Precision Operator

Susan Winsor, Contributor

Jim Sladek, general manager of JCS Family Farms, in Iowa City, Iowa, believes the U.S. lags behind other countries when it comes to farm management.

“Large South American farms are clearly ahead of us in management efficiency,” he says.

Jim and his family, including son, Rob, keep this in mind as they work at honing the farm to operate at the precision level of a well-run factory, achieving kernel traceability from seed delivery to bin loading.

He delegates field operations and agronomy so he can focus solely on strategic planning, risk management and grain marketing. Adding to its laser-sharp focus, JCS Family Farms has a mission statement, organizational chart, detailed business plans, job descriptions and biannual employee performance reviews.

That efficiency supports cost savings. “We have to be the low-cost producer,” Jim says. “I agree with Wells Fargo agricultural economist Michael Swanson when he says population growth will not boost future grain prices as technological advances increase production. We still need to manage for continued cost reduction to align our costs with current revenue. Inputs and rents have dropped, but it’s a long, painful process.”

Using SWOT analysis (strengths, weaknesses, opportunities and threats), Jim focuses on mitigating these risks: weather, price, interest rates and equipment downtime.

WEATHER RISK. JCS Family Farms started installing center pivots five years ago as a weather hedge to stabilize income. Jim grasped the value of irrigation after six years of benchmarking financials with a peer group of 12 family farms. Irrigation makes the farm’s Tama and Muscatine soils more profitable, with the Sladeks believing irrigation can boost corn yields by an average of 50 bushels per acre over a 10-year period. Some pivots are powered by a 190-kilowatt solar system that recycles tile drain water via an 18-acre storage pond without tapping groundwater. “Irrigation changes your management approach from defensive to offensive,” Jim says.

JCS Family Farm’s spring strip-till system builds soil organic matter, which improves soil moisture storage and resilience. “Our extreme weather pattern means I need the lowest-risk, most-forgiving agronomic system that works under the broadest possible conditions,” Jim says, explaining why JCS Family Farms switched to spring strip-till after 20 years of no-till. A more effective soil “sponge” translates to less ponding after heavy rains and more soil moisture to tap in droughts.

PRICE RISK AND INTEREST RATES. Raising only specialty crops is another income booster, commanding a 10 to 15% premium for white corn grown for Quaker Oats, waxy corn, non-GMO yellow corn and GMO and non-GMO soybeans.

Jim uses AgYield (marketing decision-support software), a “terrific product.” Price risk is hard to manage, he admits. But, by using 90% crop insurance coverage, JCS Family Farms was able to aggressively presell 2017’s production at profitable levels.

Jim further manages risk by locking in present long-term interest rates for 20 years. “I believe agriculture would be even more sensitive today to interest rate increases than it was in the 1980s,” he says. “In today’s environment, it’s good risk management to have relationships with multiple lenders.”

EQUIPMENT DOWNTIME. JCS Family Farms developed job descriptions and performance reviews to encode standard operating procedures for consistency and accountability. Employees earn bonuses based on production to reward meeting 10-day planting windows and reducing equipment downtime.

PROFIT GOAL. Jim studies the monthly operating statements in detail, tracking actual figures to budget. JCS Family Farms gross profit goals are 40% (cost of goods sold excluding land/revenues).

“Historically, ag has not used assets efficiently,” he believes. “Our ROI (return on investment) goal is 12 to 13%.”

Aligning cash rents with today’s crop prices continues to be a challenge. Having them go upside down in 2015 made for a particularly challenging year financially. “With landlords, the challenge is to pay sustainable rent while preserving the relationship,” Jim says. “We show them a spreadsheet of our costs and profits, plus a matrix of different price and yield scenarios, and ask them what a fair return is. They usually agree with us, but it’s an eye-opening process. We measure our success by having worked with some landlords for 20 to 30 years.”

Rob’s wife, Carrie, manages JCS Family Farms’ human resources, inventories and government compliance.

WORKING CAPITAL. “Since 2015, we’ve focused on rebuilding working capital to 25% or more of revenue, a key financial metric,” Jim says. He is responsible for overseeing the production cycle budget, which he manages to monthly actuals.

“We want to be proactive and not wait until December to find
out there’s problem,” he explains.

“You can’t manage what you don’t measure,” the old saying goes. Jim and Rob understand the value of data in its interpretation and strategic decision implementation based on analysis of this data across the operation.

“We need to spend less time entering data and more time interpreting data,” Rob says. “Historically, ag has kept data in silos--scouting, spraying, grain sales, planning. Our accounting-centered, ERP [enterprise resource planning] system removes those data silos to analyze big picture data from across the farming operation.”

“These risk and financial-management practices have been standard operating procedure at most small businesses for a long time,” Jim says. “American farming typically involves doing a lot of things just because our fathers did them that way, like tillage. Although we have some of the best soils in the world, we’re just now discovering some of the more efficient and effective management practices used by our larger South American counterparts. With tools like the ERP system and careful management, we are getting better every day.”

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