By Lee Market, ACPC Director & Chairman of the Board
ACPC just wrapped up the 2015 edition of the Leading Edge Farm Management Series. The tour made three stops across Alberta in Grande Prairie, Nisku and Lethbridge from March 24 to 26, 2015. Personally, I had the opportunity to attend in Lethbridge. Attendance over the three days ranged from 30 to 90 and was made up of growers, farm business consultants and farm business accountants. Leading Edge is a bit of a different take on farm extension, in that the series focuses exclusively on farm management. I’m not going to argue that agronomy isn’t important, because it is. But there is an increasing need for farm owners, operators and managers to have a better feel of the pulse of their business and a more sophisticated understanding of topics ranging from tax planning, financial health and organizational structure. And Leading Edge put together an all-star lineup of speakers to address these topics and others.
Dr Danny Klinefelter
Professor of Agriculture Economics
Texas A&M University
“Sweat the Small Stuff: The 5% Rule”
Dr. Klinefelter emphasized the point that there really isn’t much that separates the elite from the average. He discussed some research that was done a number of years ago that concluded the top 25% of producers are just 5% better than the average producer. He used a baseball metaphor to emphasize his point that someone hitting .300 can garner salary in excess of millions of dollars while someone hitting .250 stands to make significantly less. I suppose the same analogy can be made about a goaltender in hockey, in that a goalie with a save percentage of .920 stands to be held to a higher standard than a goalie stopping pucks at a .870 clip. All sports talk aside, Dr. Klinefelter stood to make the case that if you can produce 5% more bushels at 5% less cost and market at 5% higher than the average, you stand to separate yourself from those around you. And in the long run this provides better opportunity to rent or buy more land at values higher than most others would consider profitable. He also made a point of discussing the evolution of technology and genetics in agriculture. These technologies are going to evolve and advance at an exponential rate and producers expecting to run sustainable farms are going to need to be ready to adapt changing technology at an increased pace.
Pro Com Marketing Ltd
“Production and Marketing Risks: What are you Risking? How Can you Manage it?”
Brian’s talk focused on getting producers to ask themselves questions that adequately identify their own level of production and marketing risk. He commented that often producers feel they need to produce a crop at the lowest cost per acre possible in order to maximize profitability. And while this might be true to a certain extent, if you try to cut too many costs, you run the risk of limiting what you can produce. It is a fine line and every producer’s appetite for production risk is different based on his or her own business goals, but producers have to be prepared to spend money in order to make money. The same goes for marketing. There are a number of different tools out there to help manage marketing risk, but every producer is going to use them differently based on their comfort level and understanding of these different strategies. Much of this discussion revolved around the using of options markets, futures markets, forward pricing contracts, contracting a market advisor and some combination of the afore mentioned. Finally, Brian talked about new options available that allow producers to insure their revenue, and may or may not provide an alternative to crop insurance, again, depending on each individuals situation and comfort level. I guess if I had to summarize Brian’s talk, I would do it by saying, there are a lot of options out there to help manage all types of risk at the farm level, and it seems that as time goes on these options are going to become more readily available and more sophisticated.
Chartered Accountant & Independent Business Valuator
“Creditor Proofing and Tax Planning for Farms”
Dean brings with him a well-defined and established background as an accountant and tax planner working with farms and businesses of all sizes. Dean focused on strategies to help producers best manage exposure to taxes, but also on how to protect a farm business from creditors and to protect the owners personal liability. Obviously farms are getting larger and larger all the time, and correspondingly farms have more assets and more to protect. Dean outlined a number of ways to structure a farm business so that its owners are protected personally in the event any number of adverse situations arises. Dean also provided some tips on how to best manage taxable income as well as some insights to the accounting law that surrounds and governs farm business. Farm succession is another topic that has been getting a lot of attention recently, and Dean talked about succession but also estate planning and what differentiates the two, as well as some options on how to pass the farm on to the next generation.
Merle Good & Joel Bokenfohr
GRS Consulting & Business Management Specialist, Alberta Agriculture & Rural Development
“Financial Health Check-up”
Merle and Joel wrapped up the conference with some discussion on determining how healthy delegate’s businesses actually are. Participants were asked to go through their balance sheets prior to the event so that they could measure various financial ratios against benchmarks. The analysis allowed participants to see if their business was too highly leveraged, what their real cost was to access land, if there gross margin was sustainable and a host of other measurements. This type of analysis allows producers to determine how they can expand their farms in the future and whether or not it will be feasible. It also addressed things that farmers don’t always take into account when building a budget, such as living costs. But what I really took away from Merle and Joel was that it is extremely important to know your actual costs of production and to remember to account for everything a farm spends money on to get the crop in the ground, off the field and into the pit at the elevator.
The Leading Edge Series was really an amazing event, and a lot of that had to do with not only the high caliber of presenters, but also the audience. There was intuitive discussion and engagement all through the day. It was affirmed that farm businesses are going to have to become increasingly financially sophisticated in the near term if they expect to keep growing. Growers need to continue to educate themselves in agronomy and better ways of producing high yields, but will also have to become better versed in business management and organization as this wave of young professionals make their way back into agriculture.
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