Farm managers’ compensation and goals explored at January meeting.

    The Chicago Farmers’ January 9, 2017, meeting featured Kyle Mehmen and Gary McDonald who shared their insights about farm management with an appreciative crowd. The two men were part of a panel that was moderated by TCF Director Dan Stokes.

    Kyle owns MBS Family Farms with his family in Plainfield, Iowa. The group influences over 20,000 acres via farm management, input sales, custom work, and traditional farming. Gary is the owner of Organic Resources in Springfield, Illinois. He became a farm manager in 2010 when he was asked to assist with the management of an organic farm owned by an organic investor. From that point, the need for an organic farm manager was evident because of the consumer shift to organic, which has created a demand several times greater than supply, he said.

    In discussing compensation for farm managers, Kyle noted that his family owns a small farm management agency and the managers usually are paid a percentage of the gross revenue from the farm that ranges from five to 10 percent, depending on the services provided. He said they are moving away from this model because it may not always encourage the best behavior for the land. Kyle related that they are moving to compensation based on the asset value of the land, but this presents challenges. On the other hand, some of the clients pay on a per acre basis. This can be done on an hourly basis and ranges from $300 to $500 per hour or $5 to $7 an acre, dependent upon the task.

    Gary, who assists existing organic farmers and transitional farmers with a variety of tasks, said that compensation for conventional farm managers on a conventional farm would be two to 10 percent of the gross and $100 per hour when help with leasing is provided.

    “When I am working with an organic farmer, I am handling many things,” said Gary. “I charge 10 percent of the gross or an hourly rate of $200 plus expenses because many times I am required to travel a fair distance. Management of organic operations entails a number of added responsibilities, such as teaching and guiding.”

    Regarding other metrics for determining compensation, including the possibility of being compensated on a percentage of profits, Kyle responded, “We started down that path, but we still have many clients that we manage on a gross basis. It is difficult trying to decide what the mathematical equation should be.”

    Gary suggested that the appreciation of the assets also be considered, but that has to be quantified.

    Kyle remarked that determining the value in appreciation is difficult. “We have a baseline, we use metrics and we look at improvements and ROI, but we are far from perfecting a math equation that can be plugged in. There has to be significant trust between the manager and the client.”

    He went on to say there are variables in determining compensation. For example, a $10,000 an acre farm could have fragile soil, low fertility and an aging draining system. As Kyle’s group addresses these problems and adds their work into the equation, it has to be determined what the new value looks like after the improvements and the receipt of enhanced revenue.

    An essential aspect in managing farmland investments is working with, or being, the people doing the actual work on the farm to produce a crop and care for the soil. Consolidation and automation have not yet eliminated the role of the farmer. Dan pointed out that some farm managers and landowners have in fact expressed concern about the number of qualified farmers retiring and the need for more farm operators who are skilled working with technology and data collection and analysis. Gary noted, “The number one natural resource we are squandering is the American farmer. There is a scarcity.”

    A discussion about managing soil fertility ensued, and Dan raised the question about using soil tests as a tool for measuring progress. Basic soil tests can be misleading not only because they can vary greatly by year and location, but also because they say very little about longer-term soil health soil conservation, which is important for optimizing the value of the land asset over time. The soil horizon test and the Cornell soil health test, for example, are more advanced tests that do a better job of tracking durable fertility. Dan noted, though, that use of these tests, and ultimately how everyone manages fertility, will depend on everyone’s time horizon.

    Gary observed that true farmers work with the soil to make it “reproductive,” not just “productive.” He noted, “An operator, who can raise 200 bushels of corn organically using rotations, cover crops and livestock with very little fertility inputs, if any, has successfully worked with the creative processes of the soil.”

    “There is an art to soil testing,” said Kyle. “You have to establish a benchmark. There is a lot that goes into the process.”

    Dan observed that in the past, relatively few outside of organic farming put much stock in the idea of building soil microbes as a way to build soil fertility, opting instead for applied chemical fertilizer. Now that larger companies are researching and promoting microbes more, interest has broadened.  A lot of wisdom from organic farming is being commercialized and applied to conventional farming.”

    Regarding benchmarks, Kyle said he looked at them on an individual basis. “I am trying to add value to farms,” he said. “Sometimes, fragile areas have to be taken out of production. How do we monetize and reward management in this situation?”

    Gary pointed out that well drained soil is very important. He said he prefers Class B soil with a lower PI because often times it is lower priced lighter soil and sometimes rolling and dries out more quickly so the farmer can more easily get back into the field to perform mechanical weed control. Dan related that the USDA’s Web Soil Survey website provides satellite maps and is a “very useful resource” for discovering the various soil types and drainage issues on a property.

    Next, the conversation went to a discussion about cover crops, and Dan noted that many farmers become frustrated using cover crops because cover crops are legitimately difficult to get right. He asked Gary and Kyle how they approach farmers regarding cover crops.

    “You have to talk with the farmers,” said Gary. “They are very used to thinking about what they can get out of the soil rather than what they can put back. I work to get the biology and earthworms thriving in the soil, that’s the true wealth generating engine. We need to get the biology back to work.”

    Kyle added, “I am trying to learn all the time about cover crops. It is an art to manage cover crops, I have to continue to work at it. I would caution mandating cover crops, they might not be the best solution. But, educating yourself is the right answer. I know what does not work and, at times, that is more valuable than knowing what works.”

    Gary said, “It is a matter of faith with organics. You need more than one year to transition a conventional farm to an organic farm and produce a successful crop. It is three years before the organic crops are produced. To build the soil, one has to be willing to invest in the soil, there is no magic bullet.”

    “We share information,” said Kyle. “I manage for landowners where I farm. We have a full-time farm manager and I rent three parcels that are under the manager. I tell the tenants what we are doing and demand that they do the same on the land.”

    Regarding collection of financial data, Gary said that he is more operational and turns to experts for the numbers side of the farm.

    Kyle related that his group hired a CFO five years ago. “It is the best investment we made,” he said. “It is hard to quantify how it makes me money, but the position has been a good thing for my operations. We also use AgManager software, Quick Books, and Conservis (an analyzing tool).”

    Gary said that he finds his own markets and related, “I grow what the buyer and processors want. I intend to find the best and highest priced markets, and my goal is that the increase in revenue is more than enough to pay my fee.”

    Some thoughts that emerged during the question and answer segment:

    • Gary and Kyle said that investors and individuals comprise their client base.
    • Regarding organic farming, Gary said that he tries to mimic nature. He said he is against burning because it destroys microbes and causes the loss of too much carbon and energy, which is needed in the soil.
    • Organic does not necessarily increase the selling price of a farm, according to Gary. “When I have transitioned a farm to a certified organic farm, the much higher crop prices increases the value of the farm based on ROI; however, without a skilled operator, that is a moot point. The price of anything is based on how the buyer perceives the value,” he said.
    • Care must be taken with equipment that is used in organic farming so that there is no contamination from a conventional farm, Gary said.  It is required that all equipment be properly cleaned before being used in organic production and logs must be kept. Operators who farm both organically and conventionally sometimes will have separate equipment designated just for organics.