By Karl Wolfshohl
Progressive Famer Contributor
As farms grow bigger and more sophisticated, and the playing field gets more competitive, decision-making must become faster and more precise. Applying real-time data to the production and financial arms of an operation is key to making it happen.
Such is the case with Silent Shade Planting Co., of Belzoni, Mississippi. This Mississippi Delta farm has grown more than eightfold in owned and rented acreage since 1979, when Willard and Laura Lee Jack moved from Ontario, Canada. The original farm was 1,000 acres. It is now 8,500 acres of owned and rented land spread across three counties.
Willard and Laura Lee are still prominent members of the Silent Shade team, but they have taken on other interests and turned over executive duties to their son, Jeremy Jack, and their daughter, Stacie Koger. More recently, Stacie's husband, Trey Koger, and Jeremy's wife, Elizabeth Jack, have joined the team as lead agronomist and human resources manager, respectively.
Stacie, a tax accountant and certified public accountant (CPA), came back to the farm in 2009 after working in a small public accounting firm for seven years. As chief financial officer, her specialty is accounting and marketing. Upon moving home, she immediately upgraded the farm's accounting system. The financial decision-making process is evolving still, most recently with the addition of a new farm-management system.
FIRST STEP
"My first goal was to get on accrual accounting to determine where we stood each year," Koger says. "Cash accounting is not going to tell you how well you've performed over a crop year."
Cash accounting is an accounting method by which receipts are recorded when they are received, and expenses are recorded when they are paid. Accrual accounting is an accounting method that measures the performance and position of a company by measuring an entire event—from the expenses associated with corn planting to the sale of the crop, for example -- regardless of when cash transactions occur.
Accrual accounting allows Koger to chart key expenses and develop financial ratios that help track costs and returns for crops that may span 24 months from planting to sale. With these numbers, the management team judges whether to rent certain land, invest in new infrastructure and equipment, and make other essential decisions.
"If we're looking at budgets, we set pricing [of grains and cotton] where it's profitable," Stacie says. When she first arrived at Silent Shade, cash accounting wouldn't tell her where that was because it only looked at numbers for a calendar year.
"For example, we have rice, and we won't get the final payment for our 2015 rice crop until September 2016," she says. Accrual accounting gathers the numbers to give a better idea of profitability for the crop.
This more sophisticated accounting helps weigh one crop against another when it's time to make planting choices. This year, there is more corn and, as in the last several years, no cotton because it isn't profitable.
REAL-TIME WHAT-IFS
Recently, Silent Shade has delved further into fact-based decision-making with the implementation of a cloud-based farm-management package called Granular. It operates separate from the farm's accounting software. But information provided by both leads to faster, more accurate decisions.
"Granular is work-order based," Stacie says. "I put in the costs, and all the details are there immediately." She says this allows instant cost analysis right down to the acre and generates data that can be acted on in real time.
Granular (www.granular.ag) is based in San Francisco. The software firm's analytics product is designed to give producers the ability to manage, measure and improve their profitability by activity. It is a cloud-based farm-management package, not accounting software. But combined with accounting information, the management software creates opportunities for quicker and more accurate decisions by continually tracking measures such as inputs, costs and profitability.
There are other packages similar to Granular in one stage of development or another, and suited best to certain situations. Stacie tested other packages and found Granular fits Silent Shade's geographic location, crop mix and business a little better than the others she evaluated.
Now, using accrual accounting and the Granular farm-management package together, Koger and her teammates can get down to the field level for quickly choosing whether to rent certain land in subsequent years and at what price. The factors for making decisions are many more than simply price.
"We'll have a little more corn this year because of the flexibility that on-farm storage gives us for staying in a market," Stacie says. "Southern Mississippi is large in poultry, so most of our corn goes south. We can take advantage of favorable basis since we're able to store and ship it ourselves. We store corn to capture basis at different times of the year. I like to forward-price mine, and with our own trucks, we can capture that basis by shipping at different times of the year."
REVIEWING RENTS
In the last two years, Stacie says she and her brother have tried to determine costs and returns for specific acres, and adjust land rents accordingly.
"Because we grow for several different landlords, Granular comes into play because we can determine profitability per field versus per operation," she says.
Granular takes cost inputs and instantly computes a plan.
"Granular lets us instantly find our true cost for different properties and crops," Stacie says. "It helps us determine which land is more profitable. It helps us show landlords the numbers, explaining everything to them."
Drastically lower commodity prices have changed the profit outlook, of course. Jeremy and Stacie have shown revised numbers to landlords, who have agreed to lower cash rents as commodity prices declined.
"We're moving toward more real-time information gathering and usage," notes Danny Klinefelter, a Texas A&M agricultural economist and founding director of TEPAP (The Executive Program for Agricultural Producers).
The economist points out that traditional cash-basis, or tax, accounting produces financial statements. But it doesn't produce analysis on its own. Managerial accounting is where management uses the information produced to decide how to run the business (Klinefelter serves on Granular's advisory board, as he does for several other agriculture companies).
Klinefelter says combining sophisticated accounting and farm-management software isn't for everyone because it takes a certain level of specialization and time to do it. But it's the future for farms to grow successfully.
"If you're going to be around for several generations, the management of your business needs to be set by the leading edge of your competition, or you'll fall behind," Klinefelter says. "You've got to keep up."
For example: "It's not just a matter of buying technology because it's the latest," he continues. "What is the marginal cost? Do your employees understand it? We have drones getting information from the field that goes directly to a central office. Everybody thinks this is 'Star Wars.' No, it isn't."
DATA MERGING
A fundamental part of Granular is agronomic. It can immediately record seeding rates, chemicals applied and other field information. If farmers choose, they also can marry economic data with accounting data, although Granular and similar programs are not accounting programs.
Klinefelter says this information applies directly for making financial decisions today. But, as food safety, environmental regulations and water use become more prominent, programs like this will increase traceability.
"Retailers will drive it," he says. "They will want sustainability metrics."
Klinefelter says it's unfortunate, but two categories of farmers will go out of business in coming years. The first is the one-person shop that can't specialize in areas needed to handle the tasks demanded by markets, competition and government regulations, and do them fast. The second is the farmer who has grown large just for the sake of getting bigger.
"You need to get better before you get bigger," he says, citing Purdue University agricultural economist Michael Boehlje.
Says Stacie Koger: "We don't look at expansion as needing this many acres. It's more that we take advantage of good opportunities when they're presented to us."
(AG)
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