Tag Archives: ranching

Too Many Farmers & Ranchers?

In these slow times made so by inclement weather (snow, cold, ice, wind, mud, rain), my energy level increases because i’m not working as physically hard.  These past couple years, too, i’ve begun going to our local YMCA at 5am to walk and lift weights for a couple hours.  All this contributes to a restless feeling that i’m not accomplishing all that i can.  My children, now grown, are good at reeling in my ambition and crazy ideas a bit, which is good because i have a natural tendency to get too many irons in the fire.

However, the perspective of age has tempered and honed those expansive ideas as either increasing work or increasing investment.  The latter is much more attractive to me now as my physical strength wanes.

All that shared to relate an irony of agriculture in the United States.  Although, some would cry ‘save the family farm’ few actually have a real look at what the family farm is.  Are we dooming the modern family farm by idolizing the farms of the past?  or those small holdings in distant lands?  The reality is that farming/ranching has never been financial lucrative in the sense of ‘getting rich.’  Margins are slim, startup is pretty much insurmountable now, and i never thought i’d say it out loud, but i fear there are too many farmers/ranchers in the United States.  That is to say, that despite the average age of farmers is 58 or 59, farming of the agrarian sort (actually farming/ranching – not some related field) is more competitive than ever!  Outside investors and to an even greater degree, neighbouring prudent and successful farmers with disposable income bid up land to amounts beyond production value which keeps new farmers from entering.  Oh, yes, i know that mantra is that you don’t have to own land to start in farming, that is absolutely true, but at least here in north Missouri, you’ll be hard pressed to find anything to rent – pasture or crop land.  And, to be honest, most of the land in our county is not crop land, yet it’s been under the plough for decades and much has washed down the creek.

How did this happen?  Technology, bigger and better equipment, government support programs, and the never ending pressure to produce food cheaply.  All these contribute to fewer farmers necessary to farm the massive number of acres to produce crops with slimmer and slimmer profit margins.  Often, the only profit is the check collected from the federal government (you, the taxpayer).  But don’t blame the producer!  It’s just our system.

For some time now, interest rates on saved income has been lower than the inflation rate, resulting in outside investors hoping to get some return on their money, whereas farmers buy land to spread out the equipment costs.  Consider that for a row cropper here, land to purchase (it’s a rarity to find) will cost upwards of $4000/acre. (a small parcel just sold in the county next to us for $8000/acre!)

Thank A Farmer Kitchen Farms wheat harvest in Missouri by Finney Aerial Photo

There are a few farms asking less than that, but most are worn out (soil loss, erosion, and fertility may take decades of proper farming/ranching to reverse or restore) and should never have been cropped in the first place (steep slope, poor production indicators, etc).  Yet, the asking price is out of reach for anyone wanting to raise livestock.  One such farm near me would take at least $400/acre up front cost to restore it to even marginal pasture.  Add that to the asking price, and already it’s over $3500/acre! (Racks & Tracks listing)

So, is land more expensive now than in the past?  Consider my property just across the road from the above listing and of similar topography.

1857 – $1.83/acre – Today’s dollars = $53.19/acre

1870 – $13.41/acre – Today’s dollars = $258.87 (this buyer lost the farm)

1872 – $3.90/acre – Today’s dollars = $80.84/acre  (appraised value was $64.67/acre)

1875 – $4.79/acre – Today’s dollars = $110.12/acre

then several surveys and set aside for Morris Chapel Church and cemetery – finally back together in 1945

1945 – $11.97/acre – today’s dollars = $168.17/acre

1949 – $26.95/acre – Today’s dollars = $286.36

1966 – $92.81/acre – today’s dollars = $724.39*

2018 – $3100/acre – today’s dollars = $3100/acre (asking price of farm across the road)

Working backwards – what would a $3000/acre farm bring in 1949?  $282.34

*1966 is when my grandparents purchased the farm, it shows, too, another reason land owners won’t sell property – basis.  Since this farm was gifted to me, the basis from 1966 remains in place.  In other words, if i sold the land for $2100/acre, capital gains tax would be paid on the difference between $92.81 and $2100.  This tax could be as much as 23.8%!  However, if i die and the land passes to my heirs, it can be appraised and establish a new basis.

Tenants compete for acres by bidding up rental fees because of their massive investment in machinery.  Absentee farmers and investors generally accept the highest rent bid (which is usually the one that will least take care of the soil) and hope the fertility and productivity outlives them, then the property will sell.

