Farm Progress

Prepare now if you’re thinking about land purchases this winter.

Darren Frye, CEO

November 7, 2016

3 Min Read

As harvest starts wrapping up this month, focus is shifting toward another thing that may soon be changing hands this winter – land. Our advisors are hearing from farmers that there’s definitely land for sale out there. Also, land that may be potentially coming up for rent is surfacing in many areas.

Buying or renting land can be one of the most major, emotional decisions a farmer makes. Having the best, most accurate financial data as possible can go a long way toward helping you make good land decisions. Especially with the tight margins in ag right now, it’s smart business strategy to hone in on making highly informed decisions for your farm business.

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If you’re thinking about potentially purchasing or renting ground, you’ll want to be ready to move quickly if or when an opportunity arises. You can take action now to be prepared in case something comes up. That way, you can be the best judge of whether or not it’s the right opportunity for your operation at that time.

Analyze the situation

First, you’ll want to get a clear handle on the current situation of your land – mainly on any rented ground – by having a land analysis done. Working with an ag finance advisor can help you gain that better understanding of where your farm is at.

With that information, you’ll see the actual numbers of how each piece of ground is performing compared with your other land, while taking rent costs into account as well. You can become aware of which pieces of ground are your ‘best value’ right now, as well as any that’s underperforming for its current cost. With an analysis in hand, you’re better equipped to assess whether an opportunity to buy or rent ground may fit well into your overall operation.

You’ll also probably want to chat with your banker – ahead of any actual land opportunities arising – to let him or her know that you’re going to be evaluating potential chances to rent or buy ground this winter. This gives them a heads up that there may be more communication from you later, once there’s an actual opportunity – where you may need to move quickly.

Look at the specifics

Let’s say an opportunity comes up – that seems like it could be a potential fit. You may want to have a land purchase feasibility study run by an ag finance advisor. A feasibility study on the ground can help remove some of the emotion from this decision.

You can have a feasibility study created for ground that you’re considering renting or buying – or the study can be created to help you consider both possibilities, if you’re looking at different options. The study allows you to look at the land decision in the context of your overall operation. You’ll also want to consider factors like land appreciation and expense appreciation.

Make sure you consider your larger goals as well. Ask yourself: How does this potential purchase fit into the overall goals of my operation? How will my working capital and equity be affected – in the near and long-term? Perhaps you have the goal of owning a certain percentage of the acres you farm, and the opportunity aligns well with your goal.

Having in-depth data and numbers helps when you want to make sure your decisions are right for your farm business as a whole. If you’re thinking about buying or renting ground in the coming months, you may want to prepare now with the help of an ag finance advisor.

The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.

About the Author(s)

Darren Frye

CEO, Water Street Solutions

Darren Frye grew up on an innovative, integrated Illinois farm. He began trading commodities in 1982 and started his first business in 1987, specializing in fertilizer distribution and crop consulting. In 1994 he started a consulting business, Water Street Solutions to help Midwest farmers become more successful through financial analysis, crop insurance, marketing consulting and legacy planning. The mission of Finance First is to get you to look at spreadsheets and see opportunity, to see your business for what it can be, and to help you build your agricultural legacy.

Visit Water Street Solutions

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