In any commodity business, the way to succeed is to be a low-cost producer, according to Michael Boehlje, a Purdue Ag Economics Professor. “When you wake up each day, tell yourself, ‘My job today is to lower my costs,’” he said. “The only trouble is that Ukraine woke up seven hours earlier and got a head start on it.”
Boehlje offered his tips to make that happen:
1. Control Operating Risks
Make sure that the rent and operational costs are in line with the farm’s revenues. Watch out for margin risks and smaller profit margins. Utilize crop insurance and forward pricing to manage risk.
2. Control Capital
Protect your capital. Even extend the terms for what you’ve purchased. “Now is the time to refinance that land on a 20-year mortgage,” Boehlje said. Get that low interest rate available today.
3. Execute Efficiently
Do less, but do it better. Find thing that lose money, and get rid of those things. Use SOPs – Standard Operating Procedures. “Ever manufacturing plant uses SOPs, and you are a biologic manufacturer,” Boehlje said. Simplify and automate. Pay attention to the details.
4. Increase the Use of Assets
Look into 24/hour operations. For instance, use auto-steer to make this operation round-the-clock. Many industries do this to increase their profits.
Rent instead of buy. This way your payments are short-term, increasing asset turnover. Share machines and use joint venture to make production better.
Think in terms of sales and asset turnover – the only way for any dealer to think.
Outsource aspects of farming. You’re comfortable outsourcing tax work? Why not other aspects of farming? “Recognize where you capture value by hiring things done,” Boehlje said
5. Increase Margins
Measure twice, buy once. This is the way to control expenditures.
6. Use Time Well
Focus on managing your farm well. Be sure to hire workers who are skilled. Create standard operating procedures and develop good schedules utilizing workflow planners.
7. Increase Volume/Sales
Make productivity go up. Invest less while still creating more volume. Joint venture for the goal of size and volume to gain access to new markets.
8. Strategize and Focus
Be excellent at what you do and develop good relationships with your customers. Focus on your product and making a better process.
9. Create Value
Know your customer so that you know how to create value for your customer. Be sure to differentiate your service. Highlight aspects such as quality, deliver, or storage.
10. Be Smart
Hire consultants. Network with successful business managers – both farm and non-farm. Use these relationships to develop your own management skills.
11. Be the CEO
Farmers tend to think operationally; practice thinking strategically. You must manage relationships, people, money and strategies. This juggling act is the work of a CEO.