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FARMERS NATIONAL COMPANY
AMERICA'S LARGEST FARMER
With over 1.2 million acres, representing over 3,600 farms and ranches under its management, Farmers National Co. (FNC) can claim title to being the nation's largest farming organization.

Headquartered in the western suburbs of Omaha, NE, the 78-year-old company manages and sells farms and ranches in 18 states, and has 140 full-time employees, including 70 professional farm managers, 49 of whom have earned the prestigious "Accredited Farm Manager" (AFM) designation from the American Society of Farm Managers and Rural Appraisers (ASFMRA). In addition to the real estate licensed farm managers, the company also has 100 full time real estate sales associates throughout their service area.

It marketed over 17 million bushels of corn, 5 million bushels of soybeans, 1 million bushels of wheat, and 850,000 pounds of cotton for its clients. It was involved in the purchase of several million dollars worth of seed, fertilizer and pest control products.

All of this on behalf of their clients, landowners who do not operate nor wish to direct the operations on their properties.

Non-operating landowners are the norm these days, with over 60% of the U.S. farm and ranchland now owned by someone other than the person who is farming it, according to the most recent landownership study that was conducted by the USDA. One-third of the owners are retired farmers, one-third are surviving spouses, and the balance is split evenly among second and third generation inheritors and individuals and organizations who have chosen to include land in their investment portfolio.

FNC manages farms on behalf of these individuals, as well as over 75 bank trust departments, non-profits, foundations and other entities.

Its business is bustling. Last year, it listed its first property for sale in Brazil, Mac Boyd and Associates, in east central Illinois joined FNC, and it opened a new office in Fargo, ND. This year started off with a bang when Mid America Land Company, Hartington, NE, joined it.

Talk about client satisfaction. FNC President/CEO Jim Farrell, AFM, reports "Today, over 1,500 of our clients have had their farm under management by FNC for over 25 years. We also have over 300 clients who have used our services for 50 years or more, and we even have two 75-year clients! Our clients live in all 50 states and in several foreign countries. We recently surveyed our 3,900 farm and ranch management clients and we were very pleased to receive a good to excellent mark in our overall services from over 97% of our clients!"

Farrell is a 21-year veteran of FNC and is the ninth president in the firm's long history. A graduate of Iowa State University, he began his career as a farm manager and real estate broker overseeing properties in southeast Minnesota. He was promoted to VP, Marketing in 1988 before assuming his current position two and a half years ago.

SERVICES OFFERED
In addition to farm management, the company is one of the nation's largest realtors of rural land. Last year, FNC's sales volume reached over $214 million from the sale of more than 500 farms/ranches and recreational properties.

The firm also provides appraisal services, crop insurance, and consultation and commodity marketing plus several other landowner services.

"A couple of years ago," Farrell says, "we recognized that recreational land leases of farms and ranches for hunting and fishing as an important source of additional revenue for landowners. So we created the Hunting Lease Network (www.nationalhuntingleases.com)." Franchisees develop and manage recreational leases on private land, creating new income for landowners and new hunting opportunities for the sportsmen.

A growing segment of the real estate market is recreational land sales. Recently, the company launched a new Web site that brings all of the recreational services offered into one location (www.FNCOutdoors.com). By going to this site, a recreational landowner can learn about all of the services offered by FNC from lake management and enhancement services, hunting leases and the National Hunting Lease Network franchise business, and recreational real estate listings and appraisal services.

Along the way, it turned out that some of the FNC managed land had oil. So, the company formed its oil and gas management service through a relationship with a large regional bank in Kansas. Not surprisingly, this has become its hottest service.

"Through our aggressive leasing program, we generated record lease bonus money for our clients in 2006," Farrell says.

PROFESSIONAL FARM MANAGEMENT
But it is the farm management business that is central to all of FNC's activities.

The company has divided its market area into four geographic areas with an area manager overseeing the activities of the farm managers in each. Most of its farm managers work from home offices and receive full customer service and accounting support from area offices or the home office in Omaha.

"We offer a variety of services to non-operating landowners," says Jerry Warner, AFM, FNC's Exec VP/Chief Management Officer. "It starts with identifying the true needs of the client. Based upon those needs, we select a local farm operator and the type of lease that works best for the client."

A graduate of the University of Nebraska, Warner started his career in 1972 with FNC in Aurora, NE, as a farm manager in central Nebraska before being promoted to area manager for Nebraska and Kansas in 1981 and to his current position in 1987. In addition to his work with FNC, he is currently First Vice President of ASFMRA and will take over the leadership of the organization in 2009.

FNC's involvement in a farm's operation is dictated by the lease (see sidebar).

"On the farms in which we are involved in selecting crop inputs, we are very involved," Warner says. "Our managers are constantly on the lookout for new products that will be profitable to our client. Because each is managing an average of 20,000 acres on 60 farms, we get a lot of experience in what does and doesn't work every growing season."

Warner says that each crop season starts in the summer when they evaluate the farm operator's performance. "All of our leases have a one-year term," he explains, "that gives us the opportunity to make any changes that are necessary. Next, we will negotiate and agree to the lease. Then we will sit down with the farm's operator and develop a crop plan, which specifies the tillage method, which seed varieties will be planted, as well as the pest control and fertility plan that will be used. That occurs after harvest and is to be completed before the end of the year so we can make the decision on when to pay."

