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Five Ways To Farm Better, Not Bigger

The other day I was chatting with a farmer from Saskatchewan and we talked about stocks, silver, gold, charts and as usual we got chatting about farming. He said he wondered why so many farmers seemed to want to get bigger instead of better in their farming business. He made my wheels run and I decided to write about it here today.

I wrote about the same thinking years ago inGrainewsand I know one reader really took it to heart. A couple years ago he told me that he has kept his land base the same but he’s had to double his grain storage because he now grows twice as many bushels as he did in the early 1980s.

Some of that of course is due to changing crops, some due to newer varieties but some is due to better management.

Today, I will look at the strategy of getting better instead of bigger when it comes to acres farmed, returns on investment, knowledge and risk. Some of this might work for you; some might be hard to do. But I hope I make you think.

And by the way, I’m not criticizing farmers who want to get bigger. Most farmers have to buy land when it comes up for sale. But a lot of farmers are in a spot either financially or physically where getting bigger is very hard to do.

MORE LAND OR MORE CROP?

In some parts of the country some farmers can’t wait to get their hands or air drills on more acres. This is not a bad thing, but there must be some interaction between what is a critical mass size of farm and when a farm is just too big for resources at hand. I don’t know what size that is for you and it likely varies from farmer to farmer.

But I have to ask — does that first quarter section of land you muck in really pay? How about that last quarter that you seeded late as you pushed the crop insurance deadline? If those 300 or 400 acres don’t make money why are you farming them?

Of course there are always what ifs. What if the year I stop farming those acres the next guy is going to get a bumper crop? But think on this: a good farmer told me he examined his farm records over 32 years of farming, from 1975 to 2007. He said four years out of 32 made him 80 per cent of the money. What is your record?

MANAGING LAND TYPE

Is it possible to farm very similar land, or is it good risk management to have various pieces of land? Maybe this is a hard question to answer and maybe in some areas the land doesn’t vary much. If so then you likely need to figure out how to farm that land when it is a touch too wet, just right or on the dry side.

Again, years ago we ran articles inGrainewsthat compared how various openers worked in various types of soil under a variety of seeding conditions. Maybe technology has improved but odds are some openers work better in lighter soil while some work better in heavier soils. If you have both soil types then odds are it would pay to change openers as you move from one soil to another. You likely do already, but from the standpoint of better versus bigger maybe it would pay to do some research and keep records to find out which openers are the best for each soil type or perhaps even each field.

I don’t know how much time it takes to change openers on your equipment but if your research showed that one opener seemed to raise yields one or more bushels per acre, then over a day’s worth of seeding that could mean 1,000 or 2,000 bushels of grain. Bigger or better? Are you too big to do some research on your farm?

CROP DIVERSITY

Did you ever figure out what it takes in time, work and cost to change crops? In my university career talks with then professor Gerry Ackerman, he suggested that it takes a day’s worth of work every time a farmer changes crops. Maybe that’s different now but when you consider cleaning equipment, changing seed, having seed leftovers or not enough of it, keeping track of herbicides applied and so on, odds are every crop you add to your rotation uses valuable hours.

Would it not be better to learn to grow fewer crops very well than a big bunch of crops not so well? I will let you ponder that one.

MARKETING

Many farmers tell me there is more money in selling the crop than in growing it. A farmer told me the other day that growing the crop pays the bills. Marketing it makes the profit. I suppose it depends on the prices, yields and so on. Or does it depend more on your marketing skills? Over and over I hear how farmers waited for that last 10 cents a bushel and missed out on a dollar.

We see this in the stock market. Some people want to make “as much as possible.” Some are just happy to make a lot. Doesn’t the same apply to farming? Some people want to hit home runs. Some are happy with base hits. Which one works for you?

From what I have seen over the years some farmers do sell most of their crop in the top third, year after year. That means some crop gets sold as the price comes up the chart, some gets sold at the top of the chart and some gets sold as the chart rolls over.

But that’s better than selling near the bottom of the chart because bills need to be paid.

We use charts with our stocks and as we get better at that we begin to understand how our stocks behave during bullish, flat and bearish markets. Stocks go on sale two or three times a year. We have learned to be patient and buy them as the sale ends and before the price goes up. The full stochastic helps us see tops and bottoms (for more on charts and stocks, see this column in the March 14 issue ofGrainews).

Do you know when the price peaks and bottoms for the crops that best suit your land? It might really pay to sit down and study pricing patterns, then set up your finances, cash flow pressures, and marketing strategy so you have crop to sell when prices are near peaks not when you have bills to pay.

