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Senior Contributor
Posts: 609
Registered: ‎11-20-2016
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Re: Be Prepared

SW, I ran my numbers on rented ground two years ago to see what I could afford to pay with normal yields and made a tight, $4 corn, and $10 soybean scenario barely work. We have been blessed with above average yields, so the numbers got better, too. I do own a higher than average percentage of the ground I farm, but I always run my budgets to make money on those acres, too, over and above what a fair rental rate would be. My equipment costs and labor costs are probably well below average as I am blessed with a helper with good mechanical skills that just wants the average farm labor amount, and delivers more than his pay and keeps my repairs under budget. I give thanks for his help and friendship on a nightly basis when I say my evening prayers.

 

I find chemical deals that work that are way under the average costs, I buy fertilizer wholesale by the semi load and accordingly have much more time involved in fertilizing my fields, but I do make it work for under what others might budget. I haul the grain myself to terminal markets for the.25 cent premiums. I ask the seed district managers if they can sell me seed for what I feel is a fair value, and they have been honoring my requests. I buy from three suppliers, Syngenta, Pioneer, and Monsanto sources and find that the popular hybrids from each of them are very competitive with each other under my programs. The "deals" I get are pretty similar to what the regional seed companies send out flyers for, so while I am not paying retail, I could easily find the same "Deal" just by planting from a regional seed company.

 

I am probably way overequipped for the acres I run and I am sure that some smart bean counter would tell me to auction off the idle equipment and invest the proceeds in performing assets, but if you buy everything wholesale and you have the storage room, there really isnt any urgency to sell. Many times  I will pull out an old piece of equipment and use it, too, For my budgets, I use the university numbers for custom farming, in lieu of my actual expenses, just to try to make things realistic.

 

One thing, I farm in southern Minnesota where we routinely flirt with or exceed 200 bushel per acre corn on the premiums soils. That makes everything work a whole lot better. For land acquisitions, I have been using a 3 percent rate of return to see if a deal makes sense, and have found a couple of deals that work with the recent down market in land. Obviously you cannot borrow money for 3%, which makes leveraged farming no longer feasible for expansion plans.  If you  cannot operate with your own money and equity you cannot borrow yourself into prosperity in todays markets. Very few times has  that possible or feasible, though, and if it was, the tigers would own everything. But you dont need to own the land you farm to make profits, unless you have someone willing to farm that land at a loss just to farm it. If that is the case, its a tough scenario to be in. If that is the case, you need to take a deep breath and let the land go and invest your energy elsewhere.

 

Some operations are making decent money with $4 corn and $10 bean contracts, and other operations obviously are not and need to look at how they do things and make adjustments.

Honored Advisor
Posts: 14,380
Registered: ‎05-13-2010
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Re: Be Prepared

Lookit this Bigshot, thinks he can still make it paying $400 rent.   Offa Craigs List.

 

Farm ground wanted to rent- Paying up to $400 an acre - $1000 (Boone/Winnebago Counties) hide this posting unhide

 
 
 
 
 
© craigslist - Map data © OpenStreetMap

(google map)

Wanted farm ground to lease for 2017 in Boone and Winnebago counties. We are one of the few left that still trim tree lines and rebuild waterways. We are willing to pay a $1000+ finders fee to anyone that helps us in getting a signed lease for 2017. Open to all field sizes. Please email for details. Thanks!
  • do NOT contact me with unsolicited services or offers
Veteran Advisor
Posts: 2,454
Registered: ‎02-11-2013
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Re: Be Prepared

There you go BA........go line up a bunch of places, and get your $1,000 for each place.........the way things are, you

might make more being a "bird dog".

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Senior Contributor
Posts: 609
Registered: ‎11-20-2016

Re: Be Prepared

$400 per acre rent for land that delivers 200 bpa consistently isnt any more than $200 per acre for 150 bpa land.

 

50 bpa X $4 is the $200 difference, and my experience is that its harder to get the 150 bpa on the marginal ground than it is to get the 200 bpa on the premium ground.

