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!)
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.
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.
We may be missing something here, but that’s already $715,000 in equipment.
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.
The total thus far is $4,810,000. However, we still need operating capital to plant the first crop and survive for the first growing season. To plant, fertilize, and spray 750 acres of beans and 750 acres of corn right now will cost you about $140 an acre for beans and $290 an acre for corn – $322,500 in total. To survive for six months until harvest will cost at least $25,000.
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.