The bears in the market warn us to shelve our party hats and recall the lessons of leaner times. “The last demand-driven boom like this one devolved into $1.50 corn by 1977,” says veteran Iowa land appraiser Fred Greder. “But today’s surviving growers are much more sophisticated. So store your acorns; we’re seven years into the same kind of demand-driven boom and long overdue for leaner times.” The challenge, though, will be adjusting rents on ground that’s tripled in value since October 2006, says the Mason City, Iowa, owner of Benchmark Agribusiness.
Half an hour away is Reid Weiland, the poster child for the more sophisticated grower Greder describes. He’s the production and business development manager of a “good-sized,” growing cash grain Weiland Farms, Garner, Iowa, that he operates with his parents Don and Judi.
Weiland has a deepened appreciation of intensive management and defined farm roles, having analyzed farms in Brazil. “We as farmers need to think beyond the tractor and run a fine-tooth-comb through our business; managing it to a high degree,” he says.
“Transitioning from operations to management has been a challenge for our family. American farmers tend to lead with a shovel, but it takes management to deliver deliberate, sustainable growth and profit,” Weiland says candidly of the transition to a larger, potentially riskier business. To that end, he’s developing a manager's dashboard to gauge their progress toward fulfilling the farm’s mission statement: To grow value with precision and integrity while nurturing relationships, the land and our community. Weiland Farms grew 20% in acres this year, and its goal is to continue at a 10% annual rate without sacrificing their highly managed approach.
His firsthand observation of large sophisticated Brazilian operations, such as SLC Agrícola that just announced another development of 50,000 acres in Bahia, was a sobering influence on the kind of global competition facing American farmers. “Competition on this scale can only drive us to manage to a greater degree,” Weiland says.
Think yield per CSR
This perspective motivates him to scrutinize things like projecting a farm’s ROI for drainage investment using yield per CSR point (Corn Suitability Rating, an Iowa land-value index), against a comparable farm. “This identifies the lowest hanging fruit.”
Other indicators like cost per bushel, P&Ls per field, machinery ownership costs per acre, percent of acres with single and multiple N applications, whole-farm soil test averages, percent P & K expense of projected revenue and P & K source and use calculations comprise his management dashboard.
After considerable discussion, the family hired an office manager and day-to-day operations manager to turn strategies into reality. They free up his time to focus on other priorities such as the business’s top three vulnerabilities: weather, markets and land base.
“Fieldwork is better done by someone with related qualifications,” Weiland says. “Preparing for key risks and decisions is the best payback for my time.”
He addresses weather challenges and market risk through conventional tools like insurance, professional market advice and diversifying hybrid selection. Using strip-till on some acres eases up a narrow planting window and diversifies his N-application methods to have some success regardless of Mother Nature’s scenario, he adds.
Less conventional, though, is the family's reliance on farm leases for 80% of its operation. Weiland addresses this risk by building a business brand, staggering lease terms and exploring a steady supply of lease opportunities to replace any unexpected lease surprises. When it’s time to negotiate land purchases or new leases, doing his homework on a parcel’s 10-year “pedigree,” or production capabilities, beforehand wrings emotion out of weighty decisions that need to work over long-term market cycles. Highly detailed P&Ls on each field make his case if he has to renegotiate a lease in the face of lower crop prices.
“We can't forget that land cost can be 35-40% of corn and 45-50% of soybean cost of production,” Weiland says. “Getting the most productive parcels defines much of your long-term productivity. That is how one farm makes $20-30 per acre more than a similar one right next door. Managing the farm's raw resource base is our job.”
Serious peer group value
Along with adding long-term value to the land he stewards, another part of Weiland’s management approach is tapping into information from a competent peer group. Twice a year, Reid and Don meet in person with like-minded farmers in a 650-mile radius. Led by a professional advisor, the group members hold one another accountable, “like a personal trainer,” Weiland says.
He also leans on a well educated brother in law with strategic business training. But if he needs advice in another field, like marketing, variable-rate fertility plans or succession planning, he considers the ROI of hiring a qualified consultant to be better than the stock market.
Investing in landlord relationships or building brand equity can never be too important, he says. Creating transparency and trust among existing landowners is an important part of his day-to-day role. "Sometimes adding value is communicating the value you've added to someone's investment.”
“We know how valuable feedback is to landowners; details like cropping plans, possible future projects, yields and which conservation practices we use on their land,” Weiland says. “Sharing photos of what we’re doing with their asset, for example, creates transparency and unifies our goals.
“We can’t control losing the lease on a farm we've operated for 30-years, but we can manage that risk.”
With 66% of financial performance hinging on uncontrollable variables like weather, Weiland Farms takes the remaining 33% of what it can control role seriously. (See Kansas State University study on profit consistency for more information.) As more export competition, the ethanol blend wall and weather wild cards push risk to new heights, he maps out intentional growth using these tools:
- A farm mission statement and employees to execute related strategies.
- Complete due diligence any given land parcel’s productivity metrics before renting or buying.
- A “manager's dashboard” to track productivity measurements.
- Joining a professionally moderated peer group.
- Investing in fertility and technology to buttress productivity.
- "Collaborate with suppliers so that 1+1=3.”
If you take care of these details, .333 is a good batting average, Weiland says of farmers being able to control only one-third of their success (as compared to weather and market moves). “We look for walks and singles that reduce risk.”