Change comes one funeral at a time.

Rather than me stumbling about putting together numbers, here’s a great article written in 2017 with sample startup costs for someone wanting to start and make a living farming.

Cheers!

tauna

HOW MUCH $ DOES IT TAKE TO BECOME A FARMER?

THIS IS WHAT IT TAKES TO GO FROM ZERO MONEY TO A FARMER.
I was talking with a couple of farmers recently, discussing the barriers to entry for new farmers. Some numbers were thrown out as to how much capital it would take for a young man or woman to get started into farming.“$1 million, $2 million, more” were amounts bandied about. This made me curious, so I decided to drill down on the actual capital requirement.

First of all, we need to decide what kind of farmer we are talking about here. For this article, I’m assuming someone with no family farm who wants to become a full-time grain farmer in Iowa, Illinois, or Indiana.

The first thing a budding farmer might do is get a degree in agriculture, since he/she would not have learned farming on the family farm. This will cost somewhere between $20,000 and $120,000, depending on where he/she goes and what scholarships are available. The average of those two numbers is $70,000, which will require student loan debt for most young people. Of course, a degree is not required, but it might come in handy for convincing banks to loan money or landlords to lease cropland.

The equipment requirement could be an extensive discussion; however, I’ll try to keep it as short as possible. One could buy all new machines, but to get started, let’s assume the acquisition of decent used equipment – about 5 to 10 years old.

The basic list would include: a combine with corn head and grain platform for $175,000; a big tractor for plowing and planting at 125K; a grain truck for 60K; a planter that runs about 75K; a grain drill for 40K; a disk at around 30K; a chisel-plow for 30K; a field cultivator at 25K; a pull-type sprayer costs 35K; a grain dryer is 30K; a utility tractor for brush-hogging/ditching/grading at 35K; a grain cart for 15K; a trailer at around 15K; an ATV for 10K; and a full complement of tools costs 15K.

The building requirement probably includes a couple of metal buildings ($200,000) and at least a few grain storage bins to hold 75,000 bushels, about $75,000. There is no hard-and-fast land requirement. However, the farmers I spoke with said that someone would need at least 500 owned acres and 1,000 leased acres to make a living.

The quality of the land certainly affects those numbers. For this article, let’s assume 150-plus corn bushel-per-acre land for about $7,500 an acre. If you bought 500 acres as a base of operations, the total land cost would be $3,750,000.

Add it all up, and we arrive at $5,157,500. Wow! That’s a big number, and it’s out of reach for most young entrepreneurs.

Because of the cost of land and equipment today, some farmers are concerned about who will be able to follow them into the industry. How will they fund the enterprise, even with family land and equipment?

Because of greater access to capital, more corporate farms are likely.

The problem is not just start-up capital but also surviving drought years and low commodity prices until they turn around. Unfortunately, even though you are already a biologist, engineer, equipment operator, accountant, carpenter, and mechanic, you have to become an expert financier, as well, to get into farming and stay there.

Written by Shawn Williamson, Certified Public Accountant (CPA) MBA in Missouri and Illinois. This article is designed to be a commentary on the amount of capital required for a row-crop farm in the Midwest. It is not meant to be a guide on how to get started in farming. 

 

Consider the Future by Kit Pharo

This goes for any business, but is specifically written by a rancher to ranchers/farmers.  It is sad how few ranching businesses stay as such from one generation to the next.  Kit explains again one reason for this.

 

PCC Update

November 7, 2018

Cowboy Logic: “The future ain’t what it used to be.”

Consider the Future –

By Kit Pharo

Have you noticed that the most successful and happy people throughout history have been those who made decisions that were based on the future?   It’s true!   Successful people know that nothing stays the same.   The present is different from the past – and the future will be different from the present.   Those who make decisions that are based on the future will always have a HUGE competitive advantage over those who continue to make decisions based on the past and/or the present.

Unfortunately, nearly all people from all walks of life are afraid to make decisions that are based on anything but the past or the present.   It has always been this way, and it will probably always be this way.   Even though they can see things transforming before their very eyes, they are reluctant to make any changes in what they are doing.   It’s as though they would rather fail doing what they have always done than succeed if success requires change.   That is a shame – but it gives you the opportunity to move your family and your family’s business to a very sought-after position.

