Tag: farm management

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Making money in farming is tough, but not impossible
 If you’re in farming for the money . . . it’s gonna be a tough life for ya.
I’ve even heard Charlie Munger say that farmers make money maybe 1 in 20 years.
However, the worst markets provide the best opportunities, and there is a lot of money to be made in farming when you’re really good at it. As this market gets tougher and tougher, people will be selling good stuff for a good price.
I remember listening to Zig Ziglar in college, and Zig always said that in every market there are people making money and people losing money. It’s up to you to decide which one you will be.
Here are six ways you can strategically grow your farm—even during the hard times.
[/vc_column_text][ult_buttons btn_title=”SCHEDULE A FREE GRAIN MARKETING STRATEGY SESSION” btn_link=”url:https%3A%2F%2Fcashcowfarmer.clickfunnels.com%2Fmarketing-strategy||target:%20_blank” btn_align=”ubtn-center” btn_size=”ubtn-small” btn_title_color=”#ffffff” btn_bg_color=”#00ab61″ btn_hover=”ubtn-fade-bg” btn_bg_color_hover=”#ffffff” btn_title_color_hover=”#00ab61″ btn_icon_pos=”ubtn-sep-icon-at-left” btn_border_style=”solid” btn_color_border=”#ffffff” btn_color_border_hover=”#00ab61″ btn_border_size=”2″ btn_font_size=”18″][vc_column_text] 1) Employees
 Consider the employment levels on your farm. Does it make more sense to hire locally or to go abroad?
I’ve got South Africans on my farm this year for the first time, and the farming economy in South Africa is disastrous right now. So they have a lot of interest in coming over to farm here.
On the other hand, a lot of farmers have laid off their full-time guys, so if you want to pick up a good, experienced full-time guy, you could consider the local market. However, that may be difficult, depending on your area.
Co-ops and seed dealers have brought the cost of labor really high, because they’ve been making tons of money off of the ag boom and really spoiling their employees. I know a guy just out of college selling seed and making $100,000 a year. That’s kind of hard to compete with…
There are two lessons here:

 1) Don’t be afraid to compensate your employees well to attract the right people (if possible)
 2) Don’t be afraid to shop abroad. Take advantage of the many people who want to come into the US.

(Note: To find workers from abroad, we used an agency called USA Farm Labor. I recommend it.)

 2) Input hedging
 Right now, there are opportunities to lock in low inputs for fertilizer and chemicals and fuel. You can buy oil contracts in advance in order to hedge against higher oil prices, for example.
You can also buy natural gas futures to hedge the price of fertilizer coming up. This might be a good time to do that, especially if you can take delivery and have places to store that fertilizer.

 3) Fed-up farmers
 There are a lot of near-retirement farmers losing their passion fast because of these crazy, volatile grain markets. They love driving the tractors and working the land, but they want no part of the markets.
As such they’re looking for partnership, whether it’s crop sharing or renting the ground out. They’re looking for opportunities to relieve the burden that has become farming.
Farming ain’t what it used to be. It’s not ‘Work hard, make money.’ It’s ‘Market better, manage better, make money.’”

The old-fashioned guys—the “Do-It-Yourselfers”—they just don’t have time to do the high-level managing stuff that separates huge profits from barely making money. If you’re willing to do that, why not partner up?[/vc_column_text][ult_buttons btn_title=”TRY CASHCOW FARMER FREE FOR 30 DAYS” btn_link=”url:https%3A%2F%2Fcashcowfarmer.clickfunnels.com%2F30daytrial||target:%20_blank” btn_align=”ubtn-center” btn_size=”ubtn-small” btn_title_color=”#ffffff” btn_bg_color=”#00ab61″ btn_hover=”ubtn-fade-bg” btn_bg_color_hover=”#ffffff” btn_title_color_hover=”#00ab61″ btn_icon_pos=”ubtn-sep-icon-at-left” btn_border_style=”solid” btn_color_border=”#ffffff” btn_color_border_hover=”#00ab61″ btn_border_size=”2″ btn_font_size=”18″][vc_column_text] 4) Equipment acquisition
 With low oil and commodity prices, there has been a lot of equipment on the market—and not necessarily just in farming areas.
My birthday’s in February, and every year I try to celebrate somewhere warmer than our minus one-thousand degrees here in South Dakota. A few months ago, I spoke to a man in Palm Springs, Florida who has a bunch of Kenworth semi dealerships. He was telling me about all the beautiful Kenworth trucks on sale from auctions in Texas, sold by companies going bankrupt. He said if I need to buy a semi, now is the time.
I’m not sure how much opportunity is left in that exact situation, but when commodity prices are low and you need machinery, keep your ear to the ground. You never know what you’ll hear.

