20 More Secrets of Best Managed Farms
Following up on our March cover story, here are 20 more management ideas you shouldn't go without.
Compiled by staff
Published: Mar 1, 2008
Mike Wilson and Bryce Knorr
Marketing
1 Find a niche
Contract production changed the face of the hog industry, making it hard for an independent producer to survive. So rather than sell hogs the traditional way, say, taking a load of hogs a week to a packer, David Reinecker sells a few hogs at a time to a variety of buyers, from meat lockers to caterers to butchers who sell at farmers markets. It's taken 30 years to build up his customer base, but the effort paid off. Most of the 1,800 hogs the York Springs, PA., farm raises are sold at a profit that's well above industry norms.
Reinecker decided to focus on niche marketing after hearing a motivational speaker at a pork producers' breakfast. "He said, 'give the customer what he wants, when he wants it and how he wants it, and they'll throw money at you,'" Reinecker recalls. "I sell a whole lot more than pork."
2 Put price goals in writing
Even if you don't put together a breakeven chart, writing down your objectives is an important first step in making sure you don't fail to pull the trigger on rallies. There's a reason businessmen say, "put it in writing."
A sticky note or a scrap of paper will do. But once you write down your target don't hide it. Put it up on the refrigerator, the pickup truck dashboard, by the telephone and in your tractor. The more visual reminders you have, the greater the chances that the price won't slip away.
3 Try scale-up selling
Include in your goals a series of prices with specific amounts and delivery dates. Scale-up selling — selling a small amount first, then larger quantities as the market rallies — is one way to improve your odds of success. It's easy to make some small sales to get your feet wet, rather than trying to time the market high with a big sale. Hitting a home run puts extra pressure on your marketing performance; as in baseball, those who swing for the fences strike out more often. In the long run, it's easier and more profitable to hit singles.
4 Use contracts and marketing agreements
 When hog prices crashed in '98, Harley Sietsema, of Allendale, MI, was sitting pretty, with meat processor contracts firmly in hand. Now all hogs are sold under marketing agreements.
Harley Sietsema
"Using contracts and marketing agreements allowed us to grow our business," says Harley. "It doesn't matter if it's milk, turkeys or hogs — the processor needs to operate his plant and he has a schedule he needs to meet, so he needs to know when and where his raw commodity is coming from." Because of that, they are willing to negotiate an agreement that is workable for both parties. The added bonus: you're a lower risk in your banker's eyes because you're able to show a consistent cash flow and a predictable profit margin.
Management
5 Outsource key roles to specialists
As businesses keep growing operators must identify the need for specialized skills, information and analysis. You need to realize when you're not the right person for the job and outsource that job to a specialist.
"We've always relied on people with specialized skills like accountants for taxes or veterinarians for livestock, but as our operations get larger and larger, we will need to do that more and more," says Kansas State extension farm management economist Kevin Dhuyvetter.
However, at some point when these operations get to a certain size, some of these outsourced functions are brought back 'in house.' "So, rather than hiring an accountant to do taxes, some of these large operations will just hire the accountant as an employee, and maybe part of the year they'll actually be doing some fieldwork, who knows," Dhuyvetter says. "Successful farmers will recognize when to micromanage and when not to."
6 Find strength from family
Despite all the talk about corporate farming, U.S. agriculture is still a family business. Most Farm Futures readers work with other family members, on either a formal or informal basis. That's helped farms get bigger and share resources, spreading machinery costs and having labor for timely field operations.
Jim McFarland farms with his brother Jerry in Pendleton, IN. More than 20 years ago they helped Jerry's son Rick get started with a separate operation, but they share resources and labor. Each specializes — Rick does routine maintenance, while Jerry handles the major repairs. Jim, who has a degree in accounting, handles the books for the brothers' business, and Rick does his own books and has a separate seed business.
"We all do field work, but it is divided up according to what we like," Jim says "Jerry does the corn planting, bean spraying, and harvesting. Rick does the bean planting, corn spraying and bulk fertilizer spreading. I drive the tillage tractors, and semis at harvest. We all fill in at all jobs whenever necessary.
"We make all decisions jointly, with the rule usually being, "if we all don't agree, then it probably isn't a good idea".
7 Be honest in everything you do
"The best secret of the best managed farms is the honesty and integrity of your farm managers," says Tom Waters, who farms near Orrick, MO. "This holds true throughout business."
 Effective managers are able to convey honest evaluations to employees, including both positive and negative feedback. "Let them inside the business so they have a better feel for the business," suggests Waters. "Let them know if you are making money or struggling."
Tom Waters
Take that approach with your Board of Directors and Shareholders as well. There should be no secrets in the boardroom.
"Honesty is the best policy and those who are honest at all levels of their business will have success," concludes Waters. "Those who are not will eventually fail. Remember Enron?"
