Bulls


	Issue 104 Prairie Grains


	Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, Montana Grain Growers Association and South Dakota Wheat, Inc.


	Taming The Bulls & Bears


	By Betsy Jensen, Ag Commodity Instructor, Northland Community & Technical College, betsy.jensen@northlandcollege.edu


	Balancing Professional and Personal Goals on the Farm

Another farming magazine, and another article about everything farmers do wrong. We spend too much on machinery, we forgot to sell wheat at the highs, we should have signed up for the government program, paid too much for land, and on and on. There is always room for improvement, and farming is a business that should be evaluated and measured, but each business is unique.

Last winter I listened to a farm management professional tell me that a mature business involved seventy-five percent management, and twenty-five percent labor. If you are a successful, mature business, you should spend the majority of your time in the office, and just a small percentage in the field. That does not sound like any of the farmers with whom I work. Most of them spend the majority of their time getting dirty, tired, and hot on the long summer days, and then they freeze hauling grain during the winter. Does that sound familiar to any of you?

So does that mean the farmers in my program are not successful farmers? From a financial standpoint, the answer is yes. They are not maximizing their profit potential. They’re not big enough. They don’t fully utilize their assets. They need to take on more responsibility. From a personal standpoint, the answer is it depends. As I sit down with farmers to discuss their business, it becomes apparent that personal goals are often in conflict with business goals.

Most of you are the chief executive office, chief financial officer, and chairman of the board for your farming operations. Those farming responsibilities should not overshadow your personal, off-farm responsibilities, whether it is chief of child discipline, or chairman of hrandchild spoiling, or even vice president of deer hunting. You have a life off the farm as well.

If you are an employee at any business, you have options. You can take the overtime, cut back on weekends, or even find another job. The objective is not to work as hard as

you can as often as you can, but instead you should find the right mix of work and play. If an employee has that opportunity, so does a farmer. You do not have to aspire to farm half the county and manage twenty employees to be a successful farmer.

If any fellow farm management professionals are reading this article, they have probably fallen out of their chairs by now. Is a farm management instructor honestly advising that farmers should not work so hard? Absolutely not. I am here to offer a warning: If you choose to operate your farm below its profit potential, know your weaknesses so you can control them.

One of the major weaknesses in farms is machinery costs, especially for small farms. You have 750 acres of wheat, but you know your equipment can handle 1250. If you add 500 acres it would significantly reduce your per acre machinery expense, but adding those acres might also mean additional labor expense, and it is not exactly easy to go find 500 more crop acres just down the road. If you are aware of your high machinery expenses, you can try and control them, maybe through hiring more custom hire instead of owning the machinery or perhaps you will hire out your machinery. Whenever I have completed an analysis of hiring out for custom work, the custom farmer rarely makes money on that specific enterpise. However, because the machinery cost per acre is reduced, the whole farm operation profited because of the extra acres.

Another common problem is financial leverage, either too much or not enough. Farmers early in their careers are highly leveraged as they begin buying machinery and land. Using the database Finbin at the U of MN Center for Farm Financial Management, Minnesota farmers under the age of 30 have a 64 percent debt to asset ratio. They have 64 cents of debt for every dollar of assets. On the flip side, farmers ages 50 and over have an average debt to asset ratio of 42 percent. They have already paid much of their lands loans, own most of their machinery, and looking down the road to retirement.

The bad news for the 50 and over group is return on equity (ROE), which helps to measure financial leverage. The young guns averaged an ROE of 22%, but the older group only averaged 12.7%. That is still a respectable ROE but they could have done better. The older group does not have as much financial leverage. They should be leveraging their existing assets to borrow more, buy more and expand. That is not an easy strategy to sell to someone who is beginning to envision their retirement. They are content with what they have and unwilling to risk any existing assets. The conservative farmers are not making the correct textbook business decision, but they are making the appropriate personal decision.

This winter as you look back at the 2009 crop year, examine your financial red flags. I have included our farm management scorecard to help you determine the strengths and weaknesses of your operation. As you look for solutions to improve your ratios that fall into the red zone, make sure you double check that the solutions are compatible with your personal goals as well. You do not need to run your business by a textbook, but if you are going to “go rogue,” make sure you have a plan.