5) Partnerships

 Crop sharing has actually been a very economic way to farm over the past several years, and will be in the future.
It’s really good for us young guys out there, too, since you don’t have to have a giant line of credit. If you’re renting, you not only have to carry 100% of the input costs, you also have to pay pretty sizable land costs. The amount of money you need to borrow if you’re renting is double what you need to borrow if you’re crop sharing.
In my crop sharing I follow standard ⅓, ⅔ economics. Your partner pays ⅓ of the fertilizer, chemical, crop insurance, and they get ⅓ of the crop. At the end of the year, you only get ⅔ of the crop, but remember you don’t have to pay any rent (which is a huge, risky amount of money).
I would look at converting some cash rents to either flex leases or crop shares. They’re beautiful.

 6) Land buying
 Interest rates are still low, and the FSA has some good programs you can lean on to pick up land. Be patient waiting on land price to collapse.
My guess is that by the end of the year, one of two things will happen:

1) If the commodity markets continue to rally, some of the people that have been waiting to sell land will sell before everybody freaks out.
 2) If commodity prices go back down to that $4 for corn or less, a lot of people will go broke. There will be land on the market at the end of the year.

Savvy marketing will always keep the “dry powder” handy so you can act on opportunities when they present themselves and nobody else is ready.

 Conclusion
 Above all, keep your grain marketing strategy in-tune. There’s only so much you can do to minimize your costs. Grain marketing is where it’s at.
I highly suggest you work with an advisor. We offer a free grain marketing strategy session, so you can see if we work as advisors. If not, we have lots of others we can suggest to you as well.

 To get more help on making it through tough times, check this out.
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If you’ve ever been married—or in any relationship, with anyone, ever—you know the importance of negotiation.
Two people who disagree will never find common ground without some amount of back and forth. Sometimes that means one person gives in to what the other person wants; sometimes it doesn’t.
The same principle applies in farming. While negotiating with a landlord may not look at all similar to negotiating with a spouse, I think the two require a lot of the same things. As with a spouse, farmers should try to jump into the landlord’s shoes, negotiating as if he were a best friend.
That’s loosely what Stuart Diamond’s recent book Getting More is about. Diamond, one of the most famous professors at Wharton Business School, wrote this book not about how to get everything, but how to get more out of life by valuing the other party’s perceptions. It covers everything from getting your kids to do their homework to working billion dollar deals; I highly recommend listening to the audiobook while you’re running around in your combine.
I’ve adapted three “rules” or principles from Diamond’s book. I believe they’re key to mastering the art of negotiating land rent.

1) Understand the landlord’s perspective
I don’t need to tell you that rent prices affect your own wallet. But it’s easy to overlook a simple factor in negotiating: you are that landlord’s source of income.

Think of it this way: nobody wants to take a pay cut. Even if the company they work for is going under, people will generally quit before taking a pay cut. They feel alienated by the people who pay them.
Why would landlords feel any different? When you come to the table offering to pay less money for a new lease term, it’s like asking them to take a paycut. They might not be able to afford a pay cut, and even if they can, let me reiterate:nobody wants to take a pay cut.
To understand that perspective is to approach negotiation with a high level of respect. You’ll have a much better footing that way.

