“I think of farm data as a three-legged stool with each one of the legs representing agronomic data, operational data, and then the financial-economic data. Taking the agronomic insights and turning them into economic insights - that's where Harvest Profit comes in.”
Harvest Profit is a software tool focused on making it easier for farmers to track farm costs, profits, grain marketing positions, and inventory.
Founded in 2015 by Nick Horab, with a passion to help farmers better utilize and understand their farm data, Harvest Profit was recently acquired by John Deere late last year.
Tune into the latest episode of the Agriculture Technology Podcast to listen to more with Nick and host Tony Kramer.
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Catch the full transcript here:
Tony Kramer: Hi, I'm Tony Kramer with RDO Equipment Company. Thanks for tuning in to another episode of the Agriculture Technology Podcast. Every day, there are phenomenal advancements being made in the field of agriculture technology. RDO Equipment Company is a leader in agriculture equipment and precision agriculture technology and is here with industry experts spring the latest news and information from RDO and John Deere.
Welcome back to another episode of the podcast. This is episode number 141. Today, we are going to be talking about Harvest Profit. Before we dive into the show, please take a moment to subscribe to this podcast if you haven't already. You can subscribe to the show on the many different podcasting apps that we're streaming this out to such as Apple's Podcast app, we've got it on Stitcher, Overcast, SoundCloud, and we've recently added Spotify to that list.
While you're out there, drop us a review. We'd love to hear what you think about the show. Lastly, make sure to follow RDO Equipment Company on Facebook, Twitter, Instagram, and catch all of our latest videos on YouTube. You can also follow me on Twitter @RDOTonyK. Now with that, let's get back to the show. I am really excited to welcome Nick Horob, who is the founder of Harvest Profit.
Thanks for joining us on the show today, Nick. To get started, I'd like to hear a little bit about you and your background and how you got involved in this industry.
Nick Horob: Thanks for having me, Tony. I grew up in Williston, North Dakota, so far Northwestern, North Dakota. Both sides of my family farmed. I actually wasn't too intimately involved with the farm growing up. My dad had a brother and my grandpa farmed and had a construction company. My dad was more involved in the construction company. My uncle was more involved in the farm.
I wasn't hugely drawn into the farm growing up, but when I left Williston, I went to NDSU for three years. I was pursuing a degree in engineering, but I really developed this passion for finance. I was one year from getting my industrial engineering degree at NDSU, but I transferred to the University of Minnesota. I got a degree in finance and started working for a private equity firm in Minneapolis called ShoreView Industries.
What we would do is we would go out and mostly acquire businesses from retiring entrepreneurs. Maybe they had a dream to acquire a competitor or acquire a supplier, but they didn't really want to take that risk. We would step in, buy the majority of their business, still give them a big ownership stake, and then go out and like, "Let's really take this thing higher."
I got to see businesses in lots of different industries, manufacturing, distribution, some businesses that have a similar look and feel to what RDO is, and really got to see what are the recipes that lead to these successful profitable growing businesses. Then at the same time, this is back in 2007, 2008, 2009, commodity prices went on a crazy rally. Specifically, where my home country is at Northwestern North Dakota is really the center, maybe not the center, but right in the middle of spring wheat country.
Spring wheat went from the mid-single digits up to $25 a bushel. I started talking to friends that are farming and saying, "What are you doing? How is this wheat impacting your profitability? What's your cost of production? What's your revenue guarantee on your insurance?" I was met with a lot of blank stares and really came to the conclusion that a lot of the people that I were talking to, they love to farm.
Farmers can sometimes get a bad rap because they're not experts at everything. You have to be HR, logistics, equipment, mechanic, operator, agronomists, bookkeeper, economist, and so rarely is everybody good at all those things. I started doing, after just talking to friends and family, mostly friends that just didn't really know what to do with that volatility and those crazy high prices and we're just almost paralyzed with fear.
I was looking at it as, if you can make $10 a bushel on your wheat, what's stopping you from just cleaning out every last bushel you have. I maybe was underestimating the emotions that go into it and the biases that go into these decisions, but I decided to step away from what was a pretty promising career to do consulting work for farmers, and given that I had some roots in Fargo, I just started working around the Fargo area.
