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August 12, 2011
Billionaire investor Jim Rogers says if you want to get rich, don't go into investment banking. Instead, become a farmer.
That's serious advice coming from a guy who made his billions trading commodities like corn and soybeans and is investing heavily in farmland. In a recent Time Magazine article, Rogers says with rising commodity prices, farm incomes will increase dramatically in the next few decades as farmers meet the demands of a wealthier, hungrier and more populous planet.
But actually getting started farming is something Rogers doesn't weigh in on. What if you're the new kid on the block and have no working capital to take advantage of the high food prices of the future? The near-term future isn't so inviting.
First, the cost of getting into business isn't cheap. If a new farmer were to start from scratch and buy his own farm, he'd have to come with an armored truck loaded with cash just to acquire land and equipment.
To make a comfortable middle class income by farming wheat and grain sorghum here in Lane County, Kan., he'd need to find at least 2,000 acres. At $1,500/acre, that's $3 million – assuming the market holds steady. If land prices keep rising at an insane rate, that price tag could easily be $4 million by the end of the year.
As for equipment, a new tractor costs $250,000, an undercutter for tilling costs $75,000, and a hoe drill for planting wheat and sorghum would cost another $60,000. If you're going to apply your own herbicide, a new spray rig is $250,000, and the truck to haul water and herbicide to the field costs around $50,000. And, if you plan on doing your own harvest, figure $250,000 for a combine and $75,000 for a grain-hauling truck. All told, equipment costs come to just over $1 million.
Combined, a new farmer can easily sink $4 million to $5 million into land and equipment just to get started – all before the seed has even been put into the ground.
If you're lucky, you can avoid these heavy start-up costs by finding a couple of retiring farmers willing to rent you their land and equipment. Competition there, though, is fierce when taking into account your biggest competitor – the Conservation Reserve Program.
CRP initially was intended to take highly erodible land out of the production and return it to its natural state to prevent erosion. Now this government program has turned into a retirement plan for farmers. The farmer plants the land to native grass and rents it to the government rather than a tenant, even if the land is perfectly suitable for production. In some counties, the payments on CRP are so lucrative they easily beat local cash rents. This option is hard to turn down if a farmer doesn't have any children returning to the farm, but it puts the heat on other young farmers trying to get their foot in the door.
Rising Cost of Production
Then, there's the cost of actually putting the crop into the ground, and high energy prices aren't making that easy. According to the American Farm Bureau's recent study, the Cost-of-Production Report: The Rising Cost of Inputs, rising crude oil prices are eroding profitability in farming via higher fuel costs. Filling a 270-gallon fuel tank on a tractor now costs nearly $1,000 at current diesel prices, up 33% from last year and up 64% from 2009.
Fertilizer and the cost of debt are also creeping up. Anhydrous ammonia is up 3% since the start of the year at more than $800/ton, according to AFB, and agricultural interest rates are expected to rise this year. And we can all bet that costs like seed, chemical and labor will also increase in the long term to meet rising demand.
So, while Rogers' view of agriculture sounds exciting for someone looking at a new career in farming, he glosses over a few important details. Actually getting in position to take advantage of farming's bright future isn't so easily done.
Considering the high barriers to entry in farming, the only sure fire way to get into farming is to either be born into it, or to marry it. Like my dad always says, the most successful farmers are good at two things: Picking their wives and picking their parents.
Tanner Ehmke is a writer and agricultural producer in Lane County, Kansas, where his family has farmed since 1886. Located in the semi-arid High Plains of western Kansas, he grows dryland wheat, rye, triticale and grain sorghum in reduced-till and no-till systems. Tanner graduated from Kansas State University’s Master of Agribusiness program in 2011 after completing his thesis on seed wheat prices, and is currently in the Kansas Agriculture and Rural Leadership program’s Class XI.
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