Recordkeeping is vital to farm business success and expanded conservation adoption06/24/2020 | Economics
By Bethany Baratta, Iowa Soybean Association senior writer
Devoting adequate time and attention to maintaining records that blend agronomic and financial data is key to farm business success, especially in tight or low margin environments.
“I think recordkeeping is one of those overlooked parts of farm businesses,” says Dave Walton, an Iowa farmer and ISA District 6 director. “It takes a little extra time to do it, but you learn so much more by taking that extra time. It helps you make really, really comfortable, solid decisions.”
Recordkeeping is a helpful way to show, for example, if a conservation practice on the farm, like reduced tillage or cover crops, for example, pays off.
“We use GPS equipment to monitor our planting and harvesting. This helps us make decisions on conservation practices, fertilizer, cover crops, and to manage our livestock grazing,” says Pat Swanson, ISA District 9 director from Ottumwa. “We do enterprise analysis of all our farms and through our livestock operation. We can see where we are breaking even and where we need to cut costs.”
Evaluating every practice and every field through records management helps drive decisions.
Iowa farmer Wayne Fredericks adopted strip-till and no-till practices as a result of recordkeeping.
“That (reduced tillage) was probably one of the single biggest dynamic changes in my whole farming career,” Fredericks says. “It dramatically changed labor, the investment in equipment, and my costs.”
“I can only manage it if I can measure it”
Walton uses a software package on his farm which integrates both agronomic and financial data. Investing in this system allows him to apply a cost to every pass that goes across the field, figuring in the price of diesel, labor costs, equipment depreciation, etc.
“I can only manage it if I can measure it,” Walton says. “If I don’t know what it cost me to put in an acre of corn or the difference in yield where I had a cover crop and where I don’t, I can’t manage it effectively. This gives me data I can use to make those management decisions.”
Using agronomic and financial records, Walton found a cost savings to converting all his acres from conservation tillage to no-till. He has fine-tuned his nitrogen plan by taking a closer look at various forms, timing and rates that work best in his system.
More than a decade of financial and agronomic data affirms his decisions on the farm, not guesses or gut feelings.
“I can tell you from experience that what you think is happening and what’s actually happening are two different things,” Walton says. “I’ll trust the data over my gut all day long.”
Seizing funding opportunities
Swanson, a crop insurance agent, says sufficient recordkeeping helps ensure farmers don’t miss deadlines or potential financial assistance.
“During this time of additional government programs popping up (Market Facilitation Program, Coronavirus Food Assistance Program), having your records, yield information and inventories at your fingertips helps you respond and receive additional financial assistance in a timely fashion,” she says.
Having accurate records of load logs, bin measurements, yields and sales receipts helps crop insurance agents like Swanson calculate production for crop insurance.
Keeping track of production history on the farm can also help make more informed decisions regarding crop insurance programs. Because of his thorough recordkeeping, Fredericks saw a crop insurance premium savings of $6.75 per acre on corn acres due to a lowering of his risk protection policy (RP) from 85% to 75 % and switching to Price Loss Coverage (PLC) program and adding Supplemental Coverage Option (SCO). This option is measured against the county-wide yield history versus his own, so it lowers his costs of coverage.
Fredericks’ recordkeeping system produces a 14-page farm financial year-end report. It includes accrual basis income and expenses, a balance sheet, listing of assets, liabilities, return on assets, and more data that help him ultimately farm better and more sustainably.
An opportunity to identify and reward good stewards
Gus Barker sees a variety of recordkeeping strategies among clients as the president and CEO of First Community Bank in Newell. The bank serves four communities in northwest Iowa; the ag portfolio is 80% of the bank’s $100 million business.
“Recordkeeping is one of the most difficult and most essential pieces of farming today,” Barker says.
Recordkeeping systems have evolved from the potato chip cans full of receipts that Barker remembers his parents taking to their tax preparer once a year. Today’s systems, like Walton’s, combine financial and agronomic data.
“I’m a big proponent of recordkeeping and knowing the cost of production down to the penny,” Barker said.
Recordkeeping which combines agronomic and financial data not only shows what’s working on the farm, it also shows what’s not working. There could potentially be more benefits to farmers who have thorough records—like the cost savings that Fredericks is seeing in reduced crop insurance premiums.
Barker says having more data that provides a cost/benefit analysis of on-farm practices like no-till and cover crops could be used in the future to present a case for reduced interest rates on loans and increased funding for conservation practices and water quality efforts.
“If we have more data and we can encourage more farmers to help with these studies, I think that gives us the fuel to go and lobby for some of these things,” Barker says.
The insights farmers need to know where to go next
Prioritizing and dedicating time to improving the farm business through recordkeeping is the dividing line between farmers who are succeeding and those who are struggling, says Jim Knuth, senior vice president of Farm Credit Services of America, the largest agricultural lender in the upper Midwest with a portfolio of 57,000 customers. He heads the Farm Credit Services of America’s Iowa Retail Financial Services Division.
“It’s really about how farmers manage their operation from a business, financial and marketing perspectives, Knuth says.”
He says operators who have a good handle on their numbers tend to be more proactive in their financial decisions. They, for example, know their machinery costs per acre before deciding to buy another piece of equipment. These clients also pay close attention to their marketing plans and know when to pull the trigger on marketing opportunities.
Knuth says successful recordkeepers aren’t limited to a certain size of acreage; he sees good recordkeepers and poor recordkeepers in all sizes of farms. However, he points out that financial issues can be compounded quickly without good recordkeeping.
“It’s really about the producer and where they spend their time. If 99% of their time is spent on production and growing a good crop and 1% of their time is spent on business and financial issues, they really need to achieve better balance,” says Knuth. There isn’t a method or system better than another when it comes to recordkeeping, But the days of bringing in a shoebox—or potato chip can—full of receipts to the banker are long gone.
“Without good numbers you can’t have trends and you can’t understand where you’ve been, where you are, and where you’re going,” Knuth says.
Contact Bethany Baratta at firstname.lastname@example.org.
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