Farming: Pessimists Need Not Apply
"If you're not a risk taker with an incredibly optimistic view of life and a deep belief in your own potential as a businessman, then you better not think about wanting to become a farmer," says Russ Mauch, past president of the American Sugarbeet Growers Association.
Mauch is a second-generation farmer who grew up on a farm in Mooreton, North Dakota, with his five sisters and two brothers. He has fond memories of his early life on the farm, where, with his dad and two brothers, they ran a fed cattle operation.
"Growing up on a family farm was a great experience that instilled a great deal of self confidence in me, as well as a positive view of my potential," he says.
1973, however, was a watershed year in his life as they switched their farm over to sugarbeets and joined the newly formed farmer cooperative. "That kicked us out of the livestock business and put us into the full time sugarbeet business," he says with a smile.
Mauch says that when you become a sugarbeet farmer, there just isn't enough time in the day for a cattle operation on the side.
"Sugarbeets require a heck of a lot of extra time and effort and we just didn't have enough time to devote to both," he said. He explained that a sugarbeet operation is a year-round venture, which entails planting in the early spring, tending to the fields during the growing season, and harvesting just prior to the first hard freeze. After the beets are harvested, most of them are placed in huge piles and allowed to freeze solid for the duration of the winter.
If luck is on your side, the winter will remain cold and the beets will stay frozen. They are removed from the piles during the winter and shipped to the processing plants, where they are refined into sugar. By the time this process is over, it's nearly spring and time to start plating again.
After finishing college in 1978, Mauch had the opportunity of a lifetime to see agriculture from the other side…. of the iron curtain that is, in Eastern Europe. Mauch joined a number of other young American agricultural professionals and set out for an agricultural exchange program that would place him on a farm in Hungary, well before the end of the Cold War.
He noted that the most shocking aspect of the experience was not the fact that most of the country's production took place on collective farms instead of family-owned, private operations, but that the country was technologically behind the U.S. by 20-30 years. "Hungary was the most advanced nation behind the iron curtain," he said. "But they were still well behind the times."
Mauch returned home after his experience abroad and left the family farm in 1978 for a banking position as an agriculture loan officer at the First Bank Corporation in Valley City, ND. "It was during my time as a banker, working directly with farmers, that I got my first 30,000 foot view of farming," he said. "Being on the outside of farming and looking in gives a fellow a unique perspective."
"As a banker, I was dealing directly with lots of farmers who came from a wide variety of operations, and it became clear what some of the deciding factors were in how successful a farmer might be," he said.
Mauch said that for the most part, farmers were all the same. They all had a terrific work ethic, they all spent lots and lots of hours in their fields and they all had to deal with the same gamut of risks.
"I witnessed, first hand, that the difference between a mediocre farmer and a very successful farmer is his or her ability to market their commodities," he said. "There was only a handful of things that set people apart and marketing was one of the most important ones," he said.
He explained that farmers who learned and were fluent in all of the marketing tools of the trade were giant steps ahead of their peers on any given year. "Somebody who is using all of the tools that are available to a crop farmer, like options, futures, hedging, watching the basis and storage contacts. These are the businessmen who will be moving ahead of their peers, at least financially, in the long run," he said.
Life as a banker had its ups and downs. It was a nice way to make a living, which was certainly an "up," but it also kept him away from being a farmer, which was absolutely a "down." But there was another "up" to banking that Mauch didn't quite anticipate, when in 1981 he met his would-be wife, Mary, who was a bank examiner and hailed from Plainview, Minnesota.
But the bank professionals would not be spending the rest of their lives as financiers. Shortly after their wedding, the newlyweds took a leap of faith—in farming and in each other—and bought an 800 acre farm, not far from Mooreton where Russ grew up.
"We borrowed a pile of money, for the farm, the operating budget, the machinery, and of course, the house," said Mauch.
Mauch explains that they decided to go with what they knew and what they were comfortable with, "so we joined the sugarbeet cooperative and rotated the beets with corn, wheat and soybeans." That 800-acre farm has now expanded to 8,000 acres. Russ and Mary have not only built a business, but also managed to raise their three daughters. "I'm hoping for a two-wedding crop this year," he said. "Since two of my daughters are set to be married in the next six months."
Asked about his view as a long time farmer now, and the lack of knowledge that most folks have about farming, Mauch answered that it's no great mystery why the urban public has a complete lack of understanding of the life and challenges of a farmer. "It can be summed up in two words," he said.
"Magnitude and risk."
