What Makes a Farm Profitable?

  From the January 25, 2016 issue of Agri-News
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 “Recently, farm management expert Professor Eric A. DuVuyst of Oklahoma State University shared three traits common to all successful producers, drawing on observations and experience gained from working within five U.S. land grant universities,” says Rick Dehod farm management specialist, Alberta Agriculture and Forestry (AF), Edmonton. “We definitely see these same three common traits in our successful Alberta producers. In fact, AF farm business management specialists will be at Farm Tech this month to share these three common traits.”

The first trait is that these successful producers can identify costs and strengths. “They know where they make money and what is costing them money. If asked about it, they can tell you immediately. Why? It’s because they have good production and financial records. These records provide these producers with timely information so that they make good decisions.”

The second traits is that these producers spend money to make money. “Financially-successful producers know their cost of production and break evens. They understand the past expenditures on a crop or livestock enterprise, and how those expenditures affect the profitability of that enterprise.”

To illustrate this, Dehod cites the application of a fungicide on a wheat crop. “A producer will look at how much is already invested in the crop and decide if there is room in the budget for this expense. They will then decide if the application of the fungicide will provide a higher margin of return that if it isn’t applied. If the cost doesn’t provide a reasonable return, then this fungicide won’t be used. But, if the application increases the producer’s return, it’ll be done. A financially-successful producer will understand the economic threshold of their management decision.”

The third trait, says Dehod, is that when borrowing money, these successful producers have a plan for repaying it.

“I once worked with a producer that made a purchase decision strictly on emotion. Although he couldn’t afford the additional land purchase, when one of his neighbours died, he went to a number of banks until he could borrow the money he needed to buy the land. Due to the increased cash demands on his cash resources, his creditors were constantly calling him. He just didn’t have the cash to manage his farm in the most profitable manner, and things ended badly. Financially successful producers have a plan for capital purchases and loan payments. They ensure that their farm has the addition profit from the investment to handle the additional payments. They also ensure that their farm continues to have the required working capital to operate in a profitable manner.”

Dehod says that the bottom line is that good record keeping, and using those records wisely, is critical to success. “While keeping and utilizing production and financial records won’t guarantee financial success, there are few financially successful producers who don’t keep and use good records.”

AFs’ farm management group will be hosting their own booth at this year at FarmTech 2016, which runs from January 26 to 28, 2016, at the Edmonton EXPO Centre at Northlands.

Rick Dehod

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For more information about the content of this document, contact Ken Blackley.
This information published to the web on January 14, 2016.