DUBUQUE, Iowa — In his presentation at the 33rd annual Tri-State Agricultural Lenders Seminar, Doug Johnson, director of sales at Moody’s Analytics of Omaha, Nebraska, said three big things are influencing today’s producer and tomorrow’s producer: the agriculture economy, agriculture technology and the agriculture experience. Farmers and agricultural lenders alike have the task of weaving those three things together with the same end goal in mind — to ensure profit on an operation.
It’s no secret that challenges, such as rising input costs, weather, marketing, cash flow and trade disputes, have all impacted agriculture as we know it today, but Johnson maintains there is some good that can come out of these challenges.
“The people that survive this cycle will be top quality managers instead of just tractor drivers,” he said.
Two very different mindsets are associated with the “managers” and the “tractor drivers,” with Johnson asking ag lenders to decide which type of mindset the producers in their portfolio are and reacting accordingly. Producers who have a “manager” mindset will be asking how they compare to other producers, are curious to what’s new in ag lending that they may need to think about and are thinking long term; producers who are “tractor drivers” are instead asking if they’ll be financed again and if they’ll survive another year instead of looking to the future.
To further gauge which mindset their producers are in, Johnson suggested asking them what their No. 1 challenge will be in the next five years. If their producers are most worried about yield and commodity prices rather than poor marketing skills and a lack of a long term plan, lenders should encourage them to change that mindset and think differently about their operation.
“These are the No. 1 things farmers should be focusing on in the next five years to be profitable,” he said.
Ag lenders can follow three steps to help their producers think differently. Firstly, they can assess their producers’ skills and whether or not they are changing their numbers and behavior in reaction to today’s economy. Secondly, they can assess their producers’ priorities, creating a window into their way of thinking. Lastly, lenders can encourage their producers to put themselves into action, often asking questions like “what will your operation look like in five years?” and “what will their banker look like in five years?”
“Get them focused on the long term rather than today’s renewal,” Johnson said.
Advances in agriculture technology continue to push producers, although Johnson shared some advice he garnered from his father: “If you can’t afford it during bad times, then you don’t need it in good times.”
He foresees command center farming in the future, where a person operates farm machinery from a home office. Production efficiencies continue to be gained as well, along with advances in herd genetics, blockchain and robotic milking. Yet he warned again that if a producer can’t articulate a plan, there’s no reason for a lender to overcomplicate things.
As Johnson sees it today, producers have various “silos” they rely on — from their lender to their agronomist to their marketer. Each “silo” stands alone, but Johnson believes all of these silos must come together to build a network for the producer, much like grain bins connected together. The question remains, however, who will be the grain bin leg that connects everyone.
“Our industry needs to tie all these bins together,” he said.
It all comes back to his advice to ag lenders to encourage their producers to be better businessmen and marketers rather than just tractor drivers, changing their mindset from today to the future. Beware of excuse makers, he warned, adding that it’s possible lenders stuck with producers with a “just a tractor driver” mindset for too long, especially in the 1980s.
He also encouraged lenders to nudge their producers to keep better financial records as the answers aren’t in the financial statements, the questions are.
“Stitch a story together for your producers, one that takes the emotion out of it,” Johnson said. “They will do one of two things — they’ll either run to their computer and do a break even or they’re going to go to their tractor.”