CIRCLEVILLE, Ohio (DTN) -- Mark Ruff's mantra for farming in a high-risk world is based on advice from his father, Luther. "Protect against risks you can't afford to take," his dad, now a retired insurance agency owner, taught him. "Losing that pickup truck you're driving isn't one of them."

Today, Ruff tries not to sweat the small stuff and concentrates on the $100,000 items that determine a farm's success: defensive marketing, curbing fertilizer costs and courting landlord goodwill. He was named a 2011 DTN/The Progressive Farmer scholarship winner at TEPAP, Texas A&M's ag executive training program, to help hone those management skills.

"Agriculture is more volatile than it's ever been, but you can't afford to insure everything," the Circleville, Ohio, farmer and former vocational agriculture instructor said. "You just don't want to lose what you have in the bank."

As first-generation farmers, Ruff and his wife Marcia had to build from scratch with little margin for error. "When we started farming in 1997, we were both right out of college. We had no significant assets like land or equipment, other than our character. We had to 'sell' our abilities to a local bank to receive operating credit," said Ruff.

Gradually, their solid reputation helped them attract 15 landowners and grow to nearly 3,000 rented acres in central Ohio. Still leery of paying peak prices for farmland, the only real estate they own is their tidy, 100-year-old farmhouse and the land underneath their grain and equipment storage.

Even without land payments, finding the capital to finance operating costs remains a challenge for many grain producers, including Ruff. Not counting rents, average input costs for Illinois corn growers could balloon to about $536/acre in 2012, up 81% from the 2003-2007 average, according to the University of Illinois. Double-digit rent inflation in recent years has also compounded the capital needed for tenants to farm.

With big dollars at stake, Ruff tries to manage his margins rather than trying to predict commodity prices. Typically he sells half of his crop on spring rallies and 70% or more by harvest. Although not the case in 2011, in most years those pre-harvest strategies capture seasonal highs. Even if he misses the exact market tops, Ruff figured he can't go broke locking in a profit per acre.

FIGHT INPUT INFLATION

Keeping tabs on energy costs and fertilizer is one of Ruff's key defenses. Since the fertilizer debacle of 2008, Ruff built capacity to store three fourths of his dry fertilizer needs (potash, MAP and DAP) and half of his liquid 28% N. He buys bulk from local dealers when he can, but having the flexibility to purchase inputs on his timetable paid for the facilities the first year and saved him another $50,000 in 2011, he estimated.

"I won't write checks for prepaid fertilizer anymore," he said. "It's like a deferred price contract on a $200,000 item. I don't want to be an unsecured creditor. So once we buy fertilizer out of season, we take delivery."

For 2012, Ruff is matching forward sales with fertilizer purchases, say buying 20% of his fertilizer needs when he sells 20% of his expected crop.

"We're in a margin-based business," he said. "As long as corn prices and fertilizer prices go up in tandem, when you lock in a price on one side and the other -- inputs or outputs -- you've locked in a margin."

Ruff has been careful not to succumb to cash rent battles. Average rents in his area ran $135 to $165 per acre in 2011, although some aggressive bidders pay $250 to $300 for rare properties with on-farm storage or other extras. He consciously sought out landlords who valued stewardship and long-term relationships as much as compensation. When the lease terms guarantee a reasonable-length rental, he applies lime or installs surface and subsurface drainage at no charge to the owner. "I figure we both win because I get better yields and the owner gets a more valuable property," he said.

Over the years, Ruff lost only one rental farm -- when owners put it up for sale. This year, he has worked with some of his existing landowners to write first-option-to-buy agreements into their leases. "I don't want to stand with a number at a public auction paying top dollar to bid," he said. "I wanted to eliminate that risk."

Establishing ground rules for a land sale at an owner's death does heirs a favor, hopefully avoiding unnecessary family squabbles, he said. In these cases, owners have lined up a buyer for the land if they or their heirs want to sell. Terms also include a formula for pricing that both parties agree is fair. "It's pre-need planning on the landlord's end," he said. But it also helps a renter like Ruff insure his future.

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Editor's Note: The Executive Program for Agricultural Producers (TEPAP) is an intensive management short-course for farm operators. To apply for a $2,000 DTN-Progressive Farmer scholarship to attend TEPAP Jan. 8-14, 2012 in Austin, Texas, go to http://tepap.tamu.edu

 

Marcia Taylor can be reached at marcia.taylor@telventdtn.com

(ES/SK)

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