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AgriProfit$ helping beef up Alberta’s farm sector

An on-farm look at Alberta’s program for harnessing multi-year farm business analysis

The McGrath family at Round Rock Ranching has a cow-calf and backgrounding operation with over 4,800 acres.

There’s one word that gets used by the farmers Country Guide interviewed after taking part in Alberta Agriculture and Forestry’s free AgriProfit$ farm business management research program. It’s “invaluable.”

Sean and Tanya McGrath at Vermilion have participated in AgriProfit$ for 10 years; John Mochniuk at Wildwood has participated for 20. But before we hear their assessment in detail, here’s a look at the program itself.

AgriProfit$ has been running for decades, explains Alberta livestock economist Ann Boyda, and it covers a wide range of industry sectors, from beef, hogs, dairy and lamb to commercial and specialty crops.

The program is built on sectoral studies, made periodically at three-year to five-year intervals at the request of industry associations, Boyda says. The AgriProfit$ beef and crop components were established in the early 1990s.

The crux of the program is that farm participants receive detailed financial analyses for total farm finances and for each enterprise on the farm, including production costs and returns per unit of output.

Benchmark reports are also provided, allowing producers to see how they compare to other operations in the region, by soil zone and more. They can also benchmark their current results against their own operation across a period of years.

“In terms of specific goals, no farm is the same,” says Boyda. “AgriProfit$ provides a means of measuring performance relative to achieving goals, whether they relate to cost management, marketing strategies, management practices (e.g. reproductive and animal health practices) or introduction of innovations.”

Efforts are currently underway to make it easier for farmers to participate and to make it easier for the AgriProfit$ team to generate reports. “We are focused on growing beef and crop participation rates, as a larger sample size helps improve the quality and variety of benchmarks that can be generated from the data,” Boyda says. “With enhancements to programs and streamlining collection tools, an annual growth rate of 10 to 20 per cent is envisioned.”

In addition to the cow-calf, dairy, crop, greenhouse and beekeeping benchmarks, beef producers will soon have access to backgrounder and pasture efficiency benchmarks. In addition, the AgriProfit$ customized cost-of-production reports will be enhanced in 2019 with a cash-flow report and analyses of shared assets — breeding stock, feeder cattle and equipment.

All of these new tools, says Boyda, reflect what producers have asked for.

There has been steady growth in participation over the years as the program has evolved from manual data collection to electronic data capture.

In crops and beef, about 20 per cent of current participants have been with the program for more than 15 years. In 2018, there were 35 beef and 35 crop AgriProfit$ participants, and the aim for 2019 is 40 beef and 50 crop participants.

About 70 dairy farmers are enrolled, representing over 12 per cent of province’s producers. The beekeeping and greenhouse components are conducted once every three years, in collaboration with the respective industry associations.

There are no restrictions relative to participation in the program, such as size of farm. Interviewers are available to come to the farm to help with collection and compilation of data, but not all producers who sign up for the program are prepared to follow through due to the level of information detail and time/effort required.

John Mochniuk — “Numbers don’t lie”

Clarity and the better decision-making are the reasons John Mochniuk gives for participating in AgriProfit$.

Mochniuk farms commercial grain and forages at Wildwood, an hour west of Edmonton. Before he entered the program, he had not heard about the type of detailed financial analysis it would provide. He just decided to try it out, hoping participation would lead to improved record-keeping and better overall management of his farm business.

It turns out AgriProfit$ has exceeded his expectations, first of all by providing a completely clear and accurate view of his finances. “I look back on the information often, as I know it’s true,” Mochniuk says. “It’s not what I would like to assume is true, or would like to report to organizations such as crop insurance, Agri-stability, the accountant, financial institutions and so on. Being in the program, you are looking at your farm as a business. Reviewing the past year’s finances alone is a huge benefit for making the next year’s decisions.”

Mochniuk describes the information gathered by the AgriProfit$ team as very detailed, yet he also finds the analysis and reporting very well-structured and easy to understand. “They put together an economic analysis and total performance report, assessing variable costs, capital costs, total production costs, gross margins and net returns including yearly crop management goals and total investments,” he says. “You also get returns on a per unit of output, with a detailed basis of production such as return on an acre-by-acre, animal-by-animal, or field-by-field basis.”

Mochniuk says the data makes him a better farmer and farm business manager. “I’ve gotten better at everything I do because I know my exact input costs… I can better focus on how to strive to get maximum production,” he explains. “We do soil tests every year to refine fertilizer application. I’ve also gotten better at managing soil health to grow a better crop year after year and you can see the difference in the yearly AgriProfit$ reports. It’s prompted me to go to courses and seminars to gain knowledge about things like reducing erosion, adding organic matter and so on.”

Mochniuk says he’s been surprised by the AgriProfit$ financial analysis over the years and, when all the exact costs of production (including capital costs) are factored in, how little or how much profit some enterprises on his farm generate.

“It’s made me more conscientious,” he says. “My machinery investment, for example, is suited to my farm size. I see a lot of producers buy a new baler or combine that is out of proportion to their needs. There are also many who expand too rapidly, beyond the ability of the business to be sustainable.”

One enterprise that wasn’t worth it for Mochniuk was cattle. He started reducing the size of his beef herd five years ago and they were all gone two years ago. “At this point, I don’t want to work as hard as I did years ago,” he says, “Through the AgriProfit$ reports it was clear that it would be more profitable to sell the grain and forages instead of feeding them to my own cattle.”

