Philpot: Best practices for your farm operation

Over a century ago, U.S. farms focused on subsistence crops. Farmers would grow the minimum necessary to feed their families and livestock. Today, most U.S. farms grow cash crops as a way of generating additional income to support their families and pay off farm debt.

The evolution of larger, cash crop farming operations has led to higher profitability and commodity diversity within the market, but with it comes a new set of challenges as the industry continues to evolve.

One challenge is a long-term decline in farm labor. Factors associated with this challenge include high real estate prices, steep upfront investment costs, volatile commodity pricing, unpredictable weather, higher hourly wages and an increase in immigration regulation.

According to the U.S. Department of Agriculture’s National Agricultural Statistics Service, the number of self-employed and family farm workers dropped 73% from 1950 to 2000. The number of hired help declined 52% during the same period, a loss of 1.3 million workers.

This steady decline in farm labor is putting additional pressure on primary operators to not only find alternative options to keep up with production, but also maximize profits while minimizing costs.

Some of the most proven effective farming practices include reaching out to your local network for real number estimates. Before making business decisions like upgrading equipment or growing new crops, do the research.

Search online for statistics from credible sources. Ask questions about profit margins and average sales prices. Taking the time to do your research now can prevent costly mistakes in the future.

Documenting and monitoring performance is vital in understanding what is and isn’t working for a farming operation. Key performance indicator audits help to understand assets and liabilities.

It’s important to record all purchases and keep track of unexpected costs as well as gains. Keep track of these KPI indicators to measure long-term performance:

• Operating profit margin.

• Asset turnover ratio.

• Return on assets.

• Return on equity.

• Sustainable growth rate.

KPI audits can be compared annually, monthly, and quarterly to optimize profitability.

A business plan helps farmers identify their strongest and weakest parts of their operation. An updated business plan is also useful when applying for a loan and should include:

• Objectives and goals.

• Company history and background.

• Ownership and management structure.

• Financial analysis.

• A marketing plan.

Many farmers are diversifying crops to spread out economic risk. It builds resilience to factors outside of the farmer’s control, like unpredictable weather and climate change. Diversification also reduces soil erosion and overall environmental impact.

Successful farming operators keep the future in mind. Individual retirement accounts, simplified employee pensions and savings incentive match plans for employees are all examples of possible retirement plan options for agribusiness owners.

Alternative lending companies like AgAmerica, provide flexible options to secure working capital that helps make ends meet in hard times and build a legacy in the good. This type of financing allows for a level of customization specifically designed for agriculture that remains unmatched by traditional banks.

What’s In Store?

Advancement in farming technology will continue to increase to combat labor shortages. According to the American Farm Bureau, 56% of farms have already begun using agritech machinery within the last five years.

Wireless sensors, predictive forecasting models and robotic data analytics are among the most common agritech upgrades. Experts anticipate the demand for agritech to continue as our nation’s farmers look for more efficient ways to support a rapidly growing global population.

Brian Philpot is the CEO of AgAmerica.