On non-custom leases, the operator is responsible for shopping for the products at the dealers. Warner says, "Operators will check in with their farm manager and discuss prices and programs the individual retailers are offering. In most cases, the retailer is instructed to bill the operator for their portion of the purchase, and bill us for our share. The bills are sent straight to the farm manager for approval, and then forwarded to the home office where payment is issued."

Does the crop plan ever get changed? "Occasionally, a retailer may be out of a product and will try to switch to something he has in stock," Warner says. "And that's OK, as long as the operator has communicated it with their manager and they approve. If not, that goes into consideration when we decide to keep, or change, operators."

In custom leases, the farm manager does the shopping and makes the purchase directly. During the planting, growing and harvesting seasons, the farm managers are continually on their farms monitoring the crop's progress and preparing reports for their clients.

"We are also constantly evaluating the crop inputs we are using, Warner says. "We work closely with representatives of several seed and crop protection companies. In many cases we have national programs that provide the same pricing and conditions for all of our clients, regardless where their farm is located. We are open to new programs and like to learn first hand about new products and technology, so we routinely get new product releases to try.

Throughout the year, the crop is marketed. "All crop marketing decisions are made here in Omaha by a team led by the President of FNC Marketing, Jim Stephens," Farrell says. "We normally sell five to seven times per year. When a pricing decision is made, it is communicated to the farm managers who are then responsible for communicating with the operator the quantity of the commodity, when and where it is to be delivered."

COMMUNICATIONS
"Our communication and marketing efforts are directed toward getting new clients, real estate listings and selling properties," Farrell says.

"For the farm management business, we have a newsletter that we send to 112,000 landowner prospects each year. We also host around 20 seminars each year around the country as well as make personal calls on prospects, Farrell says."

For the real estate business, FNC runs classified ads in various agricultural publications and newspapers and has an active radio campaign on several stations. It lists auctions in local newspapers. Its listings also appear on the Realtors Land Institute Web site, which is a multi-listing service for land brokers.

Its Web site, www.farmersnational.com is rich in content, including "Farmers National Story A Video." Currently the Web site is receiving over 1.8 million hits per month with about 7,500 unique users per week.

OUTLOOK
"With today's grain prices, this has to be one of the most exciting times to be involved in the agricultural industry," Warner says. "There is tremendous interest in acquiring land, so that is good for both our real estate business and the rents we expect we will be receiving for our clients.

"Unfortunately, last year, we had most of our leases in place before the run-up in grain prices. However, we did see leases that hadn't been finalized before the run-up for good land go from $175 to over $300 per acre in a few cases."

He continues, "For those of our clients who have custom or share leases, we have been able to sell new crop corn for over $4 and soybeans for $7. Something we haven't been able to do in several years.

"I am especially enthused about the future of the professional farm management business, and FNC, in particular," concludes Farrell. "We have a strong financial footing, our business lines give us good diversification, our employees are thrilled to be owners of their company (average tenure of employees in the field today is over 14 years), and with the trend going more and more toward non-operating farm ownership, that bodes well for us."

Being in the leadership position of its profession and the critical mass it has achieved also bodes well for FNC in the years ahead.

HOW FNC PREFERS TO DO BUSINESS
As professional managers, our purchasing decisions are based on economics rather than emotion.
Cropping plans are made with operators well in advance of planting season in order to take advantage of early season pricing and volume discounts.
Where possible, we like to do business with a progressive, reliable supplier on several managed farms.
We utilize custom application services to a large degree and expect quality work.
Utilizing new technology is important in maximizing farm income for our clients.
Contracting fertilizer or other crop inputs in advance may help our clients contain costs.

THE ULTIMATE TOOLS
Following are the three primary types of leases utilized by FNC, as well as other professional farm management firms:

Custom: Landowner pays for all crop inputs and receives 100% of the crop. Farm's operator provides labor and machinery and is paid on a fixed per acre basis per activity performed.

Note: in all lease types, the landowner is responsible for all capital improvements (tiling, irrigation, etc.)

Crop-share: Landowner and farm operator share in the crop input expenses and share the crop accordingly.

Cash rent: Farm operator pays a fixed amount to rent the land and receives 100% of the crop.

Fees: Farm management firms receive a percentage (ranges from 6% to 10%) of the gross revenues received by their client.

Note: the exact terms of leases and fees can vary depending on the unique needs of each client.

ABOUT FARMERS NATIONAL
1929
An Omaha banker and an Iowa county agent form FNC to manage land non-resident owners.

1930
FNC begins to handle farm sales.

1986 Acquired by Metropolitan Life Insurance Company, principally to oversee the management and sale of foreclosed properties in the midst of the farm crises.

1989
FNC purchase Doane Farm Management.

2000
Employees form ESOP and acquire the company from Met.

2001
Oil and gas mgt services added.

2002
Conservation and recreation services added.

2004
Hunting Lease Network added.

2006
The company expands operations into North Dakota and Texas.

Throughout the years, FNC has acquired 17 other farm management and real estate firms. Some of the notables include: Doane Farm Management, FarmCraft Services, Farm Management Inc, and Opekasit.


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