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2) Meet their needs
Landlords have certain needs, just like the rest of us.
Landlords are often older in age, and they may have assisted living or health care expenses. They generally don’t have a regular job, and just like everyone else, their lifestyle changes as their income changes.
You can step into a few of those needs by negotiating accordingly. Bring an offer to the table that factors in the many expenses the landlord lives with.
If the price ends up to high for you, you can even offer to introduce them to someone who might be interested in renting their land. A few words can add a whole new level of empathy to the equation, soften any further negotiations, and build your reputation as someone people will want to work with.

3) Understand yourself beforehand
Before you ever approach a negotiation, you have to understand your own economics.

This is where Cash Cow Farmer really helps: you can see exactly what you’re making or losing on every field you farm. You can use that data to determine exactly how much you can afford to pay a landlord, which will be a hard ceiling in your negotiations.[/vc_column_text][ult_buttons btn_title=”SCHEDULE A FREE GRAIN MARKETING STRATEGY SESSION” btn_link=”url:https%3A%2F%2Fcashcowfarmer.clickfunnels.com%2Fmarketing-strategy||target:%20_blank” btn_align=”ubtn-center” btn_size=”ubtn-small” btn_title_color=”#ffffff” btn_bg_color=”#00ab61″ btn_hover=”ubtn-fade-bg” btn_bg_color_hover=”#ffffff” btn_title_color_hover=”#00ab61″ btn_icon_pos=”ubtn-sep-icon-at-left” btn_border_style=”solid” btn_color_border=”#ffffff” btn_color_border_hover=”#00ab61″ btn_border_size=”2″ btn_font_size=”18″][vc_column_text]

When to give in
Knowing when to give in is simple, at least when it comes to land rent—if you know what you can afford, you simply don’t go above that number.
Be prepared: there are other farmers interested in the same ground you now rent. If the landlord does open it to the market, you might lose the soil. This is sometimes the best scenario; I’ve let land go that my family has farmed for 25 years, but financially it’s served me well.
Be respectful, but don’t go above your ceiling. Ask them to let you know if they open it up for bid down the road. And don’t burn the bridge: opportunities may arise later for you or your kids if you hold their respect.

When to not give in
If the landlord’s offer doesn’t line up with accurate economics, keep negotiating. The best thing you can do is bring hard numbers to them. Then you’ll be negotiating based on evidence.

For example, the highest price for corn in this last crop was $4.54 on the futures exchange. Deduct your basis, which we’ll say is $0.65. So if you had about a $3.90 cash price, could you make money on that rented soil or not?
If you could have made money but you marketed poorly, you won’t have a lot of bargaining power going into the negotiation. But if you sold all your crop at the best price of the year and still lost money on it, the landlord can’t expect any more from you.
If the landlord is still stubborn, never be disrespectful but share the economics with them. No one’s going to rent land that costs more than it can possibly produce. You can, and should, use that as a negotiating piece.

Master the Art
Whether it’s your wife or your landlord, go into negotiation with empathy and respect. At the same time, go into it with preparation. There’s no reason you should ever come out on the bad side of a deal if you approach it with those three things.
My best parting advice is to read Getting More. You can also find lots of interviews with Stuart Diamond online. I’ll throw another book your way, too: Check out Stephen Covey’s The 3rd Alternative. It gives lot more great advice about negotiation.

