We had 310 clients and guests at our fifth annual Russell Consulting Group seminar in Little Amana, IA, recently. As always, I truly believe our customers are the best in class and are positioned to create more wealth in the next 10 years than they have in the last 25.
Our clients are always interested in opportunities to relax and interact with other top growers. In my experience, top growers gain greatly by interacting with farmers from other parts of the nation. In many cases they share things in these surroundings that they do not or would not share with their neighbors.
Here are some of the risk management issues on our clients' minds.
One of the biggest issues is weather. We purposely plan our summer conference during the time when, on average, we have the most price volatility. Price volatility is a profit opportunity.
The best way to manage risk is to take action when crop prospects are most uncertain. To have confidence in forward pricing we recommend crop insurance, even in the irrigated parts of our territory. Having revenue assurance (RA) or crop revenue coverage (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. The key: Watch the gross dollar per acre goal you need to meet all your obligations and still make $25-50/acre profit. Then pull the trigger and start to scale in sales when you get close to that goal.
Another big issue is uncertainty with input costs, especially caused by natural gas and crude oil prices. Most farm costs, other than rent, are directly or indirectly tied to energy costs.
Agriculture has done a great job of reducing energy usage, but we have a long way to go to help America become self sufficient in energy.
We've recommended our clients have their diesel fuel and LP needs locked in for this fall. Nitrogen production also takes energy, and I believe we need to research alternative sources of nitrogen, such as urea. Anhydrous may not be the most cost effective or the most environmentally friendly source of nitrogen for future crop production.
Lastly, the ongoing uncertainty of not being able to stay profitable in this rapidly changing environment is a major risk management worry.
Many of our clients are profitable with return on assets (ROA) above 10% and return on equity (ROE) above 18%. However, they're not becoming complacent about their operations and are constantly looking for key leverage points to do more with less.
A major bottleneck to continued expansion for our clients is finding and keeping qualified help. Many top growers can get the money, equipment and land they need to expand. However, getting the right people in the right place, at the right time, doing the right things, is a real challenge. This is a very important risk management area and I'll write about it in subsequent issues of The Corn And Soybean Digest.
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.russellconsultinggroup.net) or call toll-free 877-333-6135.