 

And please dont say that it costs less to farm the more marginal stuff...my experience and records show that it actually costs more.

 

I farm some 150 bpa ground and it consistently is my poorest margin stuff.

 

I am not out looking for additional land, but if I was right now, I would try to find the best drained, well maintained land possible and pay the premium. Probably not $400, but at $300 it would replace what I now rent in a heartbeat.

 

THe problem is that every landlord thinks they have 200 bpa land no matter what the yields actually are on average.

Honored Advisor
Posts: 14,380
Registered: ‎05-13-2010
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Re: Be Prepared

Here is a ISU rent survey, about $250 in 2016 is up there, any higher deviation per the Craigs List $400 guy, kind of reeks of perhaps he ticked off previous landlords and out of deperation of seeing a now $5,000/acre machinery investment he has to scramble for more acres?  Craigs List is a funny thing, it could be a landlord posting it to be cute or alot of other possibilities.   It was worded carefully such as "pay up to $400 acre" so there was wiggle room, also someone that aggressive might not be the easiest to get last half of your rent...alot of things there unsaid.

 

http://www.extension.iastate.edu/agdm/wholefarm/html/c2-10.html 

 

table

Advisor
Posts: 688
Registered: ‎10-18-2016
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Re: Be Prepared

BA, there's no problem getting the last half rent when all the rent is up front.

Honored Advisor
Posts: 7,303
Registered: ‎07-18-2011
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Re: Be Prepared

Great data rsbs,

And your thinking ........ in a good accounting manner....

 

I appreciate your response and it sounds like your in good survival mode....

 

A couple of points jump out but are somewhat sematics......... I agree those who own their land, and those who finance their own operating notes have a much better survival rate....

I just would not characterize that as "profitable".....   If your not charging yourself competitive rent and interest then your choosing to take a hit personally to make the farm look better than it actually is.....

I just wanted to note that it is not a profitable crop unless it is paying all its bills..... land cost and interest included.

If you own the land and can get $200 cash rent if that is common, why should we rent it to the guy who isn't going to pay any.

 

It is a common point among us farmers....... The tougher times are the tighter our blinders get.  And the first thing we ignore is paying management for its services.

 

selling grain........ We are pricing some if its above $4 and were a month ago at $3.74 ...  cash flow needs are not based on profitability (what some might say is "the market doesn't care")

 

I account for a farm that was operating on a budget of 250K on rented land 35 years back.  At the time it was paying its ownership average 15% return on that budget or 37.5K.

Today that same opperation farming approx. the same rented acres(regardless of who owns land) needs a budget of 1,300K or more.  If it is still averaging a 15% return it should be returning to management  195K per year....... But it is not....  . The farm is taking a lot lower % of return and assuming a lot more risk.    

How does that happen, we all know, but we want to believe as we are told --- there is no inflation...  Holding down interest rates has an inflationary price...and a lot of bad habits are formed.

Our area is having a housing problem ---- too many for sale and not many buyers....... buyers dried up when a down payment is required....... With interest rates down, very few save money.  Good jobs, good wheels, technology, and no money in the bank..... more student loans than savings......  The federal reserves choices have consiquences..

 

I agree with you $4 corn and 10$ beans are prices we better consider....at least for a place to start.

But I'm not sure when we will see profit margins again.  To me this seems like one of those stretches when we just work hard to get our old committments made and tread water for a while.

Veteran Advisor
Posts: 2,454
Registered: ‎02-11-2013
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Re: Be Prepared

i hate to say it, but the question begs to be asked.......why ?

Honored Advisor
Posts: 14,380
Registered: ‎05-13-2010

Re: Be Prepared

Farming can`t be looked at as being profitable every year, if you turn a profit 8 years out of ten you`re probably doin` good.   You just have to have that "equity to burn" for those couple clinker years.   But like a poker game, how many chips do you throw on the table if you`re holding a pair of two`s?   Cause there`s no guarantees that it can`t get worser, longer.   But that`s why we make the big bucks.  Smiley Happy