Farmers and agribusiness professionals take great pride in the job that they perform. Many have worked on the farm their entire lives and have developed a strong work ethic that is deep-rooted into their heritage. They know every inch of their land like the back of their hand, and from it are able to produce the crops and livestock that will deliver the best outcome year after year. Many people are unaware of the day to day details and hard work that comes along with running a farm. Behind the scenes is a year-long, 24 hour work day to ensure that consumers stay clothed and fed on a daily basis.
The knowledge needed to run a successful farm operation or AG related business is not a skillset that can be learned overnight. Experience is critical and an understanding of business principals is essential. Contrary to what many average consumers believe; farming is much more involved than planting a seed, watering the ground and waiting for the crop to grow. Farmers and ranchers are businessmen just like the rest of the working world. Running a successful operation requires more than skill and labor or the ability to perform the task at hand. It is a collaborative effort that involves a combination of specific farming knowledge and keen business acumen. Although we cannot explicitly cover each relevant topic, we will briefly cover several key elements that can have vast impacts and can often be overlooked.
Overall Economic Outlook
The overall and ever-changing economic outlook plays a significant role in the business decisions made by farmers. The agriculture industry is directly connected to all other industries. The developments and happenings in other industries has a significant impact on profitability and the overall success of any farmer or ranchers operation. These individuals must stay well-informed of what is going on around them to capitalize on or prevent negative effects. In a slower economy, the demand of high end or specialty items will most likely decrease and uncertain conditions may be faced. A farmer or rancher who is educated on market conditions, projections, competition, and other factors will have a stronger chance of succeeding during economic highs and lows.
Let’s face it – it takes money to run a business. Farming is no exception, in fact, operating costs in agriculture are often extremely significant. Often times in farming, growers and ranchers must spend large amounts of cash up front and will not see a return for several months. One example is sweet potato production. This crop is grown over the course of almost 6 months from plant production the harvest. In this case, capital is invested to buy plants, hire labor, use equipment, plant and maintain the crop. This money is spent before the actual product is even harvested. Sweet potatoes can then be stored after harvest for up to one year before it is packed and sold to market at which point the grower will collect revenue – sometimes up to 2 years after the initial investment. This requires one to be extremely sensible in regulating expenses and cash flow. Loans, interest rates, inflation, and other factors can certainly play a significant role in cash flow throughout the year while waiting to make a return on the investment. Management of these factors is critical to survival and success.
Farm Land: Value, Rental, Swapping and Taxes
Land is undoubtedly one of the most important variables when it comes to farming for obvious reasons. Even with land, there are many decisions that have to be made in order to be efficacious. The value of land must be analyzed from both a monetary and physical perspective. Land value, taxes, and potential rent must be evaluated to see what makes the most sense for a given operation. In order to properly rotate crops, farmers may have to rent other land or swap tracts of land with land owners in order to grow crops that cannot be grown on the same land for consecutive seasons. This process requires extensive thought processes and planning procedures to ensure that these details are taken care of ahead of time, and that they fall in-line with a long term model. Land is a critical asset that must be managed strategically in order to grow in scale and be successful year after year.
Operating Expenses, Supplies and equipment, weather, labor, and countless other variables are other examples of critical elements that must be considered. Most owners and operators have systems in place that enable them to take all of these into consideration when planning and executing their business strategies. However, we are positive that most of these individuals also rely heavily on consultants, bankers, and other industry professionals to make the best decisions possible. The industry is filled with businessmen and women who specialize in each of the topics discussed above. They each provide additional insight and knowledge to the farmers and ranchers so that educated and appropriate decisions can be made.
Do these topics draw your attention? Are you interested in economic trends affecting U.S. farms and agribusinesses? Would you like to have a chance to ask questions in real time discussion, amongst other farmers and agribusiness leaders?
If so, please join us as we participate in PNC Bank’s “National AG Day” webinar for agribusiness professionals on March 25th, 2014. This free webinar will focus on world and U.S. economic outlook U.S. balance of trade; interest rates; inflation; net farm income; outlook for grain, dairy, and livestock sectors; and farm land values, drivers, and risk factors.
You do not want to miss it!!!
Register today by following this link: https://www.virtualvenues.com/
Augustine (Gus) Faucher is vice president and senior macroeconomist of The PNC Financial Services Group. He is responsible for contributing to the preparation of PNC’s U.S. economic forecast and alternative economic scenarios. In addition, he contributes to PNC’s National Economic Outlook, Economic Releases, Market Expectations Survey, and Economic Outlook Survey of Small Business Owners reports.
Prior to joining PNC in 2011, Faucher worked for 10 years at Moody’s Analytics (formerly Economy.com), where he was a director and senior economist. He was responsible for running the firm’s computer model of the U.S. economy, edited a monthly publication on the U.S. economic outlook, covered fiscal and monetary policy, and analyzed various regional economies. Previously, Faucher worked for six years at the U.S. Treasury Department, and taught at the University of Illinois at Urbana-Champaign.
Faucher is frequently cited in international, national, and regional media outlets. He has appeared on the ABC World News, the CBS Evening News, and the NBC Nightly News, and is featured on CNBC, CNN, and Fox Business. He has also appeared on public radio’s All Things Considered and Marketplace.
Faucher earned a Ph.D. in economics from the University of Pennsylvania, with concentrations in labor economics and public economics. He also has an A.B. in economics from Cornell University.
Warren Graeff is senior vice president and agriculture banking market manager, leading Ag Banking for PNC. PNC has an Ag Banking presence in 13 states and is in the top 20 of all US Ag banks. Since joining PNC in 2007 he revised the mission and strategy of the Ag Banking Group to provide a full range of deposit, credit and related financial services to Ag producers and agribusinesses.
In the twelve years before joining PNC, Warren’s banking career included: Regional Bank President, Community Bank President and Commercial Relationship Manager.
Prior to Warren’s commercial banking career, he was employed by the Farm Credit System (the nation’s leading Ag lender) for 18 years and received numerous recognitions for his accomplishments in various sales and credit
Warren received his bachelor’s degree in Agricultural Education at Northwest Missouri State University, and is a graduate of the School of Banking, Colorado University.
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