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, thin-margin” endeavor. However, with the recent value appreciation and continued worldwide population growth, the demand for highly productive, diversified cropland 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, accredited and competent professionals aim to fill the ever-growing void of understanding between asset management and farmland production. These professionals work tirelessly to ensure that the land continues to operate and provides the lifeblood to our national economy. Here are three key roles and responsibilities of professional farmland managers.
1. Farmland Production Management
High-quality farmland managers will prioritize land stewardship by considering factors such as crop rotation; selection of seed varieties, fertilizer and weed control; drain tile, building and fence maintenance; modified leases; and tenant relations. The key 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 and crop type continues to be an ongoing concern as owners look to increase yield and production potential. In the past four years, this balance has created some difficult decisions, each of which must be made in a timely manner to create profitable opportunities.
2. Farmland Risk Management
There are many actions farmland managers and operators are taking on a daily basis to become more efficient, cut costs and improve output of the land. These decisions also focus on reducing the financial risk shared by all.
A professional farmland manager uses the following tools to create and deliver appropriate risk management.
• Crop Insurance: The current agriculture safety net is centered on crop insurance, and from an asset management standpoint, it 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, which provides assistance in times of crop damage or adverse growing conditions. These programs continue to be very complex, and navigating their enrollment and compliance needs are active actions carried out by farmland management firms. A large amount of “local nuance” occurs as each of these programs is administered on a county level, so the local management role is 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. The key to this approach is a working knowledge of the crop break-even point and acceptable return on investment of the asset.
• Farm Technology And Data Collection: Today’s farm equipment is loaded with big data collection and analysis tools. Farm operators and farmland managers are looking to leverage 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 agricultural and food production, but if the right tools are used at the right time, then the chances of overcoming the risks increase.
3. 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 operations expectations is critical to achieving financial goals overall.
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 managing farmland.
Amid the demands of capital and the desire to ensure that high levels of quality products are yielded from our great land, a growing core of professional farmland managers are 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 land’s productivity.
Tim Cobb, AFM, is a farmland manager accredited by the American Society of Farm Managers and Rural Appraisers (ASFMRA). His firm, Hatley-Cobb, was named 2017 Farm Manager of the Year. He manages more than 25 different crop types across 110,000 irrigated and dryland acres in the Pacific Northwest.