November 13, 2012

Agronomists Notes

Hello Reader,

We arrived home safe and sound on Saturday after a long journey from Nairobi. Now it’s time to readjust to the time change and get ready for the busy weeks ahead. That’s not as easy to do as it is to say! The nearest commitment is chairing next week’s Advanced Agronomy Conference in Nisku.

In this issue, we’ll look at a unique farm group business model that could be of benefit to Western Canadian farmers and others around the world. Next, I’ll discuss the reasons for the elimination of gang packers on today’s air hoe drills. We’ll finish with technical grain market news.

Have a great week,

Photo: Me standing in front of a Cesna 206 before take off on my week long farm tour.

Unique business model adds strength to individual farms

While in Kenya, I spent a week touring farms inside a group called AgVenture Ltd. The AgVenture group includes ten farms that buy inputs and sell grain together, share equipment or parts and intellectual knowledge. They have previously brought in several crop consultants from abroad to help introduce new agronomy, farming practices and technology. I was so impressed with the structure and opportunities inside this type of business model I thought it could be a good fit for producers in Western Canada.

The AgVenture business model has four objectives:

1. Procure Farm Inputs. To date it has been chemicals and fertilizer. A lot more areas to bring in.
2. Marketing of Crops. 2% levy to farmers on all crops, except peas are 5% levy.
3. Processing of Crops. To date, AgVenture-owned crushing facilities extract oil from canola and sunflower.
4. Research and Development. Bi-monthly field walks are conducted at each farm to learn new agronomy techniques. International agronomists are brought in and hosted by group members to introduce new farming techniques and agronomy practices.

The AgVenture group has a managing director who is on a salary plus bonus remuneration package. His role is to procure crop inputs for the group, manage the sale of grain and handle the relationships with millers and processors. He also addresses any issues with rejected loads or price discrepancies. There are a number of advantages with this business model and some group members have provided a brief summary.

Buying Inputs
It is up to AgVenture to negotiate a price reduction from the chemical companies. It does this by guaranteeing payment on time, volume purchases, forecasting, etc. The member essentially pays the same (or less) as he always did. AgVenture keeps the margin. Benefits to members are that AgVenture profits, he has more clout and all the ordering hassle is removed. He now has one invoice and one order once a week. No longer does he have to call around to all the companies, reconcile bills, etc.

Selling Grain
This is a hard one to make in-roads on. The millers in Kenya are well established and really don’t want AgVenture to succeed as they have been very successful in their past ‘divide and rule’ policy. AgVenture has targeted two or three millers and have begun to develop relationships and partnerships with them. With this approach, they have begun to understand the group and it’s benefits. They find it easier to deal with one company rather than a number of individuals, payments are streamlined and quality issues are easily resolved. The group also helps out when they request such as selling them canola cake from AgVenture-owned crushing facilities, or cash flow issues. With this tactic and additional volumes, the group has generally managed to get a small margin. The member pays 2% and AgVenture does all the marketing, chasing of funds, and handles all issues. Ideally, they would like to move up the value chain to start processing crops.

Advantages
The advantages are never ending. It is amazing what two people can achieve over one. The key is that members are on the same wavelength. Members have to be sold on the concept and as opposed to their individual farms. Members must be prepared to discuss everything and think long term. No disadvantages have been found to date.

Shareholder Obligations

To purchase all agricultural inputs from the Company (unless in an emergency).
To pay all AgVenture invoices on time. (In order to retain AgVenture’s reputation/integrity, if a Shareholder defaults on a payment the remaining shareholders are liable to pay the outstanding bill.)
All crops that can be processed internally must be sold to AgVenture.
90% of ‘non-processable’ crops must be sold through AgVenture.
To remain in AgVenture, annual cropping acreage can never be below 600 acres.
To join AgVentures, annual cropping acreage needs to be over 1,000 acres.
The joining fee is $100,000.
The Shareholder’s Nominee is the only person, and shall remain the only person authorized to deal with the Company in relation to the business.

Structure and other interesting points

AgVenture is a Private Limited Company.
Share capital of 100,000/= divided into one thousand shares of 100/= each.
Shareholding to always to remain equal.
Unless it will have a material detrimental effect on the ordinary course of business, 50% of the Net Operating Profits for that year will be injected back into The Company.
The Board may distribute up to 50% of Net Operating Profits in the form of a credit/bonus to each shareholder. These will be in direct proportion to that shareholder’s value of business.
In order to show minimum profit, at least 90% of the funds have to be disbursed by the end of the accounting year.

In Western Canada, it is likely that most of the purchasing of crop inputs would be through crop input dealers and not chemical companies. You can imagine the volume discounts accompanied with a group of ten farms plus the rebates on seed, seed treatments, herbicides, fungicides and insecticides. I believe you could achieve a 10% to 15% reduction in fertilizer and chemical cost which would go straight to the company. There is the possibility of purchasing equipment as one unit and the multi unit discounts that are available. Reducing equipment costs by 5% to 10% through multi-unit discounts may add some significant dollars to the overall gross margin of the company. The remaining margins can be divided amongst the group equally at year end or put back into the company.

