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Senior Advisor

About custom farming

I have our acres farmed by a cousin and he charges individual rates for every individual task he does on the farm. He bases the rate on the Iowa State extension service listing of custom rate. Of course each task is rated with a low to high rate with an average cost per acre. One can negotiate anything but listing provides a basic for what is going on throughout the state.  I suppose other states may have simmilar product to guide customer farmers and those that hire them.

 

There are some tasks the need to be done such as rock picking and disposal and those are generally priced by the custom farmer on an hourly basis.

 

With this I get nearly new equipment and experienced operators and virtually no repair bills or flat tires and it is all deductable. In fact it is probably less costly than doing it myself especially when yopu consider that I could never afford that high quality equipment on a farm my size.

 

Another option would be to hire a capable individual and buy the equipment to do the Job. I don't know of anyone doing that but it would be an alternative. I did consider that until I decided i would rather invest my capital in farm land rather than machinery. I doubt I would have gotten as good a return on my investment.

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Honored Advisor

Re: About custom farming

Well Don, you`ve been lucky the last 5 or so years, it`s been a good time to hire custom farming.  An abundance of over-powered farmers with new paint to pay for and historically high grain prices that leaves a slush factor not previously there in farming. 

 

It used to be that "doing your own work" was the only profit, if you wrote checks to a custom farmer, there went your profit and you just made work for him.

 

If margins get tight again, that slush factor might go away.  Custom operators may rethink over buying machinery, so those tables may turn.

 

Also high rents have pushed those wanting to stay in the game to go the custom work route.  Before crop prices went up I remember a ISU ag engineer saying to not do custom work, because repairs and depreciation would eat up profits, they just couldn`t charge enough to justify it.   That said some have managed to make it work.

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Veteran Contributor

Re: About custom farming

I would say watch what the farm managers (the people who get 6% of gross for mangaing little old ladies farms).  They were first to go with the 75/25 split then 80/20 and now straight payment per operation. 

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Senior Advisor

Re: About custom farming

One thing I have considered folks is that it does require a bit of capital to finance the operation and the custom farming fees. Perhaps it would be worth considering a cash rent situation with the unused capital to buy another farm. The farms would produce a generous income and service the debt on another 80 or more. 

 

It probably offers nothing to our own standard of living but would reduce my involvement and add to the assets for my kids. But that is a decision for myself and my life partner

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Honored Advisor

Re: About custom farming

When it comes time for me to quit, I`d probably just go with renting it out instead of custom farmed...but times change, maybe we`ll again see a period like the last 5 yrs. 

 

Many times custom operators will do a extra good job at a rate so cheap they lose money, just to get their foot in the door to rent or purchase one day.   I call it "Brown nosing" but whatever is legal and works...Business is business.   Smiley Happy

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Veteran Contributor

Re: About custom farming

Not sure if this new thread is in response to my original custom farm question, but I appreciate the comments. Interesting to me that the assumptions on this board is pretty much that the good days are over for awhile. My assumption has has been that about one out of five years, the custom farm thing return will exceed cash rents to the point where it'll come out quite a bit ahead in the long run. But who knows. When I started running numbers, corn was at $6, so things have changed. I do like the idea of learning the farm business from a custom farm standpoint, and then if I did want to step up my involvement, at least I'd know quite a bit more at that point. 

 

As for custom farming being a bad deal for the operator, would there really be that much in repairs and depreciation? Let's say I'm paying $75,000 for 500 acres of custom farming. Hard for me to imagine that wouldn't well exceed the farmer's costs.

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Senior Advisor

Re: About custom farming

Have you ever considered custom farming maybe only one quarter to see if it is even something that you would be interested in down the road? Might be worth considering before you decide to take a gamble with the entire farm. Just an idea.
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Veteran Contributor

Re: About custom farming

Shaggy - my family's farms are 1480 acres total, so I'm already close to what yoi're suggesting. We have 10 tenants and 12 farms. These two parcels are the largest, 5 miles from each other, good dirt, and among the lowest rent. My preference would be to keep the current tenant, work this out with him, and see how it goes.

 

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Senior Advisor

Re: Good idea!

Even one nice sized farm on a trial basis until he sees how it works. One farm this year and maybe more the next. It's hard to see how he could lose money doing it but he might find himself more involved than he cares to be.

 

You do have to be actively engaged in management decision in order to qualify for gov't subsidies. I suppose some delegate managment responsibilities to their custom farmer but USDA regs require you to personally be involved in decision making.

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Senior Advisor

Re: Good idea!

A few years ago when I was flying charter nearly full time, I had a lot of work custom farmed.  I farm full time now but still use a custom farmer if I have an equipment breakdown or other hitch.

 

I've had some very good custom farmers, but never one who did everything exactly as I wanted.  He has his own schedule and with that and weather sometimes you don't get things done when and as you wish.  He's used to doing things his way and sometimes that's now how you'd prefer.  

 

I'm of two minds on having my farm custom farmed.  I think I'd rather have it custom farmed than rent it out but would almost as soon sell it rather than watch someone else operate it.

 

I think it's pretty personal.

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