Western Minnesota, Eastern North Dakota, and started doing consulting for farms, just helping them better understand the cost of production. What does my balance sheet look like? If I were to put in some drain tile and finance that, what does that look like? What should I be investing in bins or upgraded equipment? Just doing a lot of financial analysis and helping farmers make management decisions.
At that time, I built what I thought are a lot of awesome spreadsheets, but what tended to happen is the spreadsheets would work on them in the winter and get them fine-tuned. Then as soon as the fields get warm, the sun gets high in the sky, those spreadsheets just gathered dust from mid-March until harvest is done anywhere from the end of October to the end of December.
In between those, while those spreadsheets are gathering dust, a lot of important decisions need to be made. Land rent opportunities might come up. Obviously, there's a lot of grain marketing decisions. I wanted to take the spreadsheets that I'd built, that I'd worked on, and turn those into a more collaborative tool that could be accessed by multiple people, separate computers throughout the year, pulling in commodity futures price data.
Really wanted to give farmers that live look as, if I can log on today or next week or next month, I can have an updated live version of what my crop year-based profitability is. What I noticed doing my consulting work is hopefully 100%, but 99% of farmers who do their bookkeeping, for tax purposes, but if you look at a farm's QuickBooks account or their accounting software, most farmers in the US anyway are doing calendar-based cash-basis accounting.
They're starting their year, January 1st. They're ending it December 31st, but that doesn't line up with the crop year. If you think about, for instance, this next crop year, 2021, most farmers have bought some inputs in 2020. They're going to buy some inputs in 2021 and sell some of the crop in 2021, and then they're likely to sell some of the crop in 2022. You have three years of cash-basis accounting transactions feeding into this one crop year.
A lot of farmers just don't have the visibility into the crop year numbers. I think that's a key ingredient to make more confident decisions. You need to know what your cost of production is, how it impacts your profitability, what's your break-even yield. Here, you're looking out the window here at some equipment. If you had no idea what your cost basis was, it makes it pretty hard to sell it.
The same thing can be said about farming. We're just all about giving better visibility into the numbers side of the farm. That was the origin story of Harvest Profit is not involved with agriculture in my roots and my family and my DNA, got away from that, and then circled back to the farm and really combined my heritage, my family's heritage, farming, with a lot of interests I have in technology and finance specifically.
Tony: Yes, absolutely. You said it right there that you took your background, your family history of farming, and a little bit of construction stuff there. You input your interest in finance and numbers, and you brought the two worlds together. It's always really cool to hear when people can take a history or a family legacy and then take their interests of really what they love and what they want to do, collide those worlds and bring something like Harvest Profit to the table.
You told us a little bit about that history, how Harvest Profit came about in your career path and what you were doing. Let's dive in. What is Harvest Profit? What can a farm utilize Harvest Profit for?
Nick: First of all, we'll talk a little bit about crops. Harvest Profit's really set up for annual crops. You think wheat, corn, soybeans, but then it can handle all the specialty crops, sugar beets, potatoes, peas, lentils, canola, really crops that are planted and harvested on an annual cycle. If you think about that, we even have some farmers who track their cow-calf production in Harvest Profit. Where it isn't the best suited for is something like feeding cattle, where you have a shorter than that annual production cycle, or something like an apple orchard or almonds.
So really the core is if you look at our top crops in Harvest Profit, it's wheat, corn soybeans, and then it falls down to 50 other specialty crops. We have customers in 26 states, four provinces, so we're all over the country. We have a slight over-weighting to North Dakota and Minnesota just because where we're located, but really it follows pretty closely throughout the area where small grains and row crops are planted. The heart of the software, actually built a software around a risk management what if tool? What if I sell another 50% of my commodity? What if I bump up my crop insurance five or 10%? Looking at a matrix view of that, so trying to visualize some of that. One of the key variables to go into that was what's your cost of production? Given that the bookkeeping that every farm does has very little correlation with the crop year numbers, what we found out is-- and farms are so different.
You might have three entities farming separately from a bookkeeping standpoint, but they operate together. You might have some cash rents and some crop shares. All of that stuff muddies the water. I'm just calculating what is my cost of production. We'd to build a whole bunch of tools to make it easier to calculate the cost of production. Then with that, we started diving into if we have your cost of production in a detailed level, for instance, here's how much seed you're planting on each one of your fields and here's how much fertilizer you're applying.
