By the Numbers

By Danny Klinefelter
DTN Farm Business Adviser

I turned 70 on April 5, and retired from Texas A&M on June 30, 2017. This final article is my chance to reflect on the past, and to wish each of you the best in your future endeavors.

After finishing my masters at the University of Illinois in 1971, I worked for the Marine Bank in Springfield, Illinois, for five years, then returned to the University to finish my Ph.D. in 1979.

Following graduation, I joined the staff at Texas A&M as director of the masters of agri-banking program. When the farm financial crisis of the 1980s hit, I left Texas A&M and went to work for the Federal Intermediate Credit Bank of Jackson, Mississippi. When the crisis was pretty much over, I returned to Texas A&M in 1987 in an Extension/teaching position. I've remained in that position for the last 30 years.

Looking back, the things I have enjoyed most were the development of the Coordinated Financial Statements for Agriculture with Dr. Tom Frey that were introduced in 1978; the development of The Executive Program for Agricultural Producers (TEPAP), which launched in 1991; working with the TEPAP graduates to create the Association of Agricultural Production Executives (AAPEX), the TEPAP alumni association; and the cooperative effort with several groups to promote Peer Advisory Groups for agricultural producers.

But, most of all, I have enjoyed the relationships I developed with the participants in these programs, and my former students at Texas A&M. As I have written before, I have carried a quote with me my entire professional career that says, "The purpose of life is to count, to matter, to have it make some difference that you lived at all." I hope I have had the opportunity to do that.

It has been challenging to watch and participate in the changes that have occurred in agriculture. Obviously, from my standpoint, the recognition that commercial agriculture is a business that requires a CEO mentality, executive/leadership skills, and a strategic approach to management (anticipating, adapting to, driving, and capitalizing on change) in order to be successful and for that business to continue over generations, has been the most significant. Success isn't just determined by being a good producer and working hard anymore.

There are several points I have made in previous articles that I would like each of you to take seriously:

1. The definition of strategic management referenced above.

2. Peter Drucker's statement that 60% of all managements are communications problems.

3. Relish change. It's ongoing whether you like it or not, and it presents opportunities for those who embrace it. We need to learn from the past, but it's behind us. Tomorrow, today will be the past. What did you learn from it?

4. You need to use accrual adjusted income in order to analyze actual business performance. Cash accounting is easy and great for tax management, but it lags two years or more in terms of knowing what's happening, whether it's getting better or worse.

5. The 5% rule. A 5% increase in price received, a 5% decrease in costs, and a 5% increase in yield will often produce more than a 100% increase in net returns. The effect is cumulative, multiplicative and compounding.

6. The management of your business has to continuously improve at the rate set by the leading edge of your competition, otherwise you'll be falling behind, even if you're moving ahead.

7. The future will always belong to those who see and act on the possibilities before they become obvious to the average producer.

8. Ongoing monitoring throughout the year of budget versus actual and year-over-year will allow you to be proactive in addressing problems and capitalizing on opportunities in a more timely manner. Remember, the main difference between the top 5% of producers and the rest of the top 25% is timing.

9. You need to use cost/managerial accounting in order to know your costs and returns down to the unit level for every enterprise on every farm. This is for marketing purposes, as well as to know where you're making or losing money. Too many farmers keep doing something simply because they've always done it that way, or because they're in love with an enterprise.

10. Use the DuPont model to analyze the relationship between your key financial ratios and in order to do "what if" analysis in order to identify where you need to make changes, as well as where you'll get the biggest bang for your buck.

11. People are your most important asset, so delegate, require accountability, reward the high performers, provide the opportunity for development training, and get rid of the problems. They're contagious.

12. Use "what if" scenarios and sensitivity analysis to analyze the possibilities of what could happen and develop strategies ahead of time for dealing with situations before they arise.

13. Spend time determining the traits you need in a successor and create a plan to test and develop them. Don't just assume the oldest son or a child has the right skills, talents, or vision to lead the business into the future.

14. Join a peer advisory group made up of top people who will give you honest feedback, offer alternatives, and challenge your thinking. When you go into a peer group meeting, leave your ego at the door, and don't assume there aren't a lot of things you need to improve on.

15. Don't assume you're doing things as well as you can. Remember, Tom Peters said "if it's not broken, you haven't looked hard enough."

16. Look for ways to collaborate in order to spread overhead costs, acquire the technology you need, or employ specialized management or technical skills you don't possess or can't afford on your own.

The changes I've seen have been exponential. Within five years, 5% of operations defined as farms by the census of agriculture will produce more than 80% of U.S. agricultural output. Technology in the form of biotechnology, real-time information technology, remote sensing, and mechanical technology have transformed the industry. The movement toward contractual integrated supply chains with qualified suppliers, and the impact of social media and regulations on food buying habits, continues to move forward at a rapid rate. Companies like Amazon have dramatically changed how consumers shop.

Add this to site-specific farming, auto-steer and robotics: They have changed the type and qualifications of the workforce required. When we add artificial intelligence to precision planting linked with companies such as Granular, we're on our way to real-time adjustments to machinery operations while they are working in the field.

The two main disappointments I've experienced are: 1) The shift away from applied research in agricultural economics at our major land grant universities to a faculty who are incentivized to do research and write articles focused on methodology and theory published in journals that only other academics and almost no one in the real world reads; and 2) my attempt to generate funding for endowed positions to employ faculty who work on real-world problems that generate articles and programs to help improve the management on today's commercial farms, got almost no support.

I hope each of you will work to see that in the future, Land Grant Universities produce more of what is actually needed by commercial agricultural producers. Good luck and keep working to improve your management skills.

**

Editor's Note: Danny Klinefelter was an agricultural finance professor and economist with Texas AgriLIFE Extension and Texas A&M University. He also was the founder of the mid-career Texas A&M management course for executive farmers called TEPAP. DTN/The Progressive Farmer thanks Danny for his contributions through the years and wishes him all the best in his retirement. To read his past DTN columns, go to https://www.dtnpf.com/….

(ES/SK)

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