Round Rock Ranching

It’s a different situation for Sean and Tanya McGrath and Sean’s parents Anne and Fred at Round Rock Ranching at Vermilion, two hours east of Edmonton, where they have a cow-calf and backgrounding operation with over 4,800 acres (forage and pasture).

For the McGraths, participating in AgriProfit$ has made their beef and also their crop farming better, and helped them expand rapidly.

The McGraths joined the AgriProfit$ program about 10 years ago, and at that point, like Mochniuk, they had very limited analysis of the farm’s finances.

“We joined when I was taking over management duties from my parents,” McGrath explains. “It was really helpful as part of the process of understanding where we were at as a ranch. The main goal was to get a better handle on our management and use the numbers to build our business, rather than just for filing income tax. We were also interested in the benchmarking aspects.”

In their first year with the program, getting their records set up was “daunting” according to McGrath, but critical. Once the financial records were a lot more organized, the family could begin to access information for specific uses and comparisons. McGrath says it gives them “the structure to assess the economics” of their farm business.

“One of the most important parts of the program occurred in year three, when we finally had enough years to start asking questions of ourselves,” McGrath explains. “The first year, we got our report back from AgriProfit$ and it was good to see how we benchmarked against other similar operations in Alberta, but in year three, when we could compare our operation to our operation and we could look at trends, it was really useful. We could see whether our ratios like debt-to-asset and liquidity, our capital investment, and our gross margin and so on were going up or down over the years. To have it all in a single report, you actually look at it, you actually use the information.”

Like Mochniuk, the McGraths have been able to determine just how much profit they are making on individual enterprises within the farm, such as growing forages, feeding calves and the cow-calf operation. “One of the biggest impacts of AgriProfit$ was gaining an immediate appreciation of the cost of labour and a huge awareness of what we spend our time on, what enterprises we invest labour in, from driving the tractor, chasing cows, various aspects of management,” McGrath says.

“Most producers have no idea what they spend time on. We’ve reduced the time spent on a per cow basis through things like bale grazing … you ask questions and think about the answers and change things. You have a much better understanding of how labour and infrastructure fit in the context of our whole business.”

Due to their AgriProfit$ analysis, the McGraths also decided not to corral or calve in the winter, which they had been doing for years. Instead, they calve in May and June and vaccinate at that point. “Yes, there are costs like corral cleaning might be $500 every two years and there’s some additional labour to tag calves later on, but it was clear with our land base that corralling them in the winter was not affordable or the best approach to the whole system,” McGrath explains. “We moved calving season so that we wean early, and put second-trimester cows in pasture in winter. They can do fine, grazing on their own at that stage, and we bale-graze calves in the pasture towards the end of winter, which takes about two hours of time a week instead of keeping them in a corral, which takes two hours a day. They still get their nutrition but we save costs and save labour.”

The McGraths have undergone what he calls “pretty rapid expansion” over the last decade or so, which he says has had some impact on the value of their direct year-over-year comparisons, but adds that “the knowledge from the AgriProfit$ program has anchored our expansion decisions in fact. Now we are working on stabilizing some of our approaches and reducing labour requirements on a larger scale. As we’ve expanded our number of cows, for example, if we have three times the cows, we knew that we can’t do three times the labour. So we needed to figure out how do we feed them adequately with less expense or time, and can we consistently reproduce that result.”

Overall, the AgriProfit$ program has made the McGraths analyze whether adding more land, cows and possibly machinery would result in them working more for less profit or working the same or less or more for how much more profit.

“It’s made it clear to us that doing things better should be the only thing that drives expansion,” McGrath notes. “Little things done better over time means you can take advantage of expansion opportunities. Every time we’ve grown, we’ve had to reassess what we do and how we do it, so AgriProfit$ is a big part of that process. So, our goal isn’t to be bigger, but better. I personally am the type of person who wants to be a bit better at everything, and the documentation really helps me see that. If we’re not better, I want to work on what we can do to be better.”

Over the years, the McGraths have gotten better at cow nutrition, marketing, animal health, HR management and financial management. “Pasture management is a big one,” says McGrath. It drives their overall farm profitability. Not having to feed cows into January is a significant savings and that means things like stockpiling grass for use at different times of year — keeping a back-up feed supply to give some pasture areas the growing time needed for them to be a really good food source in the fall, and making cattle groups larger and moving them as needed.

“The AgriProfit$ group is working on some new tools including some pasture productivity benchmarking, which really drives our entire operation, so we are pretty excited to work with that and see how it turns out,” says McGrath. “For example, we will be able to benchmark yields in our area, yields against other operations to see if our different pastures are yielding below the average or higher. It gives you a place to start asking questions. Maybe my soil is poorer and I can’t do much or maybe there are opportunities to do something about it.”

The AgriProfit$ analysis by crop and field is also very useful when the McGraths experiment with new ideas. They are trying Italian ryegrass this year, for example, and will be able to compare a return by acre to when the same field was grass or corn.

“The AgriProfit$ team has been the greatest asset to us, but from a purely technical standpoint, the most valuable is just having a standardized process that forces and empowers you to look at your data and financial picture in a management context,” says McGrath. “A lot of us have these numbers at home but don’t have the analysis. The transformation of financials from being just ‘tax documents’ to useful living management tools has been huge for us. To be able to look at your operation in comparison to itself and others, understanding your circumstances and starting the questioning process, it’s invaluable. It’s the questions that build your business.”

To learn more about the AgriProfit$ program, visit the Alberta Agriculture website.

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