Once we have that, we can do field-level profitability. We pivoted, we found that the excitement was coming in the cost of production in the field-level profitability and not so much just grain marketing what-if analytics. We really focused on how can we easily help a farmer throughout the year track their cost of production in their field-level profitability. Then on top of it, tracking grain contracts. We have ability to track grain inventory. You can build grain marketing plans. You can track what your input usage is, enter in multiple purchases of inputs.
Really the heartbeat of harvest profit is the field level profitability and cost of production. Then trying to enable a farmer to do that and say, "One big cup of coffee once a month."
You sit down with a cup of coffee once a month, you can have an accurate set of numbers throughout Harvest Profit. Both old crop, new crop, just dynamically changing from year to year and month to month.
Tony: Yes. You answered a couple of the questions that I had saving, who is it for? Really, it's for anybody. It doesn't matter, big farm, small farm, anybody that's looking to get a deeper, more close look at their financials and their profitability. You said bringing it down to a field level. Traditionally in agriculture, we were familiar with the agronomic data that we're collecting. We got our yield data and all of that stuff. What you guys are doing with harvest profit is you're taking that same information, but you're adding your inputs and your sales of your commodities.
You're really turning it into a field-level profitability. It's not just for the big corporate farms per se. It's also not just for a little guy. It's really for anybody and you even actually kind of cool, brought up that there's a slight way for people to use it on the ranching side with cow-calf operation. Kind of neat to hear that as well. Now, you mentioned some of the different things that can be done within Harvest Profit. What specifically, talking your grain marketing, your field-level profitability? Are these all different tools within harvest profit or is that just the main suite of software? How does that work in Harvest Profit? What are the different tools that can be utilized by the growers?
Nick: Yes. It's tracking your input prices, your overhead. How much do I pay in labor? How much do I pay in my equipment, payments depreciation? Then how much inputs are you applying per field? Then the P&L tool. Then it flows down through the grain inventory tracking, the grain contract tracking. Forward contracts, hedge to arrives, futures, hedges basis. All of the contracts that farmers are using and then we have the ability to do some what-if analysis. What if I want to look at a scenario where I have an opportunity to pick up 600 acres of land, but I want to drop 200 acres of just unproductive ground that's been tough to deal with for year-in-year-out?
Then with that, I need to upgrade my planter. Maybe I'm trying to plant my soybeans in that earlier window. Looking at, well, what does it look like if I buy an ExactEmerge planter for example then can start planting corn and beans at the same time or plant your beans early? You can do this multi-variable, what-if analysis on changing seven or eight different things on your farm and then comparing that back to if I would have made the seven or eight changes in 2020, what would my profitability look like compared to how actually 2020 turned out.
That's a big use case for Harvest Profit is doing a lot of what-if analysis. The other thing is, it's a historical analysis tool combined with a budgeting tool. I like to say, bookkeeping, the numbers you're bringing to your account, that's awesome rearview analysis. You can take that to new crop year historical analysis. If you're ignoring the forward-looking numbers like 2021, even maybe 2022, it's like driving blindfold. We're trying to have both as clear of a picture looking out the rearview mirror, as well as looking out the windshield by giving historical analysis, but also forward-looking projections. That really sums up what Harvest Profit is.
Tony: That's really cool. A lot of different tools. The whole rearview looking versus forward-looking really puts into perspective how you need to approach financials. Not only in agriculture, but in all businesses. One of the things you talked about this, what-if scenario. I know you got some power with this software. Can we just any time somebody is interested in purchasing John Deere specific equipment, can we just tell them the numbers that it's a good positive outlook?
Nick: The outputs of Harvest Profit are as good as the inputs that are put in, but we've done some interesting analysis where specifically looking at maybe if a farm has missed one of these ideal planting windows three out of the last five years. Looking at some agronomic data and some equipment cost data, what would it look like, if I could instead of missing that window three times, maybe if I only missed at one time? If I'm able to use a high-speed planter along with my older planter and have two planters out running and get that crop in, in a timely fashion.
