Monday, March 10, 2008

Looking for Mr. Average...

A reader writes in response to my post on the "land bubble":
Regarding "the key to survival is to be at least as good as the average operator" Are you familiar w/The Center For Farm Financial MGT? What are your thoughts on the farm financial data they collect and make available in FINBIN?
Thanks for the comment. I was aware of FINBIN, but being from Illinois considered it less pertinent as our own state's FBFM data. But for those who would like some more background:
Welcome to FINBIN, the FINPACK farm financial database. This site provides benchmark financial information for farm producers, educators, lenders, and other agricultural professionals.

The database summarizes actual farm data from thousands of agricultural producers who use FINPACK for farm business analysis. FINPACK is a comprehensive farm financial planning and analysis software system developed and supported by the Center for Farm Financial Management at the University of Minnesota.

Data in FINBIN is contributed by farm management associations that use FINPACK as their farm business analysis and summary program. Farm business management associations that currently contribute data to FINBIN include:

*Minnesota State Colleges and University Farm Business Management Education
*University of Minnesota Farm Business Management Associations
*North Dakota Vocational and Technical Education Adult Farm Business Management
*Nebraska Farm Business, Inc. and Nebraskaland Farm and Ranch Management Education Program
*The Ohio State University Extension & Ohio Farm Business Planning and Analysis
*Missouri Farm Business Management Analysis
*Utah Farm Business Management Programs
*Southwest Wisconsin Technical College

Additional farm business management associations in other states are in the process of preparing data for submission to FINBIN.
In Illinois the comparable organization is FBFM.

The data gathered and compiled by these organizations is by default perhaps the best we have for farm-to-farm comparisons, but while I note trends from year to year I have these reservations.

First, the number of farm participating in IL at least is dropping. At around 2500 operations is is a thin sampling.

Second, these are not randomly sampled farms, and hence the results cannot be utilized as you would a true poll of operators.

Third, it appears to me that larger grain farms tend to utilize accountants and/or in-house analysis rather than FBFM. This skews the data summaries to operations that average about 1000 acres. There are very few operators in the 4000+ category for example. And those guys are my real competition.

I have noticed in recent years reports coming from FBFM are much more careful to include disclaimers that the results apply only to the sample group. My hunch is while such record-keeping services were superb ways to introduce good record keeping to farmers a generation ago, many of us have moved on to QuickBooks or an accountant on staff or retainer.

The guys I know largely use FBFM out of habit and to get their taxes done. I think TurboTax works better and I understand my finances and taxes better for having done them myself.

Finally, I think there is a realization at the top of our industry (grain) that this information is much more valuable than we have previously suspected. The larger the operation, the less we (the public) now know about how they make money. This issue drives us crazy at Top Producer, but frankly, I agree with their decision to safeguard business details.

The idea that all benefit from sharing data works with a vaguely homogeneous group, but our business is now so very skewed with a few producing most, that the exchange offers little for the people who will most likely dominate the landscape in the next decade.

FBFM and FINBIN have actually succeeded remarkably well in teaching farmers better financial analysis. Unfortunately for their organizational futures, many of the best students graduated and left the classroom.

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