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Rebalancing Your Farm Business Model

Date: 
Author: 
Dr. David Kohl
Educational Opportunities: 
Articles
Interests: 
Grain, Dairy, Swine, Beef, Young, Beginning Farmers, Specialty Industries, AgriBusiness
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Hi. I'm Dr. Dave Kohl, College of Agriculture Hall of Famer from Blacksburg, Virginia. Today I would like to talk about rebalancing the business model. It's interesting, in my travels I've been discussing how agriculture producers are making adjustments in their business model. I had one young man from West Tennessee who gave up 3,000 acres and is now measuring his profitability by field and he put $250,000 on the bottom line. In other words, he was able to renegotiation his cash rents on the good land and actually pay more but then give up the marginal land, and let someone else handle it.

Another thing that I'm seeing is, the real strong agriculture producer is practicing the four cornerstones of management. That is planning, strategizing, executing and monitoring but they're placing special emphasis on planning, putting about 5 to 10% of their time there. But also 5 to 10% of their time monitoring. Speaking of monitoring, I talked to a dairy producer; of course the dairy industry is going through struggles. They are now monitoring their business every two weeks when that milk check comes in with the CFO. By the way, the CFO is his wife and one of the things is they're making and fine tuning adjustments throughout the year to stay ahead of the game.

Another agriculture producer scrubbed his family living expenses. He was able to reduce family living from $108,000 to $68,000 and the column he really reduced was that famous column called ‘miscellaneous’. In other words, a lot of leakage of cash flow was going into that column. Finally, we had another producer that's maintaining working capital to 20 to 30%. You know if the benefits have been there, they are able to take cash discounts. They're able to negotiate a better deal particularly in this down market. When it's all said and done, rebalancing the business model is about sweating the small stuff, doing a lot of little things just a little bit better.

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