8 Join farm organizations
If you want to take a dramatic leap forward in your own skill set as well as how you view your own business, get outside the box and join a farm or commodity organization.
"You get a lot of intangibles from the experience," says Dan Beenken, who is on the board of directors for the American Soybean Association. The Bancroft, IA farmer notes these experiences allow you to rub shoulders with farmers from other parts of the state and glean management ideas in the process.
"You also meet with people in the Capitol, lobby for ag issues and talk to legislators, and that gives you a better understanding of your own issues as you learn to talk about them," he says.
You also get a sense of empowerment by playing a small role in setting policy that impacts your business. "A lot of people think some of this stuff just happens," Beenken says. "That really isn't the case."
The leadership and media training itself will pay for the time you spend away from the farm. And that training pays off not only in how you build relationships with input suppliers or landlords. It also pays in off-farm activities, like Church or school boards. As your farm grows, your role in the community will come under greater scrutiny.
9 Give people real incentives
Harley Sietsema says he will also give great employees potential ownership or partnerships in his business once they have proven themselves. "That is a reward for exceptional service, along with incentivizing them to do an even better job, while participating in the results of their efforts," he says. "This also frees me up to move forward with the next business opportunity that arises."
10 Build relationships
Building relationships with suppliers, grain buyers, landowners, and employees has been a priority at the best managed farms we've encountered over the years. A positive relationship with a business partner can be an intangible benefit that goes well beyond the price of fertilizer or a cash rent lease offer.
 "We view farmer customers as business partners, and we hope that they view us the same way," says Jim Magnuson, General Manager at the Sully Cooperative Exchange, Sully, IA. "An ideal customer is looking for a win-win situation. They're people who recognize that the customer and the retailer both need to come out on the transaction."
Jim Magnuson
Good relationships lead to business partnerships and profit opportunities.
11 Step outside the 'production trap'
Manage your time so that you have time left over to think about future businesses or meet with key consultants. Too many farmers get so caught up in production decisions they forget to take time for strategic planning. Your next strategic move may mean starting a new enterprise - or shutting down an old one. To do this successfully make sure you have people behind you carrying the production load efficiently.
12 Don't jump on short-term trends
These are obviously not always easy to identify. But the current land rush may be a typical example. "We all need to be very careful not to allow ourselves to get caught up in the euphoria of a short-term trend," says Sietsema. "The time to be a buyer is when others don't want the item, whether it is land, livestock operations or residential housing. Be an opportunistic buyer, not an irrational, emotional buyer."
13 Upgrade your recordkeeping system
Too many producers keep records without expecting anything from them. Without solid information about your financial strength, you can't move the business to the next level. If your expertise lies elsewhere, hire it out. Look for someone who can not only crunch numbers but also interpret them.
Production
14 Go no-till
U.S. farmers have diverse views, but they agree on one thing. When we surveyed readers recently, no-till was the clear winner as the management practice that produced big dividends. And, we might add, the answers that carried the most passion.
"I would give up farming if I had to give up no-tilling," proclaims Gerald Skogen, Marion, Wis.
Farmers cited higher yields, moisture and land conservation, along with lower costs for fuel, labor and equipment, as main benefits. Skogen, for example, farms 1,400 acres by himself and also custom combines 1,500 acres along with 500 acres of custom planting. "I hire the spraying and hauling done, and sometimes hire a driver to plant about 100 acres of soybeans for me, otherwise I do all the work myself," he says. "There is no way I could do all that by myself if I didn't no-till. I only use about a half gallon of diesel fuel per acre for all the planting."
"We're able to do twice as much as we used to when my dad and I worked our butts off covering 2,000 aces," says Jeremy Wilson, 30, who has been no-tilling six years with his father Randy near Jamestown, ND. Today the Wilsons no-till 3,200 acres.
"No-till has been a great move for us on our farm," says Reggie Strickland, Mount Olive, NC. "We went from conventional till, to strip till, to 100% no-till over a six year period and have seen a great savings in time, labor, fuel, soil erosion, compaction and build up of organic matter. We would not be able to tend the acres we do in our operation without the use of no-till."
"The main benefit is improved drainage without installing additional tile," adds Robert Anderson, Darlington, IN. "Where I had crop loss from water standing in ponds after rains, the water is now gone with no crop damage. This happens because no-till does not destroy the drainage channels created by night crawlers and the roots of previous crops."
An intangible benefit for many farmers is long-term -something many think about when they ponder who will farm their land after them. "If I want to hand my farm off to my children someday I'd better not be depleting these soils," says Wilson.
15 Apply herbicide in the fall
A fairly new practice, more farmers find multiple benefits from fall-applied herbicide. First is time savings. With larger farms and earlier planting dates, the window for burn down and planting is narrower. Fall applications may help you spread out the workload
These applications generally target perennials and winter annual weeds common to the Corn Belt. Many farmers believe the occurrence of seed corn maggots and black cutworm is greater when winter annual weeds are allowed to thrive in fields.
