Blog

Gary Schnitkey, Ph.D., explains the seven habits of financially resilient farmers. He will also discuss the importance of monitoring cash flow and assessing risk management.

Key takeaways:

• Topics
  • Evaluate farms by high and low profitability
  • Survey high-profit farms
  • Seven habits of financially resilient farmers
• Seven Habits
  
  • Innovative but not on the bleeding edge of technology
  • Always evaluating new technologies
  • Return on investment is an important evaluation criteria
  • Cost control is paramount
  • Production is maintained at high levels
    
    • The right expertise is brought to the farms
  • Non-timing price opportunities are sought
• Performance Groups
  
  • Central and Northern IL Counties
    
    • Champaign, Ford, McLean, Piatt
    • Dekalb, LaSalle, Lee, Ogle
    • Southern Illinois
  • Two time periods
    
    • High/rising returns: 2010 to 2012
    • Low/declining returns: 2014 to 2016
  • Define performance groups over 3-year horizon
    
    • Top 1/3 of returns
    • Mid 1/3 of returns
    • Low 1/3 of returns
• Main cost factors
  
  • Direct
    
    • Seed, fertilizer, pesticide, drying and storage
  • Power
    
    • Machinery depreciation, hire, repair, fuel and oil utilities, light vehicle
  • Overhead
    
    • Hired labor, building, insurance, misc., non-land interest
• Other characteristics
  
  • Farm size
    
    • High return group operate more acres
    • 100 to 200-acre difference across groups
  • Soil productivity not different across groups
  • Close to 50/50 corn/soy rotation
• Take aways
  
  • Some farms outperform their peers consistently over time
  • These farms tend to have higher revenues and lower costs
    
    • Revenues accounted for larger share of difference during high return period
    • Costs accounts for larger share of difference during lower return period
  • Focused on operator and farmland returns
  • Do land costs tend to wash out these differences?
    
    • No – farms identified in higher return groups tended to have lower land costs, pay average or lower cash rents as well
• Follow-up survey with producers
  
  • Face to face survey containing 56 questions with producers in central and east central Illinois (9 farms)
  • Most questions relate to the 2016 growing season
  • Survey includes questions to get at type of production and managerial practices
  • Goal of identifying common practices among the more profitable producers
    
    • General areas addressed
      
      • Size (acres) and labor force
      • Tillage practices
      • Planting practices
      • Growing season practices
      • Harvesting practices
      • Managerial practices
      • Attitudinal
• Takeaways from follow-up survey
  
  • Generally typical production practices regarding tillage and rotation
  • Create additional value
  • Movement toward earlier planting of soybeans
  • Seeing rates reduced, all using some type of seed treatments
  • Seed selection mainly based on yield potential, herbicide use and disease resistance as compared to cost of seed
  • Used typical marketing and risk management strategies
  • Used newer technologies and production practices (seed treatments, draper heads, narrower rows, fungicides) but not on bleeding edge
  • Attention to detail and cost control very important to financial success