What makes top grain farms tick? Better yields, cost control or size? Do they run machinery on the cheap? Do they hit marketing highs? Do they just happen to farm better ground?
"Chase the big rabbits--marketing, machinery, labor and agronomic management," Panora, Iowa farm financial consultant Moe Russell advised attendees at Commodity Classic in Florida a few weeks ago. "It's better than chiseling your fertilizer dealer for an extra $1/acre savings." Russell has studied his own database of clients to hone those $100/acre differences.
University of Illinois Economist Nick Paulson tried to distill the management secrets of the highest profit grain clients in the state's Farm Business Farm Management Association record system between 2005 and 2009. In his latest analysis posted on farmdocdaily this week, Paulson found top operators earned $180/acre in 2005 more than their peers in the bottom quartile. This advantage jumped to $280/acre in 2008 and 2009, however, once volatile, demand-driven markets kicked in.
The main message is that "it seems to be extremely difficult for grain farms in Illinois to consistently earn returns in the top quartile even over a relatively short 5-year period," Paulson says. Only 3.2% of the farm operations ranked in the top 25% category of earners in each of those five years.
One reason is that there's not a big Bell Curve between the best and worst farmers financially, at least in the Illinois database. You just need to hit singles, not home runs, in a lot of areas to stay competitive. On corn yields, the spread between the top 25% and the bottom 25% ranged from 9% better (in 2006 and 2009) to 20% in 2005. Marketing returns scored in an even narrower range--from 3.5% better for corn's top performers in 2007 to 10% in 2008. Average gaps over the five-year period worked out to dimes per bushel not dollars.
The Illinois study might make you conclude marketing isn't an area top farmers can exploit. Read the management classic, "A Random Walk Down Wall Street" and you'll see it's tough for anyone to beat market averages long term.
But Mark Welch, a Texas A&M AgriLife economist who teaches a Master Marketing course for DTN, isn't giving up. Before 2006, the price of Dec corn futures over its contract life varied less than about $1/bu. and often under 50 cents. In 2008, that ranged from a low of $2.60 to a high of $7.96. Ranges of $3 to $4/bu. during the marketing season might be more normal now, Welch observes. Logic would tell you there's bound to be bigger spreads between farmers' average prices in the future, too.
So implementing some simple marketing techniques to trigger pre-harvest sales can greatly improve results over harvest-time prices, Welch has found. Since 2005, he's studied five marketing styles to see how a 1,000-acre corn grower with 180 bu. yields would have fared. By his calculations, just timing sales to match the traditional seasonal peaks (selling 20% March 1, June 15, Aug. 1 and Oct. 15) would have returned a grower more than $200,000 over selling at harvest since 2005. Tweaking that using a moving average earned $274,050 more than harvest sales.
Those techniques were not the top winners every year, but they were never the class goats either. Technology and astute farm operators are narrowing the gaps in production agriculture. Can marketing be the next frontier for those who want to excel? There's certainly more money on the table than 25 years ago.
To read the University of Illinois studies go to http://www.farmdocdaily.illinois.edu/?
Follow me on Twitter at MarciaZTaylor
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