"I fall apply herbicide for no till beans," says Jay Williams, who farms in MIchigan. "It has significantly improved yields and timeliness by allowing for clean, early spring planting and control of tough weeds."
16 Get a grip on equipment costs
Pricey iron got you down? Use a simple industry benchmark to determine if you're spending too much on iron for the size of your farm operation.
Kelvin Leibold, Iowa State University Farm Management Specialist, says you should have no more than $350 per acre invested in machinery. If your number is higher than that, you may want to look around for some custom acres to spread out costs.
"I expect machinery sales and values will remain strong for the next few years with higher grain prices," he says. "The machinery industry won't be able to meet the current demand that is occurring globally."
So how much should you spend on annual equipment repairs and upgrades? Leibold suggests 10% of overall inventory value. And while it's a good idea to have an equipment replacement fund set aside, most farmers don't have one.
"Farmers typically make those decisions late in the tax year based on cash flow and taxable income for the year," he explains. "Guys are probably putting 10% into replacement cost every year, but in a high income tax year they probably increase that number. If we see a substantial increase in Sec. 179 expense method depreciation it will encourage more spending on equipment, driving prices up even further."
17 Keep it clean
With the cost of new machinery constantly escalating, proper maintenance pays big dividends when it's time to trade, and minimizes downtime from breakdowns. Putting a roof over the head of your equipment can extend its life.
Here's a tip: Never put away equipment when it's done for the season without making sure it's in good condition. You're more likely to remember all those "little things" that can turn into a major headache later.
18 Hire crop consultants where needed
Working with certified crop advisers or independent crop consultants popped up on our survey more than once. With higher grain prices, the risk of yield loss from pest outbreaks becomes more costly. If your time is better spent somewhere else during the growing season, spend the money to make sure someone's watchful eyes are on your crop.
"With an independent crop scout I have the freedom to follow up in fields I know have historical problems to check his recommendations," adds one reader.
19 Tile plow pays off
Several readers told us good drainage pays extra dollars toward the bottom line. They not only make sure soils get tiled, some also invest in the tiling equipment and run a small side business.
"In our part of Ohio, we deal predominately with heavy clay soils that absolutely require subsurface drainage to realize their full potential," says Jim McConnell, who, together with brothers Mark and Frank, invested $26,000 in a pull-type tile plow, cart, extra spool and laser control system. "The terrain is nearly always rolling and often there are low areas of a field that, without subsurface drainage, yields are generally very poor. With supplemental drainage they can often be the most productive areas of the field."
Yields nearly always improve following tile installation. "It can range from 100% improvement, where you couldn't raise anything without it, to at least 25%, where no obvious drainage problems existed," says McConnell. "A well drained field often means we do not have to leave ruts and compact the soil as often or as severely during harvest and that pays off in less corrective work the next few years as well as less subsurface soil compaction."
Subsurface drainage allows farmers to plant (and sometimes harvest) a field sooner than otherwise since they're waiting less time for wet areas to dry. Many farmers say the addition of systematic subsurface drainage is absolutely necessary before they can expect to fully utilize other technology, such as grid sampling, yield mapping, variable rate seeding and fertilizer application.
And tiling can be a competitive advantage when it comes to renting land.
"We have let our landlords know that we will pay higher lease rates if they invest in the tile," says the Wellington, OH farmer. "They realize the land value appreciation and most respect our interest in improving their land. Most of our landlords take real pride in seeing good crops on their land and know that the addition of tile will help us achieve that goal."
20 Pre-pay expenses
Booking inputs early has multiple advantages. First, most seed and chemical companies discount prices as an incentive. Even with the cost of interest figured in, these discounts usually provide savings.
Buying before Dec. 31 also means you can deduct them from income in the tax year before they're used, a handy tax savings tool in years of high income that's available to farmers who use cash accounting for tax purposes.
But recently there's been another advantage. Soaring prices for fertilizer paid huge dividends for those who bought early. And with seed shortages in some areas, buying in the fall increases the likelihood of getting the seed you want.
"I pre-paid nearly all my pre-plant nitrogen for my 2008 milo and sunflower crops in early September," says Mike Jordan, of Beloit, KS. "The cost savings have been tremendous. The price of 46-0-0 has risen $100 per ton since then and seems to be heading still higher.
"I also prepaid for my 2008 seed in November, once I'd finalized my planting plans. I get large early pay discounts and I know my Co-op will have the numbers I want in stock when spring rolls around."
"The prepay discounts on seed work out to a return in excess of 20% when computed on an annual basis - guaranteed. I can't find any other legal investment with a return like that."
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