Is a profitable farm the most successful farm? Or is it the largest land base, the one with the newest equipment? Or is it the one whose operator takes a vacation every year or has the lowest debt?
Earlier this week, we talked to Dr. Greg Ibendahl, of Kansas State University, and we talked about whether a bigger farm leads to higher profits. I think one of the questions from that is ‘how do you actually measure profitability?’ I got a tweet from John, who says “I’d like to hear more about farm profitability going forward. Making more of anything doesn’t guarantee a profit,” and the research out of KSU would support that notion.
I really started to think about John’s statement, and I re-listened to the interview with Dr. Ibendahl, and I think one of the questions from me to you is: how do you measure profitability on your farm? A lot of the time we’re cynical and say ‘I hope just to make a profit’, but I think some of you are doing better than that. Is it a dollar amount? Are you trying to net X amount? Is it based on a return on investment? Is it return on assets? Do you even think about those things, or are we just trying to do our best, and what comes out the end of the funnel is what it is? That’s very possible as well. We try to manage our cost, we try to maximize our revenue, whether it’s growing great livestock or producing great crops, or trying to do the best we can on the marketing end, and what shakes out shakes out.
Some of you would probably say that we’re doing okay — but what do we actually do with that profit? Do we just reinvest in more land? We try to make enough money so we can get that additional quarter, we’re working our way to increase the size of the farm, because we know we’ve got three kids, and they all want to farm, so we probably are going to have to split it up one day and it has to be big enough so they can all succeed going forward; I think that’s a very common scenario.
I found myself asking ‘is growth always good? Have we been misled?’ Some of the research coming out of Kansas State is saying maybe we have. Sometimes we’re capped by what our resources are in terms of farm size, as well. You hear it during our Farmer Rapid Fire that we do here on a weekly basis, that there are a lot of diversity in the size of the farms. Some farms have twenty staff, and some farms are a one-man band where you do everything. All of those models are okay, they can work, and I think that’s what’s really cool about our industry; there is diversity in the size, and there is opportunity to make profits no matter what the size is. There are some people who believe that you have to continually strive to be a larger farm, to achieve some sort of economy of scale. (column continues below tweet)
Today on Real Ag radio @shaunhaney asked the question “what is success as a farmer?”
I think for me success as a farmer is balance
Being able to make a decent living and also have time for yourself and your family.
What about you??#WhatSuccessMeansToMe
— John? (@KowalchukFarms) June 11, 2020
We’ve seen some farms over the years move out of diversity where they had livestock and a grain farm, and move more toward specialization. I wonder if we’re starting to see more of a trend going back to where we have livestock and cropping in the same operation. I wonder if we’re getting more of a feel toward the benefits of some of that. 2003 with BSE really changed a lot of the landscape with people having cow-calf pairs mixed into their operation. My grandfather farmed in Sundial, Alta., and cows were his winter activity; it added some cash flow and he made it work — but it was a different time than today.
So we have diversity versus specialization in this equation, as well. So much about this industry is based on visual success. How do we evaluate success? How do we know who is doing it right (and by ‘right’ I mean ‘making money’), and who is doing it wrong? Sometimes we make wild assumptions that someone is a progressive grower because they have all flashy, brand new equipment. Well we know, no matter where you are in Canada, that making those kinds of assumptions can fall flat on their face. There are a lot of very highly profitable farms in Canada on a yearly basis that aren’t running new gear. We know that, and we see that in our own community.
But how do we judge success? And is success just equal to profitability? We’re in business, so it’s definitely a very important component of that, but I find it all a very fascinating discussion. What clouds over all this, too, is whether your farm is a business or a lifestyle. Depending on where you are on that curve, it’s not just one or the other, but we’re all somewhere on that pendulum in our family operations, and that’s going to impact how you view profitability and success at the end of the day. I find it very fascinating, because everyone’s coming from a different viewpoint, and the lens through which you view the topic is going to impact how you answer.