[/vc_column_text][dfd_spacer screen_wide_resolution=”1280″ screen_wide_spacer_size=”40″ screen_normal_resolution=”1024″ screen_tablet_resolution=”800″ screen_mobile_resolution=”480″ screen_normal_spacer_size=”40″ screen_tablet_spacer_size=”30″ screen_mobile_spacer_size=”20″][/vc_column][/vc_row][vc_row dfd_row_config=”full_width_content” dfd_row_parallax=”off” dfd_row_responsive_enable=”off” dfd_enable_overlay=”off” css=”.vc_custom_1470889834038{background-color: #2d2d2d !important;}”][vc_column width=”3/4″][dfd_spacer screen_wide_resolution=”1280″ screen_wide_spacer_size=”25″ screen_normal_resolution=”1024″ screen_tablet_resolution=”800″ screen_mobile_resolution=”480″ screen_normal_spacer_size=”0″ screen_tablet_spacer_size=”0″ screen_mobile_spacer_size=”0″][dfd_spacer screen_wide_resolution=”1280″ screen_wide_spacer_size=”25″ screen_normal_resolution=”1024″ screen_tablet_resolution=”800″ screen_mobile_resolution=”480″ screen_normal_spacer_size=”25″ screen_tablet_spacer_size=”15″ screen_mobile_spacer_size=”10″][ultimate_heading heading_type=”customizable” heading_tag=”h3″ heading_content=”FREE GRAIN MARKETING STRATEGY SESSION!” main_heading_default_weight=”400″ main_heading_color=”#ffffff” subheading_type=”customizable” subheading_tag=”h5″ sub_heading_default_weight=”400″]DON’T LET THE MARKETS WIN…SCHEDULE YOUR FREE SESSION TODAY![/ultimate_heading][dfd_spacer screen_wide_resolution=”1280″ screen_wide_spacer_size=”25″ screen_normal_resolution=”1024″ screen_tablet_resolution=”800″ screen_mobile_resolution=”480″ screen_normal_spacer_size=”25″ screen_tablet_spacer_size=”15″ screen_mobile_spacer_size=”10″][/vc_column][vc_column width=”1/4″ column_responsive_mobile_classes=”dfd-remove-right-padding” column_responsive_mobile_resolutions=”dfd-apply-mobile” css=”.vc_custom_1470810100672{padding-right: 2% !important;}”][dfd_spacer screen_wide_resolution=”1280″ screen_wide_spacer_size=”15″ screen_normal_resolution=”1024″ screen_tablet_resolution=”800″ screen_mobile_resolution=”480″ screen_normal_spacer_size=”0″ screen_tablet_spacer_size=”0″ screen_mobile_spacer_size=”0″][bt_animation animation_type=”_flipX” duration=”2″ repeat=”2″ allow_margins=”yes” scroll_offset=”5px” no_hide=”yes”][ult_buttons btn_title=” FREE STRATEGY SESSION” btn_link=”url:https%3A%2F%2Fcashcowfarmer.clickfunnels.com%2Fmarketing-strategy||target:%20_blank” btn_align=”ubtn-center” btn_size=”ubtn-large” btn_title_color=”#ffffff” btn_bg_color=”#00ab61″ btn_hover=”ubtn-fade-bg” btn_bg_color_hover=”#ffffff” btn_title_color_hover=”#00ab61″ btn_icon_pos=”ubtn-sep-icon-at-left” btn_border_style=”solid” btn_color_border=”#ffffff” btn_color_border_hover=”#00ab61″ btn_border_size=”2″ btn_font_size=”18″][/bt_animation][vc_column_text]

SCHEDULE YOUR FREE SESSION TODAY!

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During a recent antique tractor show in my hometown, I got an earful of complaints.
A number of farmers told me they were still sitting on last year’s crop and didn’t know what in the world to do with it. They were selling last year’s crop to slowly pay for this year’s crop.I asked a simple question: Why didn’t they try a commodity loan?
When I was met with blank faces, I realized that a lot of farmers are missing out on one of the best resources available to them: government loans.
Farm Service Agency (FSA) loans are insanely cheap; taking one out is almost like borrowing directly from the federal reserve. They’re great ways to finance purchases and bridge your gaps between selling commodities. If you need to boost your cash position look into FSA loans, starting with these three.

