Look for mergers and interests outside ag in a tight economy
Growth expectations might be dampened because of lower commodity prices, but it is still possible for producers to grow by focusing on diversification.
The key is to position financially and as a management team to take advantage of those opportunities, notes Lance Woodbury, farm business consultant and lead facilitator with the Top Producer Executive Network (TPEN) peer group program. He led a panel discussion on growth strategies at the 2015 TPEN Signature Event in California.
Clayton Stevens farms corn and soybeans in Allendale, Ill., with some of the highest land values in the nation. He has diversified into ag technology groups, oil development and even a funeral home.
“When we face a marginal corn price, I have to start looking for other ways to offset tight margins,” Stevens explains. “Right now, there is a big premium on non-GMO corn, so I’m hoping to pick up a few extra nickels this year by planting more non-GMO.”
Another way to grow in tough times is to merge with another business or farming operation. Ben Moore of Woodburn, Ind., farms grain and operates a hog finisher with his uncle. He recently merged with a neighbor to gain efficiencies. Nearly 80% of what they farm together is border-to-border. “We wanted to get leaner and meaner and more efficient,” Moore says. “It didn’t make sense to own three combines and four planters and a drill when we could lower our equipment costs by merging with a neighbor. We went to two combines and three planters.”
Shawn Feikema, who operates a feedlot and grain operation near Luverne, Minn., recently purchased another operation that had no succession plan. “This is a farmer we had worked with and who helped us combine beans and plant for many years,” Feikema says. “Then he approached us on working together. He had too much equipment, and we never had enough. We brought our CFO and our team to his business to help make the transition. We gave him access to our adviser team. It was a very seamless transition.”
Ready To Grow. Feikema says he thinks the growth opportunity in the next few years is going to be tremendous. “Farming was a fun party, and people made a lot of money, but it’s not worth it anymore when farmers can lose in a season what they gained over the past five years,” he points out. “There is a lot of opportunity if you are positioned to take it and if you can come up with way to facilitate to those mergers.
“Any one farm business can only take on so many buyouts in time, but I think there will be either buyouts or mergers coming. No farm wants to be too far out financially when taking on growth opportunities. However, they do want to be more efficient. So I can see more efficiency mergers, such as three smaller operations coming together.”
Moore anticipates growing by taking advantage of the skills older farmers might not want to learn. For example, he farms near the Great Erie water basin, where algae bloom is forcing heavy regulation for farms. “There is so much documentation we have to manage, and many older farmers don’t want to do that, but they still like to run equipment. I think that will open up some farming operations where we can step in and help and spread our administrative costs over more acres.”
In Illinois, Stevens is waiting for land prices to decline back to a reasonable level. He hopes it will happen before interest rates go up.
“We see a lot of farmers who have been riding out their retirement and who loved making money but are not having fun now,” he notes. “We have ourselves in good position with an equipment line that we keep in good shape and a strong management team. We put the criteria in place to grow.”
Lender On Your Side. In addition, producers must make sure their lender is behind the operation’s strategy for growth, Woodbury says.
“This year is a good time to be interviewing many lenders and starting new relationships so you have capital ready,” he advises. “Start taking your lender to lunch.”
Stevens says his lender works on his behalf, alerting him of land auctions. Moore admits he talks more with his lender today than years ago. “The numbers have to work for both of us,” Moore explains. “Our lender makes sure we do our due diligence before signing any deals and makes sure no skeletons are in the closet. We only want to explore growth opportunities if it’s a good fit.”
A lender should be a true partner, Feikema points out.
“If they aren’t behind us, then it doesn’t make any sense. We work with them closely, and they come up with ideas for us. They are willing to lend money right now. Sometimes, I think they are too willing to lend money,” Feikema jokes.
Learn More About TPEN
Farm Journal’s Top Producer Executive Network™ (TPEN) is an exclusive opportunity to improve your business as part of a world-class, professionally-facilitated peer-to-peer network. Members benefit from openly sharing information with top producers in an effort to build breakthrough success for themselves, their families and employees.
Group Meetings: Members are assigned to small groups of like-minded producers who meet twice a year for on-farm sessions. These sessions are moderated by a professional facilitator to help you focus on content and discussions.
Signature Event: Members also will attend the annual Top Producer Executive Network™ Signature Event, which is designed to allow for additional learning and idea sharing across all members within the network.
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