Based on what you think about the future, what kind of management decisions should you be making in your cow-calf operation?   I’m not going to tell you what I think.   I want you to do your own thinking.   You may come up with something different and/or better than what I have.   The decisions you come up with, however, need to be based on what you think the future holds.   Be bold in your actions.   Those who are slow to take the appropriate actions may lose all they have – forcing their kids and grandkids to get jobs in town.

Quote Worth Re-Quoting –

“The past cannot be changed.   The future is yet in your power.”   ~ Unknown

PHARO CATTLE CO.

Phone: 800-311-0995

www.PharoCattle.com

Facebook Pharo Cattle Company

What Is Sweat Worth?

What Is Sweat Worth?  By Dave Pratt, owner of Ranch Management Consultants

 

What is Sweat Worth?

by Dave Pratt

Most family ranches are subsidized with free, or underpaid, family labor. Sometimes the difference between what family members get and what it would cost to hire someone else to do the work they do is made up with the promise or expectation of sweat equity. But sweat is not a recognized form of currency and people counting on sweat equity usually have a grossly exaggerated idea of what their sweat is worth. This often leads to serious disagreement and disappointment.

If you are going to count on sweat equity and want to avoid the inevitable misunderstandings that happen when it comes time to cash in on your sweat, then you’d better start actually counting it. How many hours? For how many years? At what rate of pay? With what interest on the unpaid balance?

I mentioned the perils of relying on sweat equity in a workshop recently. I suggested we stop using the term sweat equity and call it what it really is, “deferred wages.” My comments apparently struck a nerve with one 30-something rancher. He approached me after the program and asked if I could help him calculate what his sweat was actually worth. He said that he’d come back to the family ranch after college 10 years earlier. He’d been drawing a low wage and banking on sweat equity. As is usually the case in family ranches, there was no formal agreement documenting exactly what his sweat was worth.

He was being paid $25,000 a year, but his compensation package included a nice home, a vehicle and insurance for his family. All-in-all a compensation package worth well over $50,000. “Maybe I’m not as underpaid a I thought I was,” he said.

I suspect that he was probably being underpaid somewhere between $10,000 to $20,000 a year. I showed him that for every $10,000 he’d been underpaid, he earned 0.1% equity in his family’s $10,000,000 ranch.

($10,000 ÷ $10,000,000) x 100 = 0.1%

I showed him that over the previous 10 years, compounding interest at a rate of 3.5%, he’d earned a whopping 1.2% equity stake in the ranch. Like a lot of young ranchers returning home, he hadn’t ever thought about how much his sweat was worth but had assumed that it would add up to a lot more than that.

Sometimes sweat equity isn’t just about compensating someone for the work they do. It’s about acknowledging the sacrifices someone may have made, foregoing other opportunities to come back to the ranch to support the family. If there are several kids in your family, but only one has invested time and energy working on the place and has shown a desire to continue the business, it may be fair to give them an equity position.  After-all, as succession planning advisor Don Jonovic points out, fair doesn’t necessarily mean equal.

But whether sweat equity is a substitute for a paycheck or acknowledging a sacrifice, we need to be clear about what we are compensating and its value. We need to convert assumptions and expectations into agreements. We need to figure out what our labor is worth (the topic of the last ProfitTips column). We need to document the value of our sweat while we are still sweating.

For more on documenting the value of sweat equity watch the video below:

What is Sweat Worth? youtube video

Parity? Not a chance in Farming

It’s not hard to understand why most young people have no interest in farming as a career.  Low wages, working conditions can be brutal at times (weather related or dangerous), and very low return on investment coupled with high financial risk.  Not a good combination.  The average age of principle operators continues to rise and is now over 58 years old – a time when many in other sectors are planning retirement.  However, the young people who are starting up do seem to work smarter and not harder with the result being a more balanced family/work lifestyle.  Also, mechanisation and better ranching principles continue to make the work more pleasant and give farmers/ranchers the opportunity to expand without working harder or longer hours.  There is hope that agriculture will continue in the US, just with fewer operators and sadly, still supported with off farm income.  There is a joke amongst farmers and ranchers that when asked what they’d do if they won a million dollars, the answer is ‘farm until it’s gone.’

