A Road Contractor’s Approach to Farming

Lee Gross, FYP Consulting

Lee Gross of FYP Comsulting [email protected]

One of my most enlightening requests for help came from a road contractor who asked for help with crop budgeting. What’s that got to do with dairy farming?

Robin Schmahl ([email protected]) and I talk about it below.

A lightly edited transcript of our conversation follows.

 

 

 

 

Lee Gross

A road contractor walked into an Extension office…  Sounds like the start of a bad joke but it’s a true story. This happened when I was working at the U of MN Extension office in St. Cloud, MN. Robin, when’s the last time you had a marketing client in the road building business?

Robin Schmahl

I have never had one.

Lee Gross

This was a first for me! This guy had zero farming experience, was not a farm kid, with no experience or education in agriculture.

Robin Schmahl

What brought him into the Extension office?

Lee Gross

He knew that he didn’t know how to budget for an acre of corn or soybeans. His work as a contractor taught him that he had to know his income and expenses before bidding a job, or all kinds of things - mostly bad, would happen.

Robin Schmahl

All business that I know of will not bid on a job unless they know the cost of time and materials as profit margin. My brother owns a machine shop and budgeting is a necessity in order to remain in business.

Lee Gross

We need to find a way for dairy farmers to believe in the power of monitoring profit, or at least gross income.  Why do you think agriculture has been slow to do that?

Robin Schmahl

Farmers have always been focused on prices received for their product and not how much margin they have in producing that commodity. Knowing cost of production is foundational. If one does not know cost of production, there is no way to know what margin of profit one has at certain milk price or grain price.

Lee Gross

This may be a cynical view, but over the years I’ve not seen much interest from agribusiness on supporting the farmer’s efforts to monitor profit. I understand why they don’t – many businesses don’t want their product or service to be “profit shopped”.

Robin Schmahl

What do you mean, “profit shopped”?

Lee Gross

Every product  or service provider expects, and obtains, a clear profit when they do business with a farmer, like the road contractor above. That’s justifiable self-interest. Farmers would benefit from that same self-interest when dealing with agribusiness: Where’s the profit for ME when I buy your product or services? That goes for our team too - we should be challenged to show ROI like everyone else.

Over the decades, farmers have become price takers for not only the products they sell but also the inputs they purchase. They can and do price shop, but there are way too many assumptions about the profitability of purchased goods and services.

Robin Schmahl

It’s a good thing we don’t have sponsorships from agribusiness! That kind of talk would have them pulling their support!

Lee Gross

That’s true. It’s nice to be able to speak freely. Doesn’t pay many bills though!

Robin Schmahl

Helping and teaching farmers to look at their operation as a business is what we are all about. We are not looking for just short-term contact to make money, but a long-term business relationship. Once farmers look at their operations from the margin standpoint and not strictly from a price standpoint, income management takes on a whole new meaning. If margin is known and can be maintained, the farmer will remain in business as long as they desire.

 

 

Lee Gross

This conversation reminds me of the many times as an Extension agent being at the table when a dairy farmer considered an expansion. Everyone at that table had it in their best interest for the farmer to expand - regardless of the risk the farmer faces. The lender got paid as their loan is secured. The building contractor got paid when the job is done. The vet, nutritionist, feed company, pharmaceutical companies, milk processor, equipment dealers, et al., increased their revenue when the new cows get added. And, of course, I got paid regardless of what the farm family decided. The most serious risk was and is taken by the farmer and their family. It’s their equity on the line. No one else was risking their equity to the same degree as the farmer.

My point is, a farmer really needs allies looking out for them. Extension has historically played that role as have community college instructors. In the private sector we have people like John Ellsworth, who our readers will recognize from Dairybusiness.com, or the people on our team like you and Joe Hemauer. Obtaining unbiased advice, separate from product sales, is always a good business decision.

Robin Schmahl

Yes, it is very beneficial to have a consulting group that can look at the operation from an unbiased position. We can aid farmers in improving margin, which may mean making some changes compared to what’s “always” been done. We have a well-rounded team at FYP that can help in many areas of the operation.

Lee Gross

Anything else you want to add Robin?

Robin Schmahl

Implementing this change of thinking may be a bit daunting, but it is a necessity and one that can reap good benefits. Farmers seem to be very willing to embrace new technology and new farming processes, but are unsure of how to approach insuring profit margin. However, it has become a necessary part of the farming business to insure longevity of the operation.

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