Mauch notes that when the urban public hears about soaring grain prices, or the amount of money an acre of farmland might be worth, or news reports about the gross revenue that a given farmer expects after a successful harvest, "they automatically think that, given the numbers they're hearing, we're all filthy rich," he says. "But that's very often far from the truth."
That's the issue of "magnitude." "Most people are not accustomed to hearing about expenses and bills in the size that farmers see on a daily basis," he said.
For example, Mauch explains that his fertilizer bill for this year was $800,000; his crop insurance coverage was close to $200,000 and his diesel fuel will be over $400,000 for the year. "Those are numbers that, frankly, are incomprehensible to many people," he says.
"My wife calls it 'funny money,' since it just doesn't seem real," he says, noting that it seems more like "Monopoly money" than the real thing. "Who ever has to deal with utility bills like that?" he asked.
The other issue is risk.
"What the public does not understand is all of the risks we take that are out of our hands," he said. These include wind, torrential rains and heavy flooding, tornadoes, insects, wildlife, interest rates, crop prices that are very volatile, corn getting moldy and sugarbeet piles that rot in the fields from a sudden warm-up. All of these, he explains, are out of a farmer's control, but at least they're local. Then there are the risks that are out of control and global, like trade, prices and interest rates.
"Most people face maybe one or two of these risks at their current jobs," he says. "Farmers face all of them, year in and year out."
And that, says Mauch, is why "crop insurance up here for the farmers is essential to survive."
Mauch explains that for his farm, for example, they had the worst years on record in 2005, 2007, 2009, and 2011. "They were the worst farming years in my whole life in the business," he explained. "But 2004, 2006, 2008 and 2010 were our best years," he says. "It's this spiking up and down, which we have no control over, which is why crop insurance is so important," he says. "Try planning for something like that!"
He says that crop insurance shields the farmer from adversity; it protects the viability of the business to recover thus ensuring the nation's food supply. "Crop insurance does protect the farmer, but what it really does is give the farmer the ability to repay loans and it also backs up the bankers loans for collateral," he says. "And frankly, most of them require it now."
Crop insurance has also been an important tool for farmers who are looking to take advantage of all of the various marketing possibilities out there, since it allows them to forward contract for their crops and ensures that if those crops fail, they have capital to pay off their contracts.
Mauch notes that his decades in the business have allowed him to see crop insurance grow from being a costly, awkward policy that few had wanted to bother with to attaining the status as the flexible and efficient centerpiece of most farmers' risk management portfolios. "Federal crop insurance—even when I worked directly with those who were licensed to sell it—had very few takers in 1979," he said. "It almost never paid out, it was costly and there was a huge lack of coverage, so the policy was really full of holes and not worth fooling with," he said.
Around the year 1998-2000, he said that crop insurance really "came on strong" with a prevented planting program, and increases in coverage and buy-ups. All of this coincided with a federal move to make the policies more affordable to farmers and an increase in production costs, which had many farmers risking more money on their yearly planting than they had ever imagined.
"One of the main reason crop insurance became important was that it would enable you to pay back your operating lines of credit since we all borrow so much money," he said, and added that the difference between crop insurance then and now was like "night and day."
"Most farmers now are taking it out because it's not only working very well, the coverage is sufficient to save the farm if you have a bad year," he added. Mauch also noted that today's successful farmers have become much more adept businessmen and understand the importance of marketing their crops to hedge their risks. "The ability of farmers to buy to up 75 percent or more helps them forward contract," he said.
"And with the revenue products, a farmer who has forward contracted a crop will know that his bases are covered even if his crops are wiped out and the prices of commodities he holds contracts for shoot through the roof," he said. "The fact that the buy up increases with the crop prices allows you to keep your bases covered," an option that allows many farmers to sleep at night.
Mauch says that while farming is a business, it is a unique undertaking, because of the scale and risk involved, as well as what is at stake in the long run, which is the security, availability and affordability of a healthy, wholesome food supply. These factors necessitate some degree of continued federal involvement in agriculture.
"The government's main role is to provide a floor for farmers should a disaster occur, which it does each and every year, someplace in the U.S.," he said.
Mauch also noted that the relationship a farmer has with his or her crop insurance agent is critical to the success of their operation and their long-term viability as farmers. "I'm lucky, because I not only have one of the sharpest and most motivated crop insurance agents in the business, I have one of the prettiest," he said, noting that his crop insurance agent, of course, is his beloved wife Mary.
This article originally appeard in the May 2012 edition of Crop Insurance Today.