Ag teacher offers advice to lower risk

2017-03-18T14:00:00Z Ag teacher offers advice to lower riskBy Phyllis Coulter, Illinois Farmer Today Illinois Farmer Today

SPRINGFIELD, Ill. — Every step Krista Lottinville has taken in her career — her education, working in the crop insurance industry and for a seed company — has prepared her to eventually farm.

The 28-year-old only-child of an eastern Illinois farm family has known for years exactly what career she is striving for: to run her family’s farm.

“I grew up on a farm in Iroquois County. My career is leading me back there,” said Lottinville, whose family has begun making a succession plan for the farm.

Lottinville, who graduated from the University of Illinois Urbana-Champaign with a degree in agri-business, said she is lucky to have good mentors, including Paul Stoddard, a University of Illinois agri-business professor.

“He always applies things to real life,” she said.

Stoddard grew up on a family farm near Monticello, worked for Farm Credit of Illinois, is an appraiser, operates a brokerage business, trades commodities, manages farms and has taught more than 6,000 students since 2001.

Lottinville had a chance to catch up with Stoddard at the Illinois Farm Bureau’s “Together Toward Tomorrow” governmental leadership conference earlier this month. Stoddard shared “timely tips and lessons learned” about managing a farm and its finances at the gathering in Springfield.

Stoddard, a fifth-generation farmer, notices that more landowners and farmers are choosing flexible and variable leases for cropping agreements now. Some farmers who bought high-priced land or pay higher than average cash rent are successful, but that may not be because they made good choices.

“Don’t confuse luck with brains or profitability with prudence,” he warns.

Risky speculation can work sometimes, but the No. 1 business goal “is to survive to play again,” he said.

In his work, he has seen several reasons why a farming operation doesn’t survive, including addictions, divorce, health problems and imprudent use of debt in financing.

“If the bank says ‘don’t do that,’ my advice is to listen,” he said.

For the last six or seven years, Stoddard has been expecting interest rates to go up. Four years ago he chose to pay a little more for fixed rates, but he doesn’t regret that choice. He still believes variable rates can be pretty risky.

“I’ve had a fixed rate at 5 percent for four years, but I’m comfortable with that. I encourage you to think about fixed rates,” he said.

He suggests that the timing is right for farmers to look at their current debt structure to see if it works with higher interest rates.

He says having a good team of advisors is also essential to success, but cautions not to be too reliant on them either.

“Never ask a barber if you need a haircut,” he said, noting most advisors have something they sell.

The volatility in prices in recent years presents other challenges and opportunities. Because of the demand for ethanol, he doesn’t expect farmers will see $2 per bushel corn again. However, with large stocks today, he doesn’t expect $7 corn any time soon either.

While interest rates and tax implications are concerns, marketing is more important, he said.

“Too many decisions are made based mostly on tax consequences,” he said. “Know the risks in your market strategy. If you don’t understand it — don’t do it.”

It’s also important that your lender knows your marketing strategy.

A common mistake is to wait to sell when prices are rising in fear of missing the high point. It’s better to sell up to 10 percent when you know you’ve bested your break-even point and hope that’s the worst sale of the year.

Other times people stick to something too long even if it isn’t working.

“We’re told our whole lives not to quit,” Stoddard said. Sometimes the right thing to do is counter-intuitive.

He also advises against making long-term decisions based on short-term indicators.

“The best time to buy land is when you can afford it,” he said. “The No. 1 goal is to be here to farm next year.”

Copyright 2017 Illinois Farmer Today. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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