Then you enter a little bit of a yield bump there, and it's pretty powerful what the return on investment on those inputs can be. You can definitely, you can do that a lot. It's fun. Obviously, there's a lot of assumptions and there's always a lot of assumptions that go into any kind of this analysis. You don't need-- Just a couple 2%, 3% gains on revenue, or on yield, on price. That can turn into 50%, 100% increases in profitability at the end of the year.
Tony: Right, absolutely. That's one of the things you bring up a good point that there's a lot of-- You talk about it the what-if scenario utilizing information like this no different than the agronomic data that's collected throughout the season. It's a tool in your toolbox to help you make educated decisions going forward to better your operation both efficiently and financially. Really cool that these tools are out there. Now, one of the things I know as far as a customer benefits side, you guys also have some third-party software integration with some of those farm management software platforms out there. Why don't you talk a little bit about that and how they integrate with harvest profit?
Nick: Sure. We pull in as-applied data from a couple different platforms. The largest, I was just looking at it yesterday. The largest number of integrations we have is John Deere Operation Center, and pulling in as-applied data. You can pull in the amounts that you've applied of fertilizer seed chemical. We bring in grain cart loads from a tool called Agronomic Libra Cart, that flow into our grain inventory feature. Then pulling in that harvest data, the yield data from operation center, and probably a couple other platforms, is something that's really high on our radar that we're going to be working on this year.
Tony: Yes. I know those third-party integrations and collecting some of that data so that most of the farms if not all the farms are already doing that. They're already collecting that agronomic data, their harvest data as-applied data with their seed, their inputs, fertilizer chemical, things like that. For Harvest Profit to be able to pull that in, automatically input those numbers and those amounts of products makes it easier on the customer side. Now, if a customer is interested, they're really liking what they're hearing, how do they get Harvest Profit? How do they go about getting the product or utilizing the product?
Nick: Yes. We've taken a really sales-light approach. We don't have a sales team. We make it really easy. If you were to harvestprofit.com, the upper right-hand corner, the center of the screen, it's pretty obvious. You can sign up for a 14-day free trial and kick the tires. We've made the approach that are most successful. I've gotten the opportunity to sell the software to some people, and I'm passionate about it and that passion sells, but what we've found is that you need to get in and kick the tires and see if it's a fit. Rather than trying to convince you or pester you, we just make it super easy to sign up for a free trial. Give us your name, your email, jump in, kick the tires. If you don't find the time, or you don't have a full enough window in that 14 days, you can just sign up for a free trial again.
Then whatever you do in a free trial, if you decide you want to sign up, all your data is preserved. When you onboard, you can pull your fields from operation center, so you don't have to input all your fields. Then let's say you put in some inputs and some yields and some rents, then that data is preserved. If you actually want to try the software for a year, couple years, anything you do in the free trial is carried over. We make it super easy just harvestprofit.com.
Tony: That's wonderful. You guys do make it very simple, very easy to get access to your software. Like you said a 14-day trial, who doesn't love a free trial to see if it really fits their operation, fits their farm. Now, one question, Nick, I did want to ask you is back in November of 2020, Harvest Profit was acquired by John Deere. How does that affect the product or how does that affect current or future customers? Talk to us a little bit about your partnership with John Deere.
Nick: Sure. First of all, I think of farm data is a three-legged stool and each one of the legs represents agronomic data, operational data, and then the financial-economic data. Deere is really making great strides and I think best in class for capturing agronomic data and operational data, but there's really a hole in the tools ecosystem they have for the economic data and the financial data. Taking the agronimic insights and turning them into economic insights and that's where harvest profit came in.
We were really blown away a few years ago when we started working with a team at John Deere on doing an integration. They had a lot of resources devoted to just making more API connections and John Deere isn't making any money from that. At the end of the day, better tools make the equipment more valuable to the farmer and so this is really an opportunity for Deere to add that third leg to the stool and we're excited about having-- we have five people on our team.
We've been a pretty small lean team, really investing all of our free cash flow back into the product and so just having more resources for us. Having the ability to use some of the data from the machines that maybe before some other people can, is of a lot of value to us. At the end of the day, we've been tasked with-- Our number one objective is to keep our current customers happy, to not do any changes that are going to negatively impact them. Then longer term, how can we take all of the data that's flowing from a customers machine, and give the farmer better and easier insights.
