Comparing and learning from the best.
We held our sixth-annual Russell Consulting Group seminar in Little Amana, IA, last month with more than 200 of our clients, spouses and guests from 11 states. I believe our customers are clearly among the top 20% of farmers in production agriculture — perhaps the top 10%.
Our clients' average return on equity in 2003 was 15.8%. The industry average is from 2 to 3%. I believe our customers are positioned to create more wealth in the next 10 years than they have in the last 25.
One of the greatest values found at the seminar was the small breakout group sessions with presentations that provided opportunities for top growers to interact.
My experience is that top growers gain a lot 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.
This year we seemed to have a much younger group of farmers attending. When interacting with this group I have little concern about having enough young people to farm the acres.
Additionally, they were eager to learn, and particularly to see how they compare to some benchmark data we provided. The data was obtained from top farmers and analyzed the combined costs of machinery and labor per acre. This valuable data definitely sets a high standard — comparing yourself to the best of the best is educational.
Control Soaring Fertilizer, Energy Prices
A risk management concern is the rising cost of fertilizer caused by rising natural gas and crude oil prices as well as the falling dollar.
Most farm costs, other than rent, are directly or indirectly tied to energy costs.
The agriculture industry 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. One supplier reported that potash costs have risen 53% since last year.
One of the reasons for the rise in the cost of phosphorus and potash is that much of it is imported. With the falling dollar, it makes our imports higher. It helps with our exports, but if exports drop off it can be a double-edged sword. (See chart.) Since late 2001 the U.S. dollar index has dropped from 1.20 to 0.87, which explains more than half the increase in the cost of fertilizer.
Nitrogen costs are certainly tied to oil costs. An alternative may be to look more closely at livestock manure as a fertilizer source.
Some say if all our livestock waste was applied agronomically it would meet 80% of our fertilizer needs. That may never be possible due to logistical challenges, but where and when possible, it does make ecological and economical sense to have animal waste nourish the crops and the crops nourish the animals.
Some of our hog clients don't use any commercial fertilizer. They have adequate nutrients from deep-pit hog finishers.
Perhaps this is an opportunity to work closely with your neighbors to establish mutually beneficial relationships to reduce fertilizer costs.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell provides risk management advice to clients in 20 states. For more risk management tips, check his Web site (www.russellconsultinggroup.net) or call toll-free 877-333-6135.