1966

Land cost per acre:  $93/acre  (my Bowyer Place)

Cow Prices:  $20/cwt  (20 cents per pound)

Fed Steer Price:  $25/cwt  (25 cents per pound)

Wages per hour:  $1.25 (minimum wage)

Fuel:  .32/gallon

2018

Land cost per acre:  $2800/acre (similar land sales in Linn County, MO)

Cow Prices:  $63/cwt  (63 cents per pound)

Fed Steer Price:  $115/cwt  ($1.15 per pound)

Wages per hour:  $7.25 (minimum wage)

Fuel: $2.45/gallon

CPI Inflation Calculator to compare:

Land – $93 in 1966 is the same as $725 in 2018 dollars

Cow Prices:  $0.20/lb  in 1966 is the same as $1.56/lb in 2018 dollars

Fed Steers:  $0.25/lb in 1966 is the same as $1.95/lb in 2018 dollars

Wages per hour:  $1.25/hr in 1966 is the same as $9.74/hr in 2018 dollars

Fuel: $0.32/gallon in 1966 is the same as $2.49/gallon in 2018

The Three Secrets for Increasing Profits

Farmers and Ranchers seldom spend time WOTB, but now that it is too hot outside to be working in the business (WITB)  cutting trees, spraying brush, etc, now it’s time to sit back and listen to David Pratt, owner of Ranch Management Consultants, and the dvd i just received entitled, “The Three Secrets for Increasing Profits” and begin WOTB.  (Working On the Business).

Happy 4th of July!!!  be safe out there!

Cheers

tauna

“If our farms are not fun, not profitable, or are too much work, our children won’t want them…. Romancing the next generation is the ultimate test of sustainability.” Joel Salatin, Polyface Farms

Ultimate Test of Sustainability?

Will Your Operation Succeed to the Next Generation?

It’s been said that a farm or ranch is not truly sustainable unless it employs at least two generations. I believe it’s imperative that as producers we recognize that even if we become both ecologically and economically sustainable, but fail to pass our mission and work on to the next generation then we’ve failed the ultimate test of sustainability.

According to the most recent census of agriculture: from 2007 to 2012 there was a decline of over 95,000 farms in America. A quick look at the current trends tell us that most of today’s family farms and ranches will not succeed to the next generation.

I believe there is hope for a bright future.

This hope is not based on wishful thinking but rather a ground swelling of innovative farmers that are indeed beating the odds and are building thriving operations. A few names you may recognize are operations like Joel Salatin’s Polyface Farms in Virginia, Gabe & Paul Brown of Nourished By Nature in North Dakota, as well as Will Harris’s White Oak Pastures in Southern Georgia. These are just a few of the many operations that are shining a bright beacon of hope to the greater agricultural community.

If you visit any of these operations there is a very obvious, but all too often overlooked, common thread of success. Each of these operations spring forth with a multigenerational team of people that bring intellectual diversity to each acre of their land.

Most of us in agriculture are at a road block because we’re too narrowly focused on a production mindset and we’ve lost sight of people and relationships. We must make the critical distinction that people create profits – profits don’t create people.

Those of us pursuing regenerative agriculture understand the value that biological diversity brings to our land, but we often forget about the value that human creativity and diverse intellectual capital can bring to our land.

At Seven Sons Farms we’ve stacked multiple enterprises on only 550 acres. By creating synergistic relations between our land, livestock and people, we are able to employee over 10 full time people as well as several part-time positions. We refer to our team as our intellectual human polyculture:

Human Pollyculture

Any successful leader knows that their organization’s most valuable asset is having the right people in the right place.

Zig Ziglar offered this belief: “You don’t build a business – you build people – and then people build your business.”

If the above statement is true then it begs the question – how is agriculture as a whole doing at building people? The graph below shows a plummeting decline in the number of human minds in agriculture.

The erosion of human capital:

1482013689_5855bbf99fc0d.jpg

SOURCES: Agriculture in the Classroom, 2014; BLS, 2014; NASS, 2014a,b; U.S. Census Bureau, 2014a,b; USDA, 2012

Over the course of time we have eroded much of our land’s precious resources in the form of minerals and soil organic matter. But no greater erosion has taken place than the depletion of human minds from each acre of our land. In the early 1970s we reached a critical point – for the first time in the history of American agriculture the number of human minds per acre involved in agriculture fell to a negative ratio.

Interestingly, it was around this same time period that the farmer’s share of the food dollar began to plummet as well.

The erosion of the food dollar:

There are many factors at play but it only stands to reason that if we want to capture a wider diversity of the food dollar, it requires wider diversity of intellectual talents. This is exactly why at Seven Sons Farms we have sought to foster synergistic relationships with people that enable us to capture a greater diversity of the food dollar.

To sum up the past half century of agriculture, one could say that in pursuit of production, we’ve attempted to trade people for profit. In the end we’ve yielded neither profit nor people.

