5 Ways to Diversify Your Ag Business in IL

From climate change to volatile prices, there are a variety of factors that make it difficult for farmers to stay afloat and turn a profit. One way to minimize risks and increase profitability is to diversify your ag business. In this article, we'll cover five ways to diversify your farm that can help you protect against risk and cash flow issues and make better use of your land and other resources. 

Why diversify your ag business?

Simply put, diversification protects you from putting all your eggs in one basket. If you only grow one type of crop, for example, a failure will devastate your entire business. Diversifying your farm spreads the risk across more than one type of crop or livestock. Producing a greater variety of crops, or adding livestock to your crop farm, will help your cash flow remain trim and agile throughout the year and can help your business grow in the long run.

Benefits of farm diversification

• Improved cash flow: For example, livestock can generate income all year round, covering months when no crops are sold.
• Custom hire for other farmers: Put the excess capacity of your equipment and machinery to good use.
• Efficiency: Fully utilize your land, labor, and other resources.
• Risk protection: Several eggs in several different baskets are always safer.

How do you diversify your ag business?

Before embarking on diversification of your ag operation, you need to consider the potential impacts on your land, labor needs, working capital, and other resources. Here’s what you need to know about diversification:

1. Learn about new crops and production methods.

The initial learning process can be one of the biggest hurdles farmers encounter in diversification. However, you don't want to skimp on learning about the new crops or livestock you're planning to add to your operation. Suppose you plan to grow a new crop, for example. In that case, you may want to experiment with a small plot of land before committing to multiple acres to understand seasonality, watering, growth schedules, etc. With livestock, you need to research the structures you'd need to build, any equipment you'd need to purchase, and the required supplies (such as feed). 

Just be careful not to spread yourself too thin, especially if you are already struggling with your current cash flow demands. Most new enterprises will not turn a profit in their first year.

2. Choose how you will diversify.

Once you've done your research, you can make an informed decision about the crops or livestock you want to use to diversify your operation. You may choose to utilize your fields in different seasons to grow new crops, or you might decide that starting an orchard is a better fit.

With crops, growing more than one is recommended due to the benefits of crop rotation and soil nutrient replenishing. Consider the following combinations:

• Small grains before row crops
• Add a legume to raise nitrogen levels and increase organic matter
• Add livestock to a crop farm to have your own manure source or utilize land that isn't hospitable to planting
• If you already have a livestock operation, add crops to reduce the amount of grain you need to purchase

3. Build a business plan for your diversified ag operation.

Before you start diversifying your existing ag operation, take some time to develop a business plan. A solid business plan will serve as a roadmap for the future, helping you think through where you want to go and how to get there. Plus, you'll need to present a thorough business plan when seeking ag loans or lines of credit. Answer the following questions to write your business plan.

• How much money will you need to expand your operation? If you need additional funding, you can work with a bank to secure a loan that will allow you to purchase necessary equipment, finance additional land for production, purchase new real estate, etc.
• Who are your customers? For example, a CSA program, pick-your-own, co-op, local restaurants, etc.
• What are the estimated costs and potential profits? Look at what it will cost you to diversify your farm and how much your bottom line could increase.
• How will you manage cash flow? Farming can be precarious, especially when crops fail or prices fall. Think about how you will adapt to changing circumstances.

While it doesn't have to be part of your business plan, it's a good idea to think about marketing. How will you get the word out to your target customers? Develop a marketing plan now or in the near future. 

4. Add value to your existing operation.

Want to diversify without taking on a brand-new enterprise? Look for ways to add value to what you already do. For example, if you have a fruit orchard, can you turn some of your crop into pies, jams, or juices to sell? You could make soaps, cheeses, yogurts, and other products if you have dairy cattle, sheep, or goats. 

5. Get into the “agritainment” business.

Pick-your-own fruit, fishing, hayrides, pumpkin festivals, Christmas lights–the possibilities are nearly endless for turning your farm into a destination for tourists and families looking for a bit of fun.

We're Here to Help!

Are you looking for a local lending partner and advisor to your ag business? Our Central Illinois and Metro East business bankers are experienced professionals who have spent their careers getting to know the local farmers in our community. We offer ag lines of credit and will work with you to meet the individual needs of your farm. Locally owned and operated, we treat our clients like family.  Contact us today or request a consultation with our business team today!