The New Rules of Profitable Farming

Look around and notice the changing financial environment in agriculture.

For those of you who are so entrenched in the day to day tasks to even notice, farming has changed. Those changes dictate that we change the way we function within farming if we want to stay profitable.

Case in point: remember the LDP? When was the last time you saw one? Certainly it’s more fun to get our profit from the market (and keep our critics at bay), but it’s also more challenging. 

What was your greatest business challenge from last year? Likely it had to do with the price at which you sold your crop, the desire to farm more ground, or how you managed nitrogen on your corn crop. These, and many others, are topics that have been surrounded by change.      

One of the tough new realities we deal with is the speed at which information hits us every day. Simply said, it is hard to keep up. We have longer trading hours and more market volatility adding to the pace and the level of attention required to participate. It takes more working capital to farm because prices are higher. Production is getting more prescriptive. Looking at this in a positive way, if you are a student in all of these areas there’s a bigger opportunity for competitive advantage. Even though we’re still largely in a commodity business, working smarter can produce an excellent payout and quite a competitive advantage.

Think about traditional market peaks over the past 40 years. Typically, we had a chance to capture price in the spring if we saw cool, wet weather at planting time. We could do that again in the summer with a hot/dry weather scare. And then by fall, prices would likely plunge. Our supply/demand situation has changed all of that and market rallies are coming at unpredictable times. The past four of five years we’ve rallied in the fall. That’s a game changer. In the past, farmers have been paid big dividends by selling ahead. That’s not been true recently. 

In the coming weeks I’ll address what I feel we need to do in order to compete and excel in this new environment. For now, I’d challenge you to look at your own operation and think about what you need to be doing differently.          

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