At Seven Sons we believe that the people connected to the land represent the most valuable asset a farm could ever possess. To illustrate this point, imagine for just a moment if you were to remove Joel Salatin, Gabe Brown, or Will Harris from their respective farms. These farms would look nothing like what they do today without the creativity and vision that each of these leaders bring to the land that they are called to steward. The same holds true for your farm as well. The beliefs you operate from, the vision you put forth and the people you inspire to join you – these are the game changers that will empower your operation to beat the odds and succeed to the next generation.

There are unprecedented opportunities ahead of us…

I believe we have unprecedented opportunities ahead of us when you consider many of the recent breakthroughs in regenerative agriculture as well as the rapid shifts we’re seeing in our food culture.

So if you’re looking to exchange new ideas and be challenged to think outside old paradigms then I encourage you to join myself and hundreds of likeminded people at this year’s Grassfed Exchange in Albany New York.

The very mission of the Grassfed Exchange is to catalyze the exchange of practical knowledge, ideas, and strategies that you can take home and begin applying on your operation. Bring a family member, friend or budding young agripreneur who is looking for their way forward in agriculture.

What The Grassfed Exchange Is About:
Click here to register for the 2017 Grassfed Exchange

Reprinted from Grassfed Exchange

WOTB

The WOTB Test

Most people blame things beyond our control like the weather, government regulation, low commodity prices and increasing costs for their failure to make a healthy profit. These are the things most often discussed at producer meetings and in the coffee shop. These are also things we can do little about. Making them the scapegoats for poor performance makes it easy to absolve ourselves of responsibility. But if prices, costs, weather and regulation really determine profit or loss, why do some businesses survive, even thrive, in these conditions while others fail? Depressed markets are a crisis for some but a profitable opportunity for others. It is not the situation, but the decisions we make that determine success or failure.

According to the US Small Business Administration, most new businesses fail. Fewer than 10% survive to see their 10th year. In his best-selling book, The E-myth Revisited, Michael Gerber points to an exception. He says that 97% of new franchises survive beyond 10 years. Why the difference? Simply put, franchises have a clear-cut blueprint on how to run a business. McDonalds doesn’t succeed because they make the best hamburgers or because they hire the smartest, talented people to work behind the counter. Over the years they have achieved economies of scale and have a lot of clout when it comes to negotiating lower costs with their suppliers. But they wouldn’t have been in the position to do that if they hadn’t built a business that actually works. They didn’t grow first and then figure it out. They figured it out and then they grew.

As Gerber puts it, they worked on the business (WOTB) to build a business that actually works. We are so busy working in the businesses (WITB) doing $10/hour jobs that we often don’t ever get around to working on our businesses (the $100/hour work). This is the work that determines the winners and the losers in any business…including yours. More than genetics, prices, weather or any other factor, it is this issue that separates the men (and women) from the boys
(and girls) in ranching.

Our ranches suffer economically, financially and ecologically when WOTB takes a back seat to WITB. Our failure to effectively work on our businesses is the single biggest reason that most ranches aren’t profitable and that most ranches don’t survive generational succession with their land or family intact.

It doesn’t have to be this way. Ranching can make a healthy profit, thrive ecologically, stay in the family indefinitely and be the stimulus for revitalizing rural communities. You put your ranch on the path to achieve these results when you put the shovel down and pick up the pencil … when you start working on it, not just in it.

I’ve heard some complain that they don’t like working on their business. I wonder if the real problem is that they don’t know how to work on it. Previous generations may have been able to get by without WOTB when land values were cheaper and their ranch had only been split once by a generational transfer. But times and conditions have changed. What passed for management then, doesn’t pass muster now.

Score yourself to see how effectively you are working on your business:

Scoring:  0 = I have not addressed this issue
5 = I have addressed the issue but have more work to do
10 = This describes my business.

ARE-YOU-WORKING-ON-YOUR-BUSINESS-chart-1

If you scored more than 70, congratulations! You probably have a healthy business with a promising future. If you scored 40 to 70, you’ll be feeling the pinch but will probably continue to get by with off-farm income subsidizing the place … at least until it comes time to pass the ranch on to the next generation. If you scored less than 40, you might want to think about going to work as a cowboy for someone else. If you want a good job, I suggest you hire on with someone who scored more than 60. He’s the one who’s Ranching For Profit.

 

Be sure to check out Dave Pratt’s Ranching for Profit website for more information and to see if his week long school would be something that will help your business!