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Profit Planners: Tumultuous supply markets infuse uncertainty into building decisions.

August 19, 2021

3 Min Read
exterior view of farm shop
BIG INVESTMENT: A shop is a big investment and requires lots of planning, including when it’s time to pull the trigger based on building costs. Tom J. Bechman

We need a better shop with extra machinery storage. We priced a building two years ago but didn’t pull the trigger. We thought we could do it now with better crop prices, but the quote for the same building was almost double. We’re inclined to wait again, but how do we know whether building prices will come back down?

The Profit Planner panel includes David Erickson, farmer, Altona, Ill.; Mark Evans, Purdue University Extension ag educator, Putnam County, Ind.; Jim Luzar, landowner and retired Extension educator, Greencastle, Ind.; and Steve Myers, farm manager with Busey Ag Resources, LeRoy, Ill.

Erickson: It is difficult to know what will happen with construction prices, but usually price spikes are followed, at some point, by corrections. I would continue to plan and have discussions with multiple vendors who can provide the product, construction and service you need. Ask each of them to forecast pricing opportunities for this project, and make a decision based on the best information you can gather. Ultimately, you must make the decision based on your ability to budget for this investment.

Evans: A current buzzword heard of many economists is that the current inflationary environment following the pandemic is “transitionary.” Only time will tell whether that is correct. Just like land, stocks or other wealth-building investments, the goal is to buy low and sell high. There are obviously supply disruptions following the pandemic. However, most local lumber yards report that there is adequate supply in that they can obtain material, unlike the auto dealerships, for example, that cannot obtain cars to sell.

My personal feeling is to wait a year or two, unless the cost of not having a shop is going to cost you because of inability to maintain equipment. If equipment storage under roof is the major issue, seek out temporary storage options nearby, if that is a possibility.

Related: New report offers farm shop insight

Luzar: Prioritize which aspect of your investment creates the best return. A better shop could enhance equipment function, save on repair costs and improve machinery operations. By attempting to place a monetary value on this improved shop, you can better assess if it’s one of the best financial investments you can make now. This process also forces you to determine needs vs. wants.

With respect to machinery storage, you seem to have functioned for two years with what storage you have. Can extra storage space be rented, or an alternative building material be used? Having all rolling stock under roof is desirable, but a value should be assigned to compare investment cost. Your equipment dealer may help with how trade-ins are impacted by outside storage.

With actual projected economic benefits, you can compare costs and returns. The higher cost of building materials creates higher ownership costs, which necessitates higher returns and makes “wants” tougher to justify if you’re navigating a tighter cash flow. Material costs will be influenced by farm income and construction demand, and may retract some when supply catches up with demand.

Myers: No crystal ball here, but I would suggest patience in these turbulent times. Are these building prices the new norm? Perhaps, and current volatility gives us all indigestion and little true insight, so I suggest it is better to say, “I wish I would have” rather than “I wish I would not have.” Perhaps you can rent storage space for machinery not under roof in the meantime.

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