Tuesday, October 11, 2016

The Reports That Time Forgot

Top Producer February 2004

© 2004 John Phipps

There are no stupid questions. There are, however, several clueless people asking questions – who pretty much generate a similar product. One of them would be I.
Sample Clueless Question: Why do crop reports come out on the 10th of the month? It seems like they have been stuck on this time frame for ages. The truth is that they have – ever since Adam first asked Cain how the wheat crop was doing, presumably. In fact, I was told by a senior NASS (National Agricultural Statistics Services) official that reports were required to be out between the 8th and the 12th, but some research showed later that the former date was not binding.
Hence the answer to why crop reports come out on the 10th (approximately) is: Because They Always Have.
Crop reports are time-sensitive material. The sooner the report comes out the more accurate and hence valuable it is. Traders and producers already “fade” crop reports for crucial months based on weather between the 1st and the 10th, for example. So I asked two NASS statisticians if it was possible to process the crop reports faster. The answer, unsurprisingly, was an unequivocal “No”.
Poised on the brink of some vigorous bureaucrat-bashing, I can’t find it in my heart to jump in. First of all, the question is unfair. If your landowner asks if you could pay more cash rent, would you say yes? Any answer other than no is trouble. The reason is equally clear: not changing is better for me. Besides, crop report customers have essentially given up hope.
Brokers that I spoke to were surprised at the idea, even while agreeing that more timely reports would be terrific. The concept of any improvement in the reports seemed startlingly novel.
Regardless, the sincere NASS professionals I spoke with were convinced that their operation was at maximum output. Eerie, isn’t it, that prescient legislators were able to foretell decades ago that a 2003 crop report would take 10 days to produce?
To be fair, I reasoned, maybe the reports are not getting faster, but better – more accurate. Except they haven’t. University of Illinois researchers couldn’t find much evidence on that score
The sadly unavoidable conclusion is that NASS is as good as it can be. More inconceivably, it has always been. Somehow their output has gotten no better after several decades (or worse, to be sure). By definition, therefore, NASS has zero productivity growth. Strangely, the budget has expanded, however. Net effect: same product, higher price.
Measuring productivity in government is a radical idea. Recently the Illinois state auditors announced plans to measure the productivity of university professors. Academia was aghast. For good reason, I suspect.
Come on, improving a government service is not impossible. Consider the FSA. Farmers, profoundly concerned about how fast government funds get squirted into their accounts, call their Congressperson to share these anxieties. Not coincidentally, despite concerns about staffing and budget, the FSA continues to improve productivity.
Mostly I take exception to the attitude that government has some note from Mom excusing them from the march of progress. All over the world information system (IS) managers just as industrious as those at NASS explain to clients that current deadlines and quality are as good as they can be. And every day they are told to make it better and faster or “we’ll find someone who can”. Unsurprisingly, deadlines move up and quality increases.
Perhaps an analysis by a top-tier IS consultant like Bearing Point or IBM would illuminate ways NASS could improve at least their speed. In fact, they might just leave an outsourcing proposal on the desk. NASS is not the only number-cruncher in town. Information security concerns have been solved by the Department of Defense. If our nuclear weapons can be built by contractors, why not a crop report?
An outside review might also point out that the 1st of the month isn’t on the back of the Ten Commandments either. Timing crop reports to match crop development – like an Aug 15th bean report would be a step forward in accuracy.
NASS does an obviously acceptable job. The question is: can somebody else do better? I believe that the individuals I spoke to and their colleagues are diligent professionals. I am nonetheless concerned that the entire agency has lost contact with real world standards of IS – mainly that the output should get better, faster, and deliver more value to the customer.
Of course, it would be helpful if these customers (the grain industry) cared enough to ask clueless questions, too. 

Saturday, October 1, 2016

The Proximity Premium

Top Producer 2006

Looking at the list of influences shaping the grain farming industry it is hard to find a common thread: rising costs, increasing yields, cheaper technology, labor shortages, expensive [large] machinery, diminishing crop choices, “flatter” grain origination (fewer steps between grower and user), investor ownership of increasingly costly land, and transparent competition. Individual producers, nonetheless, are discovering one workable strategy to handle these disparate challenges.
That strategy is proximity – farming close. While the evidence of this game plan is anecdotal, as all early indicators are, it is widespread and resonates with our instinctive impulses.
The proximity premise is “duh!” obvious – farming close yields a profit boost. (I told you it was a no-brainer). But what has not been precisely measured is how much of a boost, especially compared to far-flung operations. When operating profits were wider, there was less point in the careful allocation of costs to document this seemingly slim difference, but the Brave New World of extremely low margins has exposed some vulnerabilities in widespread farming.
Most of us can identify the factors, but few of us anticipated the value of the synergy between them:
Higher on-station time: A 6-row combine sitting at the end of the field is as productive as a 12-row machine sitting at the end of the field. The same principle applies to a combine in transit. Or a planter. Proximity makes intensive operation of undersized equipment possible, especially with autosteer and enhanced machine lifetimes. (Hint: compare your engine/separator hour-ratio with your buddies) Running with fewer people works too. The proximity premium is real money, not just convenience.
Cash rent adjustments: Often large operators could lease ground simply because management skills such as the politics of different rents for different landowners stymied local operators. Survivors have learned. One result I have seen recently and Mike Walsten in Landowner Newsletter has noted is nearby operators are often setting the rental market.
Elbow room: Putting a 24-row planter in 42 acre field is an exercise in end-rows and unfolding. Large mobile operators are eyeing smaller or isolated fields more critically after a few years of data. Tack that 42 A. onto the next-door neighbor and it looks like part of a 200 acre high- efficiency tract. That proximity premium may have an actual value of $15- 20/A in my experience. As locals switch to cash rent, pull out fencelines, and experience some big-field benefits, they are more prepared to bid for the field next door.
Home-town heroes (a.k.a. the devils you know): Sufficient examples have accumulated with out-of-the-community operators that some landowners at least are reconsidering priorities. While the rents still must be

competitive, we many have learned the sad way it makes church potluck
dinners more amiable when you rent locally.
  • Harvest pressure: As local elevators close, farmers are building bins just
    to keep the harvest going. While the “romance of the road” seemed like a glamorous profit center when the semi craze began 15 years ago, we’ve discovered that you can’t own enough trucks to keep an AFX or 9760 running full blast unless you are hauling locally – preferably about 3⁄4 mile. This means building bins, and we soon discover: 1) Big – really big – bins are better, unless your hauler loves to move the 13” auger twice a day. 2) Paying for one 800-amp entrance is bad enough, but it’s better than 4 sites with 200 amp entrances 3) Centralized storage encourages well- built, for-the-long-run layouts with high efficiencies rather than whatever works for a day. All this implies centralized acres.
  • Now add in a sharply up-trending yield curve thanks to biotech. If getting 200 bu/A. away from a combine is challenge, what about 240? 300? Where ya gonna haul?
  • The best neighbor in the world: yourself. Need to fix the tile, avoid spray overlap, or hate other semis blocking the road? The common answer is to rent/own the land next to you. While we have always known this, we are starting to monetize these headaches and fold them into our bids.
    Proximity has always been an obvious, idealistic situation that took generations to accomplish – a long time for American attention spans. Behold the upside of cash rent. After despising it for years, those who master its management are discovering a tool that can help them speed nearby growth.
Moreover, I believe that such operations are the “seed crystals” from which will grow America’s answer to the cerrados of Brazil and steppes of Ukraine.