Common factors of beginning farmer success

Courtesy of beginningfarmers.org, I learned of this project from Michigan State University on assessing common factors of success among Michigan’s Upper Peninsula beginning farmers.  The project interviewed eight beginning farmers and two supporting organizations to ask about, among other things, the challenges and opportunities for beginning farmers.*  What I found most interesting about the study were the responses from the two supporting organizations regarding:

  1. the most important factors of success among newer farmers; and
  2. the most common pitfalls newer farmer should try to avoid.

What struck me was the same themes in the answers to both questions.  Researching the market.  Persistence.  Organization/recordkeeping.  Calculated risk-taking.

With the possible exception of one of the above (persistence), the other themes are skills that can be learned by beginning farmers.  But how does a beginning farmer research the market, keep records, and decide when to take a risk with the operation?

Researching the market:

There is no one-size-fits-all answer to how to research the market because each market is different.  Do you want to establish an organic vegetable direct-marketing operation?  Or enter the feeder cattle market?  Maybe you want to establish a CSA?  Or perhaps row crops such as corn, soybeans, and wheat?  The possibilities truly are endless but that means different research is required for each possibility.

You must know the type of operation you want to run.  That requires making a business plan, even if it is a rudimentary one.  Research the cost of inputs (e.g. seed, fertilizer, livestock).  Research historical trends of input costs, productivity of the land, selling price.  Understand the possible federal, state, and local rules and regulations.  Talk with local producers about their operation and practices.  Determine how you will obtain access to land and how much land your operation requires.  With this research, you can determine how prepared you are to launch your operation but also, set the foundation to be persistent and become a successful farmer.

Recordkeeping:

We’ve discussed recordkeeping before but it bears repeating: without knowing the cost of your inputs, the cost of your time, and your break-even point, you will not be able to properly manage your operation.

Calculated Risk-taking:

This is the scariest proposition.  When do you look to expand your operation or change enterprises?  Are there value-added enterprises you may add to the operation?  Do you continue to rent or purchase land?  Do you have the resources and labor expand both your production and distribution capacity?  Can you live off the farm income alone or do you require an off-farm source of income?

To make those decisions, you have to return to research and recordkeeping.  Research and recordkeeping is critical to responsibly running your operation and knowing when it is possible to expand, when to consider changing enterprises, knowing whether production and distribution capacity are at their maximum, and knowing whether you are making a profit.

Want some help navigating the landscape?  Feel free to contact us because we’re here to help Nebraska and South Dakota’s beginning farmers and ranchers!

*The caveat to the study is that this is a small qualitative study focused on a small geographic region.  However, the study authors do you claim to extend their results beyond what the results state.  I am the person suggesting that the answers by the supporting organizations provide food for thought to all beginning farmers.

The necessity of financial recordkeeping

I was driving back to Omaha today, letting my mind wander about possible blog topics and it hit me: we have not yet discussed the necessity of financial recordkeeping.  Most people do not find the work of managing finances all that exciting but without it, you will have no idea whether your operation is profitable, where you can grow your operation or, even more basically, apply for loans or other financial products.

What is involved in recordkeeping?

  • You must know the cost of your inputs, such as seed, fertilizer, or hay.  This allows you to project your costs and know the amount you must recoup to break even.  Also calculate any lease payments, the cost of maintenance on machinery, fuel, insurance premiums, and any other expenses related to your operation.
  • Know the market history for your commodities.  How many bushels of corn can you realistically produce and what is the price per bushel?   How many cattle do you have, what weight do you wish to sell them, how long does it take to get to that weight, and what is the market price?
  • Know the details of your loans.  What are the interest rates, what is the term (number of years to payoff), what is the principal balance.
  • Know the cost of your own labor — how much time are you willing to expend on certain products and is the time worth the return?
  • Know your family expenses — how much income do you need, both on-farm and off-farm, to live the lifestyle you want?

With the above knowledge, you can make both short-term and long-term plans for your operation.  You can also calculate your balance statement (or net worth statement).  Such documentation is typically required when applying for loans.  If you have the information readily available, it will expedite the loan application process.

Later this week, we will discuss some of the other information you can glean from your records.  But first, you must have the records!  If you need any help beginning the process of recordkeeping, contact us!  We’re happy to help.