YORKTON - Farming is a big dollar business with lots of aspects – weather and prices prime examples – which create financial risk.
So learning how to navigate that risk is essential, explained Evan Shout CFO at Hebert Grain Ventures at Moosomin during a FCC Young Farmer Summit in Yorkton Wednesday.
To start, farmers need to recognize they are among the one per cent in terms of wealth, said Shout.
Farmers might not recognize that but two measures of being in that upper one percent is to have $1 million or more in assets, and to have more than $200K in earnings.
When you think about the value of land and machinery in terms of assets, and sales based on canola at $21 a bushel “you are one of the one per cent.”
But, with the wealth comes big risk, but that is part of farming.
“You take risks to get rewards,” said Shout.
The key is mitigating risk, and that takes a level of planning.
Shout said in general people, farmers included, “over estimate what they can do in one year.”
And by contrast they also “underestimate what they can do in 10 years.”
Shout said as a result it takes a plan to make progress on lessening risks particularly in the short team.
It can come down to making what might be seen as small changes, but which cumulatively have a far bigger impact.
That is where the idea of five per cent comes into play in planning, offered Shout, although he suggested six per cent to be a bit ahead of the curve.
If you can increase efficiency by five per cent, it helps.
If you increase yields by five per cent at the same time, the positive impact is better.
If you can market and get just five per cent more, the bottom line gets yet another bounce.
When it all is factored together the effect on the bottom one can be huge, noted Shout.
Interestingly costs, especially crop input costs, are not an area Shout suggested cuts.
“As ag businesses we complain about costs, but they don’t matter. It’s return on equity that matters,” he said.
To make the small changes still requires an open mind to change, said Shout, adding in farming “change is constant,” so be prepared for it.
Shout said it’s also important to remember you can always do better. If you reach a point where you think you have it perfect somebody else in the world is invariably doing things better.
At the same time a farmer needs to plot their own course to success.
“Quit looking over the fence because you don’t know what’s going on across the fence,” said Shout.
Shout said it is also important to hire good people to help, but when you take that step, let them do their job.
“It doesn’t make sense to have smart people and then tell them what to do,” he said. “We hire smart people so they can tell us what to do.”
That works into creating a farm career where hired staff will stay, and that’s important as hired help is hard to find.
Finding staff is a world issue at present, said Shout, adding “when the world has labour issues, agriculture has really big issues.”
So build relationships with staff, offered Shout, who then added it’s not always easy. “The more people you have the more complex it is.”
It can ultimately mean giving good staff more say, even company shares, to create a career, but in so doing you maintain experience and that helps mitigate risk too, he explained.
“We are in a business. We need to make careers,” said Shout.
