Some farmers are taking advantage of high prices to sell part of the farm, then enjoying farm life with less work and no debt
So far this year I have heard of at least half a dozen farmers who sold off part of their farm, kept farming debt-free and had big bucks in the bank. One farmer who did this was out of debt at age 41. Another was pushing 50 and had a million bucks in the bank. They’ll certainly keep farming, but with a lot less work and risk, and with money in the bank instead of an operating loan.
The money won’t earn much, but for the first time in their life they now have assets, time and financial freedom at an age where they can still enjoy life.
Two things helped these farmers make that decision. One is the high price of beef cows. For others, the high price of farmland helped them decide to sell some land.
I’m not saying you should sell your farm. I’m saying that if the high price of fertilizer, fuel, repairs and the risks of farming are starting to make you think, this might be as good a time as any to gear down the farm, spend less money and cut your financial risks.
Priced for perfection
In the stock market, “priced for perfection” means that shares are priced as if profits will continue to stay high and maybe go up.
What does it mean in the beef business? A 90 per cent calf crop, easy winters, low interest rates and lots of good equipment.
What is reality? Likely not a 90 per cent calf crop, year after year. And the price of bulls, repairs and labour is going to rise. Cattle producers in the higher cost zones where they might have to feed cows for 217 days each year face severe competition from farmers who can graze swaths, bales or grass without starting their tractors. Any producer without a comparative advantage likely will not survive unless someone on the farm brings in a good salary and is willing to spend some of it to feed cows.
I think we will see more and more dual career cattle producers with a good education, a good job in the country and 50 cows.
As one downsized farmer asked me: why bother? But there are downsized farmers with grazing land and spare time who just like cows.
With today’s equipment, the work it takes to expand your farm to crop “another quarter” has come down. It used to take days — now it’s hours. Sure, grain farming still depends on the weather. But crop insurance programs have been beefed up, odds of another low of another year of widespread flooding are low, and China will likely continue buying food to keep its 1.3 billion people from revolting. Russia and Ukraine might be able to boost production but the infrastructure needs to be improved. Likewise in Brazil.
As corn and soybeans replace flax and oats in Western Canada and as new processing facilities and markets open up, the odds are good that there will be decent markets and prices for all crops you grow.
I also sense that marketing knowledge is going to improve. A lot of readers of my newsletter know how to buy or sell calls and puts on stocks at the proper time to boost cash flow or reduce risk. I expect the same strategy will spread across more crops on more farms. The system is there, the knowledge can be learned.
Farming has changed
I don’t like the word changed. It doesn’t say anything unless it refers to coins in your pocket. Has farming improved or gotten worse? Compared to what?
Cash flow has improved on most grain and beef farms, but so have expenses. Expenses seem to go up when the outlook for commodity prices goes up — often months before you actually have calves or grain to sell.
I have often argued that critical size matters a lot when you are planning a farm. In the Red River Valley that critical size seems to be around 2,000 acres per operator. Generally the number of acres goes up as we head west.
However, at current farmland prices, in many areas it’s time to wonder whether buying land at these prices will, should, could or would improve economies of scale. There comes a point where, if an asset is too expensive to buy, a person might be wise to sell.
I know it’s hard for many to sell stocks, cows, and farmland at the top of the market. One of the problems is that tops and bottoms are hard to spot until they are behind us.
Every person needs to think things through for him or herself. But over my 42-year career in the agriculture industry, I have known many farmers who sold cows and or farmland at good high prices. From my memory not one, I repeat, not one farmer has looked back and said it was a mistake.
The idea of selling assets to bring down debt can be quite interesting. The critical size of a farm should shrink dramatically if debt is eliminated. Sure, the price of farmland might keep rising for some time to come. But farming less land means equipment and health should also last longer too.
Which leads to an interesting question: if a farm needs more land to have a critical size, is there a price at which less land improves the satisfaction of the farm? I think so. †