Tim Cobb 2017-12-13 00:06:36
Tried and True Financial Direction for Overseeing Farmland Assests. The complexities of modern agriculture go far beyond plows and cows. Today’s agriculture investment requires the very best management if profitability and legacy are to be achieved. With an asset class as specific and specialized as farmland, there is no substitute for “boots on the ground” when it comes to ensuring proper care. Farmland operation continues to be a “high-capital, thinmargin” endeavor; however, with the recent value appreciation and continued worldwide population growth, the demand for high-production diversified crop land and the resources of soil and water continue to catch the attention of managed money. The link between these money managers and actual operational management of “the dirt” is an important consideration when looking to place investment in agriculture. Across the country there are accredited and competent professionals that aim to fill the ever-growing void of understanding between asset management and farmland producer. Th ese professionals work tirelessly to ensure the land continues to operate and provide the lifeblood to our national economy. Let ’s focus on three key roles and responsibilities of these professional farmland managers. FARMLAND PRODUCTION MANAGEMENT From crop rotation, selection of seed varieties, fertilizer and weed control to drain tile, buildings and fence maintenance, to modified leases and tenant relations, high-quality farmland managers will make sure the stewardship of the land is the highest priority. Key to that is the working knowledge that comes from firms that are in the farmland business each day. One of the largest challenges facing the profitability of ag land is market lease arrangements with farm operators and the need to keep them current and viable. This helps curb the amount of fluctuation seen in the commodity markets. Volatility is a part of every asset class and agriculture is no exception. To keep pace and ensure the land is built for future production, an equitable arrangement between owner and operator must be achieved. Additionally, management of inputs into the crop and crop type continue to be an ongoing management concern as owners look to increase yield and production potential. With commodity prices in decline over the past four years, this balance has created some difficult decisions, each of which must be made in a timely manner to create opportunities for profitability. FARMLAND RISK MANAGEMENT There are many actions farmland managers and operators are taking on a daily basis to become more efficient, to cut costs and to improve output of the land, while reducing the financial risk shared by all. A farmland manager uses the following tools to create and deliver appropriate risk management: Crop insurance — The current agriculture safety net is centered in crop insurance and from an asset management standpoint is proving to be one of the most secure ways based on production yield and price levels to manage commodity risk. A professional farmland manager will be certain to have adequate and appropriate levels of coverage based on crop type and production potential. USDA farm program enrollment — Behind insurance is the backing of the federal government for assistance in times of crop damage or adverse growing conditions. These programs continue to be very complex and the navigation of enrollment and continuing compliance are active actions carried out by farmland management firms. There is a large amount of “local nuance” that occurs as each of these programs is administered on a county level, making the local management role key to execution success. Crop marketing strategies — The timely marketing of crops — whether based in forward contracts or basis trades utilizing market leverage — will always be an effective tool for the farmland manager to limit price exposure. Key to this approach is a working knowledge of the crop break-even point and acceptable ROI of the asset. Farm technology and data collection — Today’s farm equipment is loaded with big data collection and analysis. Farm operators and farmland managers are looking to leverage this data to make timely decisions that affect profitability. The progressive farmland manager is aware of and utilizing these data points to deliver stability and reduce production risk. There are and have always been external risks involved with food production, but if the right tools are utilized at the right time the chances to overcome this risk increase. FARMLAND BUSINESS OPERATIONS MANAGEMENT For managed-money positions in agriculture to be viable, the consistent delivery and communication of benchmarks and financial ratios will be key. As more and more “outside industry money” looks to the inherent stability of farmland assets, the role of the professional farmland manager to rise to the business operation’s expectations is critical to the overall achievement of financial goals. A professional farmland manager will provide the following business operations: • Proven data systems and structure to provide perspective to ownership of where the farm is financially and the potential progress that can be achieved. • Working knowledge coupled with the right accounting and financial systems necessary to raise the level of sophistication and delivery of data and investment return. • Timely inspection and analysis of annual processes put in place to ensure financial solvency. • Industry resources and market knowledge key to make timely directional shifts in approach. • Fair and honest assessment of what can be achieved financially under regular conditions. • Annual budgeting and money management from operations to capital improvements. • Proper administration of the financial numbers will help yield desired results. There is no substitute for tried and true financial direction in the management of farmland assets. Amid the demands of capital and the desire to ensure high levels of quality products are yielded from our great land, there is a growing core of professional farmland managers ready to deliver the roots necessary to weather any storm. The speed at which we communicate and transact will require a continual increase in the ability to keep pace with the changing landscape. Let us not shy away from hard questions or the opportunity to make and effectuate solid plans to preserve the productivity of the land. Tim Cobb is a farmland manager accredited by the American Society of Farm Managers and Rural Appraisers. He manages 25+ different crop types across 110,000 irrigated and dry-land acres of land in the Pacific Northwest region. Contact him at www.hatleycobb.com, or for more information visit www.asfmra.org.
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