I hope I can say this correctly. I worked out one time what can happen to a farm if it can avoid selling at lower prices and instead sell most of the crop at the higher prices. It only takes one or two crops of sales at the top end to set the farm up for life more or less. Yes it means the farm has to manage cash flow but it would be worth it. The business of selling to pay bills when crop prices are near their lows has cost farmers a lot of money. But you have to get to know markets.

I don’t know what you would call the farmer who has pretty well learned how to grow a few extra bushels per acre, sell them for more money and put that money to work profitably. I would call him a sophisticated farmer who uses the resources he has around him. By sophisticated I don’t mean some snooty person who thinks he or she is better than the next guy. I mean a farmer who has taken the time to learn how to use the tools available to squeeze out a few extra bushels and a few extra dollars out of his farm over and over again.

EFFICIENT USE OF CAPITAL

I bet you thought I wouldn’t find a way to incorporate stocks into my thinking. Well, here I go. Recall the five-legged stool I have written about since 1993. One leg is learning how to make money with stocks.

Again, I’m not criticizing the investor who uses mutual funds or is a buy-and-hold investor or one who uses buy low-sell high strategies. These strategies have a place and many farmers use them. If they are working for you and you’re happy with the results, keep using them. However, I’ve spoken with many farmers who would like to learn how to invest in good stocks on their own and I think some people could become what I would call a sophisticated investor who, like the sophisticated farmer, uses resources and knowledge to make that little extra with the money invested off the farm. A little extra here, a little extra there and it adds up.

In my opinion the sophisticated investor will have a good idea of what we call seasonality, so he doesn’t fight what is called the ticker tape. He will learn how to bring in extra cash from time to time. He will not suffer big losses. He will respect trends and not fight them. He will buy low to manage risk. And he will understand what makes a good company.

And I have to say that I don’t think I have all of these mastered at this time but I’m sure a lot better than I used to be. I also have found that we don’t have to be perfect in what we do to make good money from stocks.

The first thing is to have a list of half-decent stocks. There are many so that shouldn’t be a problem. The next thing is to buy them right which will reduce financial risk. I personally have learned how to use three indicators on a chart to help me buy good stocks when they are on sale. The three indicators are Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD) and the full stochastic.

I put all three on a chart on a free site called Stockcharts and I watch my favourite stocks. Most stocks go on sale two or three times a year and these three charts help me spot when the stocks have bottomed. From December 6, 2010 to January 25, 2011 most of my favourite silver and gold stocks dropped and dropped. Just after January 25 they bottomed. I like a stock called Silver Wheaton (SLW) and I bought 1,000 shares at $20 last spring. They went to $42 and change and I resisted buying more. Right after they bottomed around February 1 I bought 1,000 shares $1 off the bottom at $30.80 and then another 1,000 at $32. They are $42.50 as I write.

I used to suffer big losses and learned over time not to. My last big loss was last June when I dropped about 15 grand in a week. I didn’t have to lose that money: I just let a profit go to a small loss that grew into a big loss. Another loser was a stock symbol GAS which cost me about $3,000 over half a year. It would have been more if I hadn’t sold calls on them. I try not to lose a lot of money and lately my biggest loss is a few hundred bucks.

And while I have a lot of money in stocks most weeks I make two or three trades. Not exactly a hardship. Some weeks I don’t do any trades.

And as I wrote recently we doubled our money on a stock symbol CLM and we have two stocks now that could do well in 2011. One is Copper Mountain (CUM) at under $7 and the other is Osisko (OSK) which cost us $8 and now is over $14 and we picked up over $2 cash from selling covered calls on them. I think they both have room to grow and I give them that room so when earnings come out next November I hope to reap some good gains.

So, am I a sophisticated investor? Some would say I’m nuts. I really don’t feel all that sophisticated, much like that sophisticated farmer I mentioned before. I just have a list of favourite stocks and I use the tools available to me but I had to learn how to use them efficiently. With two to three trades a week, it seems quite easy to pick up $1,000 here and $500 there and they add up. In cow talk, some of my “cows” give five calves a year, some 10 and the odd one, 20. It really is just some knowledge and some key strokes on the computer.

Yes, I know some farmers can make lots of money with crops these days. But your costs are rising, your risk is rising and this spring farmers in Canada will put down somewhere around $25 billion to seed a crop with irreversible decisions. All of my decisions are reversible. Over the long run it might be a good idea to learn how to make money with some money that has reversible decisions.

Andyismostlyretired.Hepublishesa newslettercalledStocksTalkwherehetellsin detailwhathedoeswithhisstocks.Ifyouwant toreaditfreeforamonthgotoGoogle,typein StocksTalk.net, clickonfreemonth,clickon forms,fillinafewlinesandclicksubmit

About the author

Freelance Writer

Andy was a former Grainews editor and long-time Grainews columnist. He passed away in February 2017.

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