Attending or speaking at conferences, meetings and seminars over the last few weeks I have had the opportunity to have numerous discussions with producers on a multitude of topics. Most of the discussions centered around what is going to happen in grain markets, what should they seed and when should they price their grain.
As a market analyst and advisor in this current world of uncertainty I tried my best to be as vague as possible with my answers! There are too many variables to consider before answering without more in depth discussion around their specific farm operations and we were only on a 15 minute break.
Another conversation I had was about renting more farmland and how much they should they pay. I asked for more details about their farm, and why they think taking on more land makes sense.
What I wanted to know what: are they looking to grow the farm because they have the extra horsepower to take on additional acres? How old is their current equipment and how much life is left in it?
Do they have the help to take on the additional acres or are they taking it on themselves?
Are they looking to expand the farm because a family member wants to farm full time and they need more acres to be viable?
Is the rental land close to their other land? Might there be a chance to purchase the land in the future or is it strictly a rental scenario?
Renting two more quarters?
One fellow was farming 1,500 acres and was considering taking on two quarters of land across the fence from his farm. He wanted to be more viable and felt he could do the work himself with the equipment he had. His line of equipment was getting a little long in the tooth but in good shape, so he felt he could get another two or three years out of it. His family is young — his oldest son is 12.
It sounded like he had thought this out pretty well so I decided to approach the situation from a different perspective. With him being the primary operator, taking on more land means more hours on the seat of a tractor, sprayer, truck or combine. I asked him if he would benefit more by spending that time tweaking management practices, fertility program or spraying regime on his current land to improve yields and overall profitability. This would also save him from adding extra hours of work and wear on his older equipment.
This farmer was the first to admit he could do better on some of those aspects on his existing acres so we talked about what per acre profit he hoped to make on this rented land, based on an average year on his existing farm. Could he make the same amount of profit or more on his existing acres by tweaking his current management practices?
He thought about that for a little bit and said that he would have to do some math to see which way would make for the best potential increase in return for his farm. We parted ways as the seminar was about to continue again.
At lunch he sat at the table with me and told me he had been doing some quick math during the last two hours at the seminar and came to the conclusion that if he were to focus on improving his production practices he would get a better return for his time and money, plus extend the life of his equipment by not running it over an extra 320 acres every year. With better management practices he could look at changing out his equipment over the next few years and ramp up his horsepower with the future objective of taking on more land if it comes available at a later date. In another three years his son would be 15, and able to help more on the farm, giving them the manpower to take on more land.
We hadn’t really discussed the cost of the rent for the land so when he mentioned the high rental price of the land he was considering, he admitted he was afraid that paying that kind of a price for rent would put him in a tough spot. There wouldn’t be much room for error and he could end up losing money on the rented land instead of making money.
Now, he feels that if he can improve his management practices first over the next three or four years. In the future, when he looks to rent or buy land he has a better chance of being able to be profitable because he focused on the right things first.
I once heard a conference speaker say that it’s more profitable to get better at what you are doing before getting bigger at what you are doing! Then, as you grow your success will be exponential!