the operations. There are more than 14 members of the management and production team.
“About 75% of our acres are corn, 23% soybeans and 2% tomatoes,” says Tom, noting a good vegetable market for the specialty crop. “About 65% of the crops are under irrigation with many acres now using subsurface drip irrigation to further enhance efficiency.”
WHILE MANY GROWERS use different varieties of seed to spread their production risk, Tom also takes a multi-variety approach with marketing.
“One marketing consulting source looks primarily at the macro perspective of markets,” he says. “Another source is good at managing cash markets and basis. Another concentrates on futures, the converging of the markets and grain merchandising. We use each one's expertise.”
A marketing plan is developed in conjunction with the expected cost of production. “Costs are constantly updated on a spreadsheet (which can have more than 130 tabs) and we are able to project our margins,” Tom says.
“We are margin managers. When we see an opportunity to take a profit — we take it,” he says.
Included in production cost is risk management. “We always look at the futures component when we design a marketing program,” he says, whether it involves using straight futures hedges or options strategies. “So you have to know how much it will cost you to cover that risk.”
Many 2008 corn and soybean sales were made early in the year and even in 2007, when markets began their record soar upward. In early summer, when corn prices were approaching $7 or more and soybeans blew through the mid-teens, he worried that too many early sales had been made. But when markets tanked in the fall, his strategy looked better; he is always looking for the added profit potential.
“We took a very early aggressive approach to both corn and soybean sales,” he says. “We will end up with an average of $5.61 on our 2008 corn, and $10.81 for our 2008 soybeans.
“These prices were all captured early, and clearly we didn't capitalize on the extreme run up to $8+ corn and $15+ soybeans on the 2008 crop. But we did with a portion of the 2007 inventory, the best profit levels we have ever experienced.
“At the end of the day, our goal is to reward the market with sales when various profit objectives were reached,” Tom says.
TOM HAS LONG been the believer in expanding the farm beyond straight commercial production and traditional dryland farming. He and his father were among the first major irrigators in the region and developed a seed-corn agreement with Pioneer Hi-Bred in the mid-1980s.
“It was part of a value-added concept,” he says, adding that the overall value-added program has been developed to complement the commercial end of the farm.
A complete seed corn and seed soybean program goes from tillage and planting all the way to detasseling, variety storage and transport. Several hundred migrant workers may be used in a single year to help handle the massive chore.
When the boom in breaking South American land for corn and soybean production emerged in the late 1990s, Tom Farms contracted with Pioneer to grow seed corn on rented land. The Toms switched to an agreement with Monsanto and DeKalb in 2007 for domestic production. They are still with Pioneer on their Argentine seed production.
Tom has concentrated on seed genetics for years and is among those striving to develop more advanced seed traits like the drought gene. “Once we get it into play, it should impact the cattle and dairy industry because we'll be able to grow more corn in more arid areas globally and use less irrigation for agriculture production,” he says.
Construction of a 1-million-bu. grain-handling facility at the main headquarters began last spring, expanding the farm's ability to produce varieties in demand by seed companies. “We are able to contract and produce custom varieties for customers,” says Tom. Additional storage is planned for 2009 and beyond.
His community and state leadership in agriculture and rural development helped sway Louis Dreyfus Corp. to build a 150,000-bu./day soybean-fed biodiesel plant in nearby Claypool, IN. It's the nation's largest bean-fed biodiesel plant and established a major new market for regional bean producers.
Managing fuel prices and other inputs “are strategic to our profitability,” says Tom. “They are essential to lock in values to allow us the ability to understand our costs.
“We started buying 2009 expected needs when crude broke $46/barrel. When it reached $38 we got 70% of our 2009 needs for diesel and gas covered.”
Tom Farms locked in 2009 fertilizer prices early. He notes that the fertilizer supply channel “is long and slow.”
Tom says master management and value-added ventures shouldn't be limited to large producers.
“Look at and understand your cost of production,” he urges. “Look at your margin. A 2,000-acre farm is a $2-million business. So you need to treat it as a business.”