Really, at the end of the day, it's a tools play by Deere. They like the fact that we had gotten good traction with such a small team and if you look at some of the recent updates that have come out on the operation center on the mobile app, they're really accelerating the pace of giving customers what they want, and building some cool tools and so we started seeing that a while back and we really liked what Deere was doing and there was an opportunity that came up. They decided it made sense, and we decided it made sense and so we're pretty excited about working with the team at Deere.
Tony: That's great to hear that, like you said, it's just making the tool better from a John Deere side as well as the Harvest Profit side. Now, do you have any a success story you'd like to share with our listeners, something that from the conception of harvest profit to today, just something that you think back and it really puts a smile on your face that Harvest Profit helped a customer do whatever it was they needed done?
Nick: Sure. We have a customer that farms in dryland wheat country. Their dad had entered into a lot of crop share agreements, 20, 30 years ago. Well, those crop share agreements were drafted when the economics of the farm were just different. Now if you look as a percentage of expenses, farmers are paying more as a percentage of their expenses on things like seed. The percentages that-- and this farm would move to do some double-crop.
Here, they're giving a percentage of each one of those crops to the landlord and the percentages are pretty high because they haven't brought them down to accommodate for an increased allocation towards something like seed. He was able to take some of these punitive crop shares, turn them into cash rents that have some bonus structures and it really increased the profit. He had the insights into which one of these contracts were costing the farm the most money and working with the landlord to craft a structure that enabled them to keep investing in those farms and keep investing in the quality of that ground, but doing it in a way that was more financially sustainable for their farm.
Then another quick one, we had a farm in this region that had a key employee that was going to go back home to their own farm. They were looking at, well, "Do we replace this employee? What do we do?" They were spread out over quite a long geographic area. They made a decision that, what does it look like that far farm North and the far farm South, what if we got rid of those? What if we went from multiple older lines of equipment to one line of newer equipment. They actually let some acres go. They didn't replace their hired man. They had one big line of equipment across their farm now.
They really whittled their cost of production down to about as low as it possibly is, but one of the farms that they had, they still had a year or two left on the lease. They asked me, this isn't something we do often, but I knew the farmer, and he said, "You know, somebody who farms and so on so County." I said, "Yes, I do." This farm, I asked if they were willing, or wanted it to pick up this farm to sublet this farm. It wasn't a no-brainer rent. It was a market rent and their banker said, "No, no, no. Now's not the time to pick this up." because this was three, four years ago at harvest prices were low.
This farm was 2,000, 3,000 acres, but had the equipment to farm 4,000 and so they could pick up this farm without any additions of overhead. Their bottom line increased by $50,000 by picking up this farm. The banker said, "Okay, well." They plugged that into their Harvest Profit account and 10 minutes later it showed, all right, I can-- I have a $50,000 increase in my free cash flow by picking this farm up. That was really a fun opportunity where each farm, the farm that let the land go, and the farm that picked the land up, they were both better off for it.
That was a really unique opportunity, I thought, where they could simply evaluate those decisions using Harvest Profit.
Tony: That would definitely make a person feel good to know that you helped not one, but two in that specific situations, but then also the wheat customer, you were talking about, really puts a smile on your face to know that your program, your software is helping them make those decisions. Now, if somebody wants to learn more about Harvest Profit, where can they go? Who can they talk to?
Nick: harvestprofit.com. You can sign up for a free trial. You can check out our blog. We post a lot of content on there. If you go to harvestprofit.com\call so harvestprofit.com\call you can book a call. Like I said, we don't have a sales team but we're here to answer questions. Then we've put up quite a bit of content on YouTube over the last couple of years. If you just search for Harvest Profit in YouTube, you'll find our channel where we have some interviews and quite a few product demos just walking through, what the software can do and examples of it.
Tony: Awesome. Well, I just want to thank you, Nick, for taking the time to sit down with me today, talking about Harvest Profit and how it can benefit a grower from a financial standpoint on their farm. Thanks again for doing this.
Nick: Thank you, Tony. Appreciate it.
Tony: Thanks again for tuning in to another episode. If you have questions about the technology and products discussed or have ideas about future episodes, please leave them in the comments below. You can also subscribe to RDO's YouTube channel and be in the know about each episode or tune in on any streaming service. Thanks again.