Making money in farming is tough, but not impossible

If you’re in farming for the money . . . it’s gonna be a tough life for ya.

I’ve even heard Charlie Munger say that farmers make money maybe 1 in 20 years.

However, the worst markets provide the best opportunities, and there is a lot of money to be made in farming when you’re really good at it. As this market gets tougher and tougher, people will be selling good stuff for a good price.

I remember listening to Zig Ziglar in college, and Zig always said that in every market there are people making money and people losing money. It's up to you to decide which one you will be.

Here are six ways you can strategically grow your farm—even during the hard times.

1) Employees

Consider the employment levels on your farm. Does it make more sense to hire locally or to go abroad?

I’ve got South Africans on my farm this year for the first time, and the farming economy in South Africa is disastrous right now. So they have a lot of interest in coming over to farm here.

On the other hand, a lot of farmers have laid off their full-time guys, so if you want to pick up a good, experienced full-time guy, you could consider the local market. However, that may be difficult, depending on your area.

Co-ops and seed dealers have brought the cost of labor really high, because they’ve been making tons of money off of the ag boom and really spoiling their employees. I know a guy just out of college selling seed and making $100,000 a year. That’s kind of hard to compete with...

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How to not get slaughtered when making grain sales

The hardest part of farming, by far, is navigating the grain markets and making grain sales.

The grain markets have recently rallied, but many farmers have executed textbook mistakes in grain marketing that will not allow them to benefit.

At the end of the day, "Bulls make money, bears make money but pigs get slaughtered," as the old saying on Wall Street goes. Choose a side—don’t be a pig.

If you don’t, you’ll be making one of these three grain marketing mistakes.

1) Selling at the beginning of a rally

Recently, the markets floated down to four or five-year lows after harvest. But then we had a spike, followed by sideways trading, then a massive spike. Most farmers sold days before the massive spike, and it’s a shame. Their advisors recommended that they sell the lion’s share of their grain be sold.

Sometimes it pays to be sitting on your hands, or as Warren Buffett calls it, “thumb sucking.”

One strategy you could use is buying out of the money options. Let’s say you’re selling $4 corn and you buy a $5 option that only becomes valuable when corn’s at $5. You’re only $1 away, so that option is cheap.

As corn rallies to $5-$5.50, you’re going to capture a lot of that upside. You might risk three, four, or five cents on that option, but you’ll have the opportunity to collect 40 or 50 cents on the grain if it goes to around $5.50.

It’s worth risking a nickel to capture that kind of upside.

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As a recap, part one was quantify: breaking old and new grain into marketable units. Part two was planning out sales and delivery through logistics. Part three was all about the various tools farmers have to manage price risks.

This last topic is the most challenging and technical part of the grain marketing plan: producing price targets. That is, trying to figure out what’s a good price and when you should sell.

The futures market is tricky; there are a lot of moving parts. If I could predict the futures market, I’d be living on a private island. Too bad...

However, there’s plenty you can understand about the futures. Let’s get into it.

We’ve been talking about building a grain marketing plan these last few weeks. So far, we’ve covered the need to quantify your grain and to handle logistics 

Today, we’re going to talk about all the tools at the disposal of the grain marketer, starting with the most familiar and moving to the less familiar.

Forward Contracts

The most familiar contract that a farmer has is their forward contract with the elevator. They call the elevator and say, express an interest to sell grain. The elevator will ask, “Do you want to set the basis or do a hedge-to-arrive?”

You probably know the difference between those two, but let’s do a quick recap. Hedge-to-Arrive

If a grain marketing opportunity comes your way, you have to be able to pull the trigger.

That’s the theme of this month’s blog posts: how to build a grain marketing plan that works.

This week is logistics, or in other words, figuring out when you can haul grain and what can you store.

This is the personal part of a grain marketing plan. The problem of logistics is why you can’t just download a spreadsheet off the Internet and make a successful grain marketing plan. There are a lot of individual things that each farm has to deal with.

In particular, consider these four logistics obstacles.

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Dwight Eisenhower used to say, "In preparing for battle, I have always found that plans are useless but planning is indispensable."

It’s an interesting quotation. He didn’t know where the Germans were going to be at, but he had a plan and modified that plan as information was revealed to him once the battle unfolded.

The same is true of a grain marketing plan. We may have price targets at certain points, but then we may get an extreme rally. This will change our price target dramatically, especially when we’re looking at technical analysis of commodities.

Any successful business is going to forecast business and have a plan for sales. Just look at Apple, or Microsoft, or any Fortune 500 company—they all have a plan for sales. If you want to be a professional farmer, maximize your income, and be exceptionally wealthy, you’ve got to run your farm like a Fortune 500 company.

And a grain marketing plan is essential to do that. That’s the why behind having a plan.

This month, we’re going to focus on the four main parts of building a grain marketing plan. We’ll take them one at a time and break them down.

Here’s the four-part process we will be going over this month:

1. Quantify
2. Logistics
3. Tools
4. Price Targets

Step one to successfully building a grain marketing plan is to quantify exactly how much grain you need to market.

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Nothing has a greater impact on the profit of a farming operation than the grain markets—but nothing is more confusing to a farmer.

Building a strategy for managing the grain markets is like getting base hits in a baseball game. If you swing for the fence, you may hit a home run 1 time out of 10 tries, but you will more often strike out.

Swinging for the fences in the grain markets and striking out can result in bankruptcy. We have all heard of the neighbor who lost the farm in the futures market. Can you make enough on that one swing to make up for the other nine? Probably not.

So your strategy for conquering the grain markets should be going for base hits. The best baseball players are those who get the bat on the ball every single time and get on base. That’s how you score runs. If you get a hit one out of every three at-bats, congratulations, you’re in the hall of fame.

Take a look at these five strategies to conquer the grain markets more consistently.

Farmers have various prices that greatly fluctuate on their farming operation. Most of them can be hedged using various strategies and programs.

You may not realize it, but fuel and fertilizers are part of that group: they can be hedged to take away the risk of their constantly fluctuating prices.

Here’s how.

Farmers only get about 30 paychecks in their lifetimes.

Scary thought, huh?

The most important factor in each of those paychecks is grain marketing. And unfortunately, I can count on one hand the number of farmers I’ve met who are good at grain marketing. It’s a tough deal to master.

As part of the Cash Cow Farmer software, we’re doing grain marketing advisory to help farmers out. The first piece of advisory for our customers is building a customized grain marketing plan.

We focus on price targets of course, but there are also three other key components of a grain marketing plan that must be addressed.

Spring is now yawning and waking up from its slumber, and most farmers are just about to start planting corn. Figuring out the return on investment for every input on your farm is crucial to making sure you’re the lowest-cost producer.

And since farming is somewhat of a competition, the lowest-cost producer wins.

Ready for some math? Today, we’ll focus on determining the ROI for one specific input: liquid starter fertilizer.

Does it make sense for your farm? Let’s see.