The sale of grain may be a little tricky given our autonomous nature to control grain sales but operating as a group could provide some advantages. I can see a group working direct with maltsters, millers and processors with the ability to offer volume and reduce the divide and conquer strategy they use to reduce the price you receive. With operating profits a group could begin its own processing facilities or direct to market sales strategy.

Here’s a little Steve’s quick math based on ten 3,000 acre farms.

10 x 3,000 acres = 30,000 acres
30,000 acres x 1 T/ac = 30,000 tonnes of grain
$130/acre (fert/seed/chem.) x 30,000 acres = $3,900,000.00
$3,900,000.00 x 12% margin from rebates and bulk discounts = $468,000.00
30,000 tonnes x $300.00/tonne avg x 2% levy = $180,000.00
Total potential operating margin = $468,000 + $180,000 = $648,000

You could pay a managing director an excellent salary plus bonus and find a top notch individual to run the business with $648,000+ in annual gross margin. The remaining margin can be put towards processing facilities, value adding, on farm research, bringing in international crop consultants and other possible ventures in the future. You would have one invoice for all your crop input bills and enjoy the benefits of economies of scale without the additional risk of farming more acres. I think this business model would fit inside a group of five two to three thousand acre farmers easily. Bottom line, with the right group you could gain some serious competitive advantages over farms that operate autonomously. SL

Photo: Members of the AgVenture group who all flew in to Stuart Bardens for a field day.

Gang packers: The inefficient packing system

It’s great to see so many different types of packing configurations on air drills around the world. Some work well and some do more harm then good. The gang packing system is one that has always baffled me with its inaccurate packing distribution that over-packs some furrows while leaving others under packed. The result is uneven germination and emergence across the drill, especially with small seeded crops.

There are two main issues causing gang packers to pack unevenly. The first is the alignment of the shanks with the packers. You’d be surprised to find out how many shanks come from the factory bent or out of alignment with the packers. Second, the opener styles we choose can affect the shape of the furrow with some furrows deeper than others or different slopes from furrow to furrow. This causes some packers to ride on top of the furrow and not inside the walls of the furrow. These two issues alone cause the majority of the issues with gang packers. You may be able to shift shanks and align them with the packers better and you could control your seeding speed to reduce the variability in depth and shape of the furrows. I suggest we move away from gang packers altogether.

The two packing styles I like the most are independent parallelogram types both spring loaded or hydraulic and walking beam type. The independent parallelogram type is rarely out of alignment with the packer so it rides right behind the opener. You don’t have to purchase a precision drill with expensive hydraulic driven packer wheels-- you can buy the spring-loaded type for a fraction of the cost. The second packer configuration is one made famous by Concord and that’s the walking beam. The walking beam packer can still have issues with shanks being out of alignment but they distribute the weight a lot more evenly than gang packers. Walking beam packers rely on two packers to follow the furrow contour versus a gang packer that may use eight or ten packers.

In my opinion gang packers should be removed from all air hoe drills and replaced with walking beam style packing systems or a parallelogram shank packer style combination. The improvements in germination and emergence would be worth the switch. On our heavy clay soils the walking beam fully pneumatic tire packing system works extremely well and would in any soil type. A parallelogram-style shank packer system takes it one step further and follows each furrow independently. An over-packed or under-packed seed will either lie beneath a cement ceiling or languish in the dust. Germination and emergence is the key foundation to a successful crop and gang packers do an average job at best. It’s time to move on.

Photo: Top Flexicoil 5000 5" gang packers: Middle: Concord walking beam packers: Bottom: Excel parallelogram with spring loaded packer

Advanced Agronomy Conference 2012

Nov 19-20, 2012 Delta Edmonton South

Book online today: You don't want to miss this!

Topics:

Telemetry and mobile device interconnectivity on the farm - Clay Mitchell, Mitchell Farm
CTF, inter-cropping, strip tillage and other benefits of aligned farming systems - Clay Mitchell
Optimizing crop production with precision planters - Brian Sieker, Monosem Inc.
Optimizing tires for traction, weight bearing and reducing the impact on soils - Ken Brodbeck, Firestone
Soil Compaction: What you can't see can hurt you - Jodi Dejong-Hughes, Univ. Minnesota
Field of Dreams, High yield agronomy - Dan Owen, Hudye Soil Services
Late season foliar nutrition and nutrient densities - Jarrett Chambers, ATP Nutrition
High Yield Wheat/Barley, CTF and Row Spacing - Steve Larocque, Beyond Agronomy

Beyond Agronomy Apple and Android Apps

I’m excited to announce the launch of our new smartphone apps for Apple and Android!

The seeding rate calculator app allows you to enter your desired plant density, thousand kernel weight, germination, seedling mortality and instantly provides the correct seeding rate in lbs/ac.

The herbicide tank mix and rainfast guide app tells you what order to mix each herbicide and how long you have until it rains. This quick and easy to use app is tailored to Western Canadian farmers.

These apps will make your life easier and who doesn’t need a little ease? Hop on over to www.beyondagronomy.com to get yours today. Then tell your friends!