How to Optimize Logistics for Your Agribusiness

Farmers who only measure the revenue from their crops at harvest time and fail to take a more holistic approach to agribusiness are not merely leaving money on the table—they’re leaving it in the fields, at the grain elevator, on trading floors in Chicago and Kansas City, in the hands of buyers, and many other potentially profitable steps along the way.

That said, optimizing logistics for agribusiness can be a daunting prospect, requiring a detailed knowledge of the economic factors at play both at home and globally as well as smart, forward-looking strategies for utilizing futures for more expansive and potent purposes than to simply lock in a price.

How one goes about this can vary depending on weather, prices in different markets, time of year, level of demand, hedging when it is available, and crop insurance. If, for example, wet fields delay or prevent planting corn, compelling some farmers to switch to soybeans or wheat, the logistical requirements can prove vastly different—and create a great deal of uncertainty around potential profits.

Data Inputs Are Valuable When Integrated

This is, in part, why detailed inputs are so vital: Of course you’ll want to take the cost of seed, fertilizer, and fuel into consideration, but true optimization and efficiency often necessitates a deeper dive—segmenting by field, for example, or transporting equipment between multiple fields and crops from the field to the appropriate processor or storage facility.

Silos—not the ones built next to barns, but data silos—pose a challenge for farmers in divining profitability. Consider: New farming equipment often produces data that can be plugged into Excel spreadsheets. And university extension programs often develop calculators for farmers. Yet the frequently frustrated individual farmer nonetheless is expected to make sense of all these disparate data inputs.

"Part of the challenge is just managing all that information," says University of Wisconsin-Extension Farm Management Outreach Program Manager Trish Wagner. "Farmers get into farming because they have a passion for producing high quality crops or caring for animals; they didn’t get into farming out of a passion for sitting at a desk and going over numbers."

Farmers Need Historical and Real-Time Data

It is important to note, however, that while employing trends and proprietary data from previous years can help you optimize your business pipeline, it is no substitute for a mastery of current costs and pricing.

An apt example: The twelve months leading up to May 2019 had the heaviest rain on record in the Midwest, affecting planting schedules, barge fertilizer deliveries, and shipping lanes down the Ohio, Missouri and Mississippi Rivers. Globally, volatile political disputes with China and Mexico have shifted the economics of shipping to the Pacific Northwest ports for Asian customers, while disputes with Mexico have threatened smooth agricultural exports to Mexico.

In volatile periods real-time—or near real-time—data provides a clearer view of actual costs and empowers farmers to make better decisions. It can also lead to lower interest rates on loans if a banker recognizes a business owner has a comprehensive view of his or her farm's finances.

Bad Conditions Can Be Profitable for Some Farmers

Can there be a silver lining to flooding? Ask the proactive farmers who managed to get corn planted and are now — armed with market knowledge and a scarce product — reaping higher prices. Ag bankers recognize that farming has its ups and downs. How could they not? At the same time they are under pressure from both boards and regulators to run a solid loan book and subsequently will prefer working with farmers who have a solid grasp of current financial performance and projected costs and revenue.

Historical data can be useful where other factors are consistent. Agriculture business owners will need to be able to demonstrate that they learn from that data and will be prepared to fine-tune transportation costs, supply chain, on-site or rented storage, facility management, and equipment purchase or leasing amidst the next round of inevitable challenges.

Managing risk through hedge consultants and trading floors can help, naturally. Specialty finance offerings can also provide the opportunity to scale an agricultural business operation by providing capital to help secure new equipment, seed, fertilizer, fuel, storage, and logistical costs. It can also pay to explore the benefits of crop insurance in such scenarios and how it may strengthen your hand—today and into the future unknown.