Minding Ag's Business

Genius is overrated as a character trait, former Space Shuttle astronaut Mike Mullane reminded attendees at the DTN/The Progressive Farmer Ag Summit earlier this month.

You don't need to graduate summa cum laude, earn a perfect score on your SAT exams or date the homecoming queen in high school to excel in life's work. Instead, commitment to self-improvement is what distinguishes leaders, said Mullane.

He claimed he was an unexceptional youth who didn't test well enough to get into the Air Force Academy but whose father's polio taught him to overcome challenges. He later completed three space missions and logged 356 hours aboard the Shuttles Discovery and Atlantis.

That ability to knuckle down and problem solve in the face of obstacles sounds like an agricultural prerequisite. "Farmers are the ultimate examples of self-improvement," Colonel Mullane said.

So it shouldn't surprise anyone when I asked representatives from four progressive grain farms how they planned to "Farm Strong" in 2017, they responded with determination that you wouldn't expect, given the headlines we see for commodity markets short-term. All are involved in multi-generation farms, so they are willing to make personal sacrifices necessary to weather ag's cycles, with the knowledge that margins eventually rebound. On the other hand, they are doing far more than simply cost-cutting.

Ben Hendrix farms with his father in an all-irrigated operation spread over six counties near Wray, Colorado. A strong, 35-year relationship with the same lender helped them successfully hedge crops four years in advance, back in 2013 and expand their operations since. Looking ahead, futures markets aren't likely to repeat that opportunity any time soon.

Now specialty contracts are their focus. "Food trends actually create opportunity for us," Hendrix said. "Marketing is at the center of what we do, in fact it's more about executing our marketing plan than about agronomy." They are expanding premium contracts for crops like kidney beans and popcorn.

If you're in the commodity business, Hendrix reasons, you are on a constant treadmill to be a low-cost producer. Instead, their model is focused on capturing specialty crops and non-GMO premiums wherever possible. In fact, they started cultivating long-term relationships with end users in 2013, when buyers were still smarting from skyrocketing commodity prices. "We asked, couldn't we take the peaks and valleys off, operate somewhere in between but where we could profit and they had a price that was attainable for them. That's been a fruitful approach," he said.

"Long-term relationships go hand in hand with direct contracting," Hendrix added. "It gives processors the knowledge they'll get a constant supply from us."

Steve Hess of Bushnell, Illinois, may be a baby boomer chronologically, but he thinks like a millennial. His son Marcus is a sixth-generation Illinois farmer who came back full-time after a successful career as a soybean options trader.

They live in a fiercely competitive cash rent area, in the top 10 highest counties in Illinois where cash rents still averaged $276 per acre in 2016. Sharing costs with landowners the past three years has helped them achieve rent concessions of 5% to 10% per year, but they also have been aggressively testing new technology like hybrid planting on the go within fields. That required a $70,000 planter modification and some planting delays when software glitches needed fixing, but planting soybeans this way generated 3 bushels more per acre and he hopes hybrid corn will respond as they gather more knowledge in 2017. At this rate, the equipment should pay for itself in three years, Hess says. They are also experimenting with some non-GMO varieties.

Josh Fiebiger is an eighth-generation farmer in business with his father in Fletcher, Ohio. They farm over three counties and run a seed dealership and custom applicator business. To be low-cost producers, they have been a buying group with approximately 40 other farmers, effectively sharing ownership of a dry fertilizer spreader and pooling purchases for bulk seed, chemicals, fertilizer and equipment. (Efforts to merchandize grain together have been more difficult, since members are scattered and centralizing delivery points aren't cost effective for all of them.) They have also come to trust Encirca's weather-station supported nitrogen models the past several years. (Note: Encirca is a DTN partner). Soil tests confirmed the model's nitrogen availability during the growing season, giving Fiebiger confidence to split fertilizer applications and lighten up when drought hit last summer without affecting yields.

Derrick Deardorff is chief operating officer of Tom Farms, a Leesburg, Indiana grain business specializing in hybrid seed corn production. It is one of the leading suppliers to Dekalb and has also vertically integrated with a grain elevator system handling 1.5-2 million bu. a year.

Tom Farms is owned and controlled by three generations of family members, but with Deardorff's hiring, it is also making the leap of bringing a chief operating officer on board who is not a family member, but who can strengthen the farm's financials for the future. Deardoff, a former investment banker with experience at a major equipment company, handles marketing, lender relations, and assists with landlord negotiations. Given the dollars involved in farming, hiring outside expertise to bolster the farm's financials is a growing trend.

"Our focus is on cost structure, but not cutting corners," Deardorff said. Tom Farms is trying to work closer with end users to see what service can justify higher premiums, be it logistics or transparency in production methods. They are also being selective about new rental opportunities, making sure farmland is high quality and would fit their pro forma budgets and operational footprint.

Another wave of farm exits will likely occur in this business cycle, with operators downsizing their high-priced rents or established operators close to retirement opting to quit rather than lose equity another year or two, the panel observed.

That can create opportunity for well-managed operations with another generation willing to farm decades into the future, so don't worry about farmers who focus on self-improvement. They are positioning themselves for years far beyond 2017.

One lesson Hess said he took home from the conference was this: "The greatest danger in times of turbulence is not turbulence, but to act with yesterday's logic."

Follow Marcia Taylor on Twitter@MarciaZTaylor

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