Thinking about buying land and farming

The largest investment required for farming is land. The value of the land you farm has little relation to your income, however, since other factors, such as location and development prospects, may influence the price it would be appraised at. You can farm land you don’t own, and that may be your best bet. Rent may be less expensive than buying additional land. If you rent, obviously you must figure gain by calculating the income from farming, and subtract the rent or annual lease. The true gain from the rented land is what you make farming plus what the rent seeker gets from you in rent.

If you are buying land you have to figure gain by calculating the income, subtracting the payment and adding the annual change in value of the land (which may be plus or minus). The change in value of the land is quite difficult to determine. It will surely be a matter of expert opinion, since appreciation of the land (or depreciation) is highly subjective. The exact figure will change from year to year, too. It may be more or less for you than the average guy who comes along.

Land is a very large chunk of your capital and many farmers won’t be in a position to do this kind of calculation. If you want to buy land, you do so because the opportunity comes up, and you want to take a shot at it. You bet you can “make payments” until it is yours. It is done on faith (interest won’t get too high, no accident in the family, government policy won’t change too much, markets wont change too much, etc.) Truly, you see your shot and you take it. Definitely a judgment call for most folks. Better to have a chunk to put “down.”

If you really need this figure, your lending agency may be you best help since they sometimes need a figure based on the market value of the land.

Farming on someone else’s land is a good bet, if you have at least few acres of your own and can negotiate a long term deal. (See more details below.)

In a livestock operation the second largest investment is in cattle. There is a pretty direct relation between the worth of your cattle in a breeding operation and your income prospects. The number of animals you have to sell is related to the number of breeding stock, and the price received is related to their quality. Efficiency is getting as many calves out of the cows as possible and getting as much weight on them as possible. And it also includes good marketing, getting as much as possible for them.

Your third largest investment should be machinery. This should be as small as possible. Machinery ages and in time has to be replaced. It is taxed. You want what will be the least investment that will get the job done in the time and with the labor available. You need tools for all you might want to do, and these accumulate. Some are lost (fencing tools especially), but most are a lifetime investment, and don’t really depreciate. Do you need a large truck? A dump truck, a cattle trailer, a bulldozer, a back hoe? Don’t buy things that can be hired or leased more cheaply. (This is what your community connections are for, in part. They allow you to find out where these things can be obtained and what they cost.) Buying additional equipment implies you have to have more storage, too, a place to put them under cover. But you may justify the additional investment if you plan to do custom work – a stump grinder, for example. But if you justify a piece of machinery this way, you have to do the sales work to get this custom work.

The fourth investment is development. You must have fences and stock handling facilities as a minimum. These are a kicker if you have to build them on someone else’s land. You really need sheds for all equipment, which will be on your own land, of course. You don’t need much. Sheds made of poles cut on the farm are quite adequate, and inexpensive, but be sure of your materials and design. Get advice on what timber to use to avoid insect trouble. It is nice to have a tight building to work on equipment when it is bad weather and for storage of materials that need to be kept out of the rain, but not absolutely necessary. The new tent-like buildings are a good bet for equipment and hay storage. You may need wells and electrification as part of your development.

Out of all these investments, only more and better cattle (or for other enterprises the immediate antecedent of what you sell) will make you more money. But don’t try to overstock your property. You can’t afford to buy feed for less than exceptional animals, and too many animals leads to disease and environmental damage.

Buying (or renting) adjacent land is valuable because it eliminates travel time and transportation. If the land is adjacent the animals can be moved back and forth easily. Fences need not be as secure between the old acreage and the new. You might want to put them in a better location.

So if you are starting, or plan an expansion, renting is a good bet, gaining ownership of cattle and machinery, before buying land. The ideal is to find a farm that the owner is willing to rent to you now and sell to you later.

Today the economy is going backward. The average man in his 30’s today (2009) makes 12% less in real money than he did in the 1970’s. Jobs are hard to find anywhere. You read about hundreds of people applying for a dozen or two new jobs being offered. A significant part of the population lives on welfare. It isn’t uncommon for young adults to be living in their parent’s house beyond age 30. On the other hand, the wealthy are doing very well, and those that depend most closely on them are, too. The dollar is sinking like a rock. Land is sky high. Not a good time to buy! A farmer can’t afford to speculate on these terms. Let the speculators loose their money! Rent!

Buying land is always a risk, but the reward is great satisfaction when it is paid for. But you must do a hardboiled analysis. Intense desire to own helps, but alone it is not enough. You have to think, think, think. And be lucky. And carry insurance if you want your heirs to own what you start.