Lesson in Farming...and...Risk Management...

[TOM4CWB]

Agriweek has a very good Article by Morris... once again!!! Here is in Part what it is about:

AGRIWEEK
October 5 2015

If you ask me . . .
B A C K G R O U N D E R / Morris W. Dorosh

"Think it’s a challenge to develop a super-farm in western Canada? Try winding one up.
Broadacre Agriculture Inc was incorporated in 2010 with the goal, according to its glowing public announcement, of becoming Canada’s “preeminent farm operator”. Instead it became a preeminent business failure. When the brain- child of Calgary farm management consultant Gary Pike entered creditor protection on November 2014 it was with a stunning $46 million in debt advanced by lenders, investors, input suppliers, land owners and even the federal AgriStability program, which had overpaid it by $400,000....
Between the late-2014 court filing and July it had payroll costs of over $2 million and legal and professional fees of over $1.3 million. Its dream line of the best farm machinery other people’s money can buy, some hardly used, was sold off in four auctions by Ritchie Bros between March and June 2015; over $500,000 was spent to get equipment ready for the sales. Land and equipment leases were abandoned. Owned land was sold off by several real estate agents and $7 million in mortgages paid out. As of last July $27 million had been realized from disposals of crops and capital assets. After costs and expenses $14 million remained available to satisfy creditor claims. The monitor esti- mated that another $7 million may be raised from the sale of the few remaining assets, including crops from the last harvest, while $1.4 million will be needed for expenses by the time creditor protection runs out. The monitor pro- jected a cash balance of $19 million for next December 4. Meanwhile 111 claims have been filed against the company totalling $81 million, 70% more than originally cited. Even secured creditors will not be made whole....
...these operations appear to have completely ignored or grossly underestimated the logistical impossibility of working small, widely scattered pieces of land efficiently. Broadacre’s biggest contiguous block was 1,280 acres and many were half a section or less. Moving today’s equipment on public roads among small parcels miles apart is a killer. There was more to it, but this might well have been handicap enough."

Well said Morris.
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[mcfarms]

Pionner seeds had him come and talk to a group of us at a farmer appreciation deal in Calgary he had a great conviction he had everything figured out. He forgot the most important thing and I knew it that day way back then. Farming isn't a sprint, it's a marathon.

[SASKFARMER3]

Tom moving the equipment great distances wasn't the problem. The main problem is the farm was in the heart of the flood zone. Most in our area got crushed those years, Were crawling back but unfortunately Broad Acre and One Earth didn't.

[SASKFARMER3]

Tom here is a lesson learned, Do some simple math and try to figure out where your farm would be in 10 years if you had back to back 10 droughts with a few just about in their. Its easy use any farm program and budget 5 to 10 years out. Its fun to see what would happen. Also remember to add in a BS payment of two from Agstab that you most likely will have to pay back some time in that time frame.
Its a fun exercise. Fun to do on paper and see but not so much fun to live through especially when most in the farm sector that you know had the best years of their farm lives and you had to just sit back and smile and wave boys.
Ever wonder why most of Richie sales were in one area its real easy.
Deep pockets or Deep bank backing you still have to pay the piper.

[MBgrower]

There are several farms pushing 50K acres that are doing just fine, and they farm all sorts of land that is widely scattered. Pike failed because of poor business decisions.

[sumdumguy]

The fragmented operation is for sure a nuisance, but it's virtually impossible to spread management around that thin. When everybody else is seeding an 8-man crew with 4 huge air drills connected to quad tracs stands there all day figuring out how to get the outfit out of transport. Over the years, we have seen accountants "projections for companies" fall flat on their faces. What they don't take into account is management. You gotta live it!

[Guest]

pike never had any intentions of making it . it was a scheme to make some quick money and he probably did . to make it , you have to "live your farm every day" , you have to be involved in every decision . some mega farms will work , but most won't . the studies have proven that the most profitable farms are 3-4000 ac with 2 or more family members involved

[vvalk]

Mbgrower. Good point. By me there are many farms 50000 acres plus. One was 100000 before he decided to scale back and another is closing in on that. They have made immense wealth over the last 10 years. One earth would send equipment 8 hours away to start seeding because the land was further south. No one would bother to go check with a 1/2 ton. They also had huge human resource problems

[tweety]

I'm not so sure the lesson here is for farmers, it should be for the input suppliers.

They kill each other and practically "give away" their product so the BTO can use it but often ignore the 1 to 4000 acre farmers that pay their bills on time.

[Oliver88]

Good points made by tweety, Caseih and SF3.

Input suppliers pay way too much attention to the consultant/start-up mega farms while not focusing on the most efficient farms.
The century farms that are family owned/operated will be your most efficient and will always pay bills on time.

A consultant farm will have no clue how to deal with flooded land or adverse conditions while a century farm has already dealt with everything possible.