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Is this the right time to grow your farm?

Finance First: Growth comes in many shapes and sizes. Consider these tips to determine what’s best for your farm operation.

Darren Frye, CEO

June 10, 2024

3 Min Read
Grain bins with American Flag
Getty Images/DarcyMaulsby

As you think about future plans and goals for your operation, do any of them involve growing or expanding the farm? Many farmers hold “growth” as a goal in some form.

The truth is, there are many different ways to grow your farm operation. Often, the way that first comes to the minds of many farmers is growth in terms of acres – obtaining more acres to farm. But there are several other ways to grow the farm operation.

Farms can grow by adding additional businesses – an ag-related or non-ag related side business, for example. Maybe it’s a seed or fertilizer business. Maybe you do custom spraying or trucking for other farms. You could consider getting into growing custom crops through contracts. Or maybe you diversify into a side business that doesn’t have anything to do with ag.

Another way to think about growth is growth in terms of your overall profit, making more money by reducing expenses. This is a rather different way of thinking about growth, but it can be very effective when you’re serious about boosting your farm’s financial success.

Identify a need

Sometimes farmers can get caught in a trap of thinking that growth is the only option – that it’s simply the default. ‘Everyone else is growing’ is not a great reason to grow your farm.

If you’re considering expanding the farm in some way other than working to reduce expenses, it’s important to first ask: Why? Why are we thinking about adding to our farm business?

Growth really needs to be in response to a need for growth in the operation. Are members of the next generation coming back to the farm? That may present a genuine need for growth in some way – whether it’s in terms of additional acres, side business, or custom ag work.

Farms may encounter other reasons that growth is necessary. There are occasionally once-in-a-lifetime opportunities to purchase a special piece of ground close to the home farm. Maybe one of the farm leaders loves starting new businesses and the entrepreneurship process – and all the responsibilities that come along with it. Always gather the farm’s leadership team to get very clear on the ‘why’ of the expansion first.

Is it time to expand?

The next big question that needs to be asked is: Is this the right time? Timing is often very important when it comes to farm expansion. Adding acres – whether through purchase or rental agreement – is very dependent on the farm’s current financial situation and what it can reasonably bear when it comes to the overall financial picture.

Using feasibility studies to determine whether a land purchase or new rental acres would be acceptable for the farm’s current financial situation and ag operating environment is essential to making good choices about land. Staying on top of your farm’s overall financial situation will help leaders know when the operation is in a good financial position to handle additional growth.

Farmers have found that getting some third-party perspective from our market advisors has helped ease their minds. The advisors help farmer clients with planning and execution around marketing decisions and help keep them up to speed on the current rapidly-changing grain market situation – and how it impacts their operation.

Get a free two-week trial of our marketing information service (MarketView Basic). Your free trial includes regular audio and video updates, technical analysis, recommendations and more. Learn more about our market advisor programs and offerings at www.waterstreetag.com.

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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