1) Commodity Loans
Commodity loans are exactly what they sound like: money borrowed against your commodities.
The process for taking out a commodity loan is straightforward;
Step 1 is to go to your local FSA agency and state your interest in a loan. Of course there’s always paperwork to be filled out when you borrow money, but the FSA doesn’t require anything difficult to track down. They usually want to know your cash position and current assets, so you should always be updating your personal balance sheet.
Your personal balance sheet includes what you have in short-term assets (cash, stocks), long-term assets (land, machinery), and any liabilities (land payment, other debts). The FSA will review that information to ensure there’s enough collateral to secure the loan.

Step two is to report the crop you have in storage; the FSA will base the amount of your loan on that quantity.
For example, let’s say you have 100,000 bushels of corn. It varies by county, but I got a 1.25% interest rate last year so we’ll go with that number. The FSA gives you $1.83 per bushel of corn. That’s way below the market value, but they want to make sure they’ll get their money back.
Multiply $1.83 times 100,000 bushels and you now have $183,000. You can use that money to cover expenses and the rest to pay down your operating line of credit.
If you use a bank, your rate will probably be somewhere between 4-5.5%. If the commodity loan is around 1.25%, you’re saving about 3.5% just by taking advantage of an FSA loan.

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2) Equipment Loans
An equipment loan is simply a loan to buy machinery. The simplest route for the loan is through a bank, but I recommend also looking into an FSA loan. The FSA usually does fixed loans; I did one and got a 2.25% rate.

Although FSA interest rates are usually much lower, equipment loans do have their limits. They max out at $300,000, which doesn’t go very far these days.
The FSA can even guarantee a bank loan for a fee, stepping in to pay it back if you don’t. This is an important farmer subsidy program, because in farming one or two bad decisions could lead to you losing your whole farm. One year you might see record profits, but it doesn’t guarantee that you’ll even be “in the black” the next year. Farming is one of the riskiest businesses in the world.
The process is the same as a commodity loan. Actually, any FSA loan requires the same kinds of paperwork:
1) Tax information from the past couple of years. (Most accountants have this on file; you can just attach it to an email and send it to the FSA.)
2) Your personal, or your farm’s, balance sheet
3) Projections (Cash Cow Farmer really helps with these. You know exactly what you’ll make or lose on every field, the cost per acre on seed, fertilizer, how many bushels each field will grow, etc. I just take a snapshot of my “Fields” page on Cash Cow Farmer and send that as my projection documentation.)

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3) Land Purchase Loans
I’m in the process of applying for one of these right now. The limits, again, are kind of archaic. $300,000 is not going to get you much land with current prices, but the FSA rates are incredible.
You have two options:

1. Purchase the land for $300,000, a 40-year loan at 3.75% interest—a really good rate. Your bank’s interest rate would probably be closer to 4.5% on a 20-year ARM, adjusting every 5 years.

2. Take advantage of a part-FSA, part-lending institution loan.

The second is the best option. Let’s say you need to borrow $500,000. Since the FSA’s max is $300,000, you can do $250,000 through them and $250,000 through a private lender.
Since FSA rates can be as low as 2.5%, spread out over 40 years instead of 20, you’ll basically pay your bank twice what you pay the FSA during that time. Much improved payments make up for the inconvenience of working with two institutions.
Interest rates are probably the most important factor when farmers are considering loans. The next most important is fixed vs. variable rates. Also, don’t forget about cash flow, you want to be able to make the payment every year.
Banks don’t like to fix long-term loans, because they might have to borrow money themselves if interest rates go back up like they did in the ‘80s. At one point, there was a 17-20% rate for an operating line of credit—can you imagine that?
Still, you can probably get a fixed loan at a higher rate. Your banker will run numbers for you and lay out your options should you go that route.

Conclusion
Anytime you’re going to spend a significant amount of money—and “significant” is different for everyone—go to your FSA office. You can save yourself a chunk of change by looking at what kind of loans and guarantees they have.
Take advantage of these government programs in case something goes awry and they’re not available anymore. A dollar saved is a dollar earned. The frugal farmer always comes out on top.
“CSP” and “Equip” are two other government programs that can help you. To read more about them, and other ways to make any field profitable, read this.

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