Since November, my partner, Terry Jones, and I have been in seven states visiting clients and presenting seminars. I'd like to share some of our observations and conclusions that will impact your risk management strategies in the months and years to come.
We are amazed at the consolidation of farms and the number of operations that are 4,000-10,000 acres or larger. Many of these farmers are young with limited land ownership bases. This causes more risk and more work. Even with bigger equipment, the process of going to the FSA office and working with landlords has not been consolidated and takes time for every farmer.
Farmers running larger operations are really general managers who need to surround themselves with management teams. As I've said before, successful farmers know what they don't know and hire it done.
A management team should naturally include a risk manager as well as a CPA, tax advisor and a crop consultant. The crop consultant is becoming a more important part of the management team.
Farmers are looking more to independent crop consultants who are not tied to specific brands or products. This is more prevalent in our Eastern states but is a significant trend all over.
And for a number of reasons, it's changing the way farmers buy their products. For example, with larger operations, many can afford their own commercial sprayers. A client of ours bought a used Rogator for $90,000 and plans to spray more than 6,500 acres. If you calculate that, about half of his acres will be sprayed twice.
Compared with what he was spending for custom spraying, this is a very cost-effective decision. In addition, he shopped at a cash-and-carry company for his chemicals. Previously, he purchased his chemicals from the company doing his spraying. This saved him another $10,000 and added to the feasibility of purchasing the sprayer.
The above client's decision is part of a growing trend leading to what we call the “Wal-Martization” of the ag supply business. Simply put, it is the de-coupling of products, information, consulting and service.
This trend has been brought on by pure economics. Farmers have to cut costs. It has also been brought on because farmers need to be more in control. It provides more flexibility and more choices.
These changes provide challenges and opportunities for farmers as well as the people and organizations providing products, service and information to them.
I believe you'll see companies spring up that provide information and advice to farmers that include precision farming, record keeping and analysis. This can be useful production data, but also provide valuable marketing data.
I see tremendous opportunity to provide end-user-oriented grains to poultry, hog, dairy, cattle and ethanol producers. However, source-verified and identity-preserved grains are a requirement to capitalize on these opportunities.
Our experience tells us that farmers need to have someone else gather, input and analyze data. That way, it can be used by end users to make better, more informed production, management and marketing decisions. This may end up being another person on the farmer's management team to make his or her life easier and more profitable.
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.