Any operational change to a farm or ranch carries with it some level of risk. For conservation practice implementation, the risk may be variable, but it’s never zero.
The decision to add to the already increased level of risk that a farm or ranch is carrying is often the culmination of hours of intense planning, research and partnership. Even after that process, the final decision most often hinges upon profitability.
At the Trust In Beef Sustainable Ranchers Tour event held at Jorgensen Land & Cattle in South Dakota, CEO Nick Jorgensen joined with his lending partners at Farm Credit Services of America to share how he balances the financial risks associated with conservation on their ranch.
During the discussion, Jorgensen and David Karnopp, Farm Credit Services of America vice president commercial lender – cattle, shared insights for creating an operational environment that is ripe for conservation investments.
Diversify
From an economic standpoint, Karnopp recommends building in diversity where possible.
“The Jorgensen family works within their crop production system and also in their cow-calf operation as well, so the diversity helps,” he told the crowd.
Save for the Future
Even in this challenging market, there are bright spots of economic return, and one of those is beef prices. Karnopp says that diversified operations, like Jorgensen Land & Cattle, can use these bumper years to shore up working capital for future conservation improvements.
“We’ve seen depressed prices in corn, wheat and soybeans right now, but cattle have continued to be strong,” Karnopp says. “We’re at the probably the end of the ten-year cycle, but the Jorgensens have been able to build up their operations, retain some cash and build up their working capital.”
Be Patient and Creative
Jorgensen and Karnopp agrees that conservation investments require an increased amount of patience, and often creativity.
“As a lender, if an operation is wanting to invest in sustainability, we know that return on investment is not going to happen immediately,” Karnopp says. “We might have to put together special loan packages, refer them to government programs or bring in third-party assistance.”
At the farm or ranch gate, Jorgensen knows that conservation investments also need vision.
“Whether you’re talking about virtual fencing or genomic testing or an extremely rigorous embryo transfer program, all those things require that you’re taking on a certain amount of risk,” Jorgensen says. “We try to take smaller, measured risks on smaller portions of our operation. In doing that, I think it creates trust that we’re not coming out there, putting the boat at risk, so to speak.”
Choose the Right Partner
Farmers and ranchers rely on trusted advisors in nearly every aspect of their operation. Karnopp says that financial relationships are just as critical as traditional ag retailers such as seed, equipment or inputs dealers.
“Many producers across America look at their lending institution as a partner,” he says. “When you have a good partner, you talk all the time. you see trends and you watch together how things are performing.”
It is a partnership that Jorgensen says is providing benefit to his operation.
“What we do in agriculture is very capital intense, specifically with the amount of animals we carry on inventory,” he says. “If we didn’t have a good partner this business would look immensely different.”
Measure
While the procedures for on-farm accounting systems are different from operation to operation, Karnopp says that having a diligent system in place helps when seeking conservation funding.
“The best operations that we work with have budgets in place,” he says. “Working with a good accounting firm is a huge plus as well.”
Jorgensen says he spends hours with his accounting system, making the operational analysis needed long before his conservation funding request ever gets to his lender.
“A good accounting system where I truly know costs and a good inventory and data tracking system means I’m not running analysis off of shoddy data,” he says. “You have got to have your records right, otherwise your analysis will be an exercise of futility because you’re basing it off bad assumptions.”
Ensure Tech Fits into the Long Game
Jorgensen warns against getting caught up in technology and conservation investments as a “shiny new thing.”
“It’s really easy to look at them and think they are cool and want to try them, but there’s got to be a sound business case for it,” he says.
Here are some questions that he routinely asks himself when considering investments:
- What kind of business impact will this have for our ranch?
- What kind of people impact will this have for our ranch?
- What financial impact will this have for our ranch?
Plan for the Future
At its heart, Jorgensen Land & Cattle is a family business. According to Jorgensen, investment decisions on the ranch are done with an eye toward continuing the legacy the family has built on the land.
“When we set goals for new technology, we examine the conservation case for it and the business case for it,” he says. “But, ultimately, you’ve got to check against whether it supports the long-term vision for the family and for us that’s maintaining family ownership.”
Part of keeping that legacy secure, Jorgensen says, is in ensuring that generational transfer plans are in place.
“That is a huge underlying factor for long term sustainability,” he says. “If your business isn’t set up right to transition to the next generation or your family isn’t on the same page about that how that’s going to go, you can run the best business in the world, but when it comes time to transition, odds are it’s going to fall apart.”
Because the Jorgensens are sitting on a solid plan for the future of their operation, Karnopp says that lending decisions are easier.
“With customers that don’t have succession in place, if something happens to the leadership, that puts the lending institution at risk,” he says. “It just comes down to key communication between all family members and making sure the right plans are in place.”
While Karnopp and his colleagues at Farm Credit Services of America know every lending decision is unique, and at the end of the day, he says they come down to one factor.
“Going forward, are we doing the right thing for agriculture?” he asks.
Read more coverage from the 2024 Sustainable Ranchers Tour:
Measuring Success on this Generational Oklahoma Ranch
Playing the Long Game: What Works at G Bar C Ranch
Avoiding the Pitfalls of Selling Sustainable Beef
G Bar C Ranch Takes Texas Ranchers Behind the Farm Gate
You can join the Tour for future stops by visiting www.trustinbeef.com.
