Shift Course: Make Small Changes to Maximize Profitability

When it comes to your farm operation, you never stop learning or making improvements. This points to the “little bit better” principle that Ag Economist and Virginia Tech Professor Emeritus Dr. David Kohl developed when studying the habits of the top producers in the ag industry. He found the top 20% of producers take a pragmatic and disciplined approach to running their operation. Four areas in particular they excel at are:

• Knowing their production costs
• Having revenue targets
• Taking ownership of their outcomes
• Striving to get better before getting bigger

Overall, Dr. Kohl found top producers are a little bit better at production, controlling costs and marketing. They simply know how to get a few extra cents per bushel.

Turn the Key to Professional Growth

Dr. Kohl’s research and other helpful insights are explored in ADM’s online course, Shift (Successful Habits in Farming Today), which has something for every producer in any stage of owning or operating a farm business. The opening section of the course called “Turn the Key” covers:

• Disciplined buying and selling to improve profit margins
• Profitability and why it’s more important than going for market highs
• Supply and demand and how it historically has impacted seasonal prices
• Emotional traps that could impede profitability

A user-generated survey in the Shift course shows more than half of producers are equally focused on the agronomy and business management sides of their operation. See the chart below. Resources like Shift can help producers take a step back from day-to-day tasks to think strategically about their business principles.

Profit Over Price Mentality

With no shortage of market reports available, it can cause decision-making paralysis in some producers. While it’s always good to stay abreast of market changes, knowing your profitability level will be more fruitful than chasing market highs. In general, it’s important to know at what prices you can make money.

ADM Commercial Manager Jennifer Potter, who appears in the Shift course, often sees customers waiting for “big round” numbers, but instead guides them to sell and lock in at comfortable profit levels.

Along with Potter, ADM Grain Origination Manager Justin Katt encourages producers to examine old habits and beliefs that may be costing them in the long run. He frequently sees outdated habits, such as storing grain until bins are needed for a new crop or ruling out forward marketing as too risky. He says outdated habits may not make financial sense today.

Seasonal Trends

Historically, the cycles of supply and demand tend to make harvest the worst time to sell grain since the market is flooded with new crop. However, many farmers still tend to sell most of their grain during this time, usually due to storage or habit.

Grain marketing author Ed Usset has tracked seasonal price trends for decades. His analysis of soybean prices from 2000-2021 shows that the market was higher on May 1 than on October 1 in 13 of 22 years. On average, prices fell 26-cents/bushel during this period.

Usset recommends a pre-harvest marketing plan that sells 75% by mid-June and no old-crop storage past July 1. Taking advantage of seasonal price trends with revenue protection and a disciplined marketing plan is a tried-and-true approach by top producers.

Data-Driven Vs. Emotional Decisions

ADM’s Potter and Katt have keen insight into producers’ selling habits based on frequent customer interaction. Potter often sees customers go unresponsive when prices increase. Many producers will wait for higher prices because they have the fear of settling and missing out if prices continue to increase.

Katt has seen producers dabble in small sales to play it safe. He says, “If a price can make you money, sell enough at one time to impact your bottom line. Try to sell meaningful amounts.”

Katt and Potter know it’s hard to do, yet they agree your emotions are not the best way to steer your business. Take control by making a plan that matches your profitability level and factors in seasonality and other individual considerations.