Editor's note: Each month in Wallaces Farmer magazine, the Timely Tips panel answers questions sent by readers. Members of the Timely Tips panel are William Edwards and Michael Duffy, Extension economists, Iowa State University; Leslie Miller, Iowa State Savings Bank, Knoxville; and Rob Stout, Master Farmer, Washington, Iowa. Following are two questions sent to us this month and the answers from our panel.

A family member has a few beef cows in with my beef cow herd. I supply all of the facilities and all of the feeding equipment and manure handling equipment. I also furnish water, electricity, most of the feed, and I do most of the labor. What would be a fair “rent” to charge him for keeping his cows in my herd? He sells the calves.

Edwards: A survey conducted by the Iowa Beef Center in south-central Iowa a few years ago showed an average charge of about $1 per day per cow for custom grazing. However, this would not include winter feed or labor during calving. The beef cow-calf budget on the ISU Ag Decision Maker website shows a total of about $714 per year, excluding the investment in the cows, or almost $2 per day per cow. You could adjust this downward for the value of any feed or labor that the owner of the cows provides or any other costs in the budget that you do not need to recoup.

Stout: If you put a pencil to it, you could easily come up with $450 to $500 per cow in the expenses you mention.  If you are creep-feeding or preconditioning the calves, that would add even more expense. However, you say you provide “most” of the feed and labor, so you may want to credit back some of that to him, depending on how much he contributes.

Miller:  This is one of the most difficult questions to answer especially with relatives and in instances where labor is traded. You did not disclose who is paying the vet expenses or covering the cost of the bulls and any replacement heifers that might be kept.

Probably the best place to start is to list all the expenses that are involved with the herd, including land and machinery costs and labor. You can use your actual expenses or a fair market equivalent. For example, if your land is paid for, then charge what pasture rent is in your area. Similarly, if your machinery is paid for, you can use Extension equipment rental rates. The ultimate goal is to calculate total costs and then figure out how much that is per cow. The relative should pay you that cost for each of his cows. In fairness, if you want to adjust that cost by crediting the relative for feed that he or she has purchased or labor contributed when working cattle or because you are a really nice person, that can always be negotiated between the two of you.

Most farmers want to grow their business. My son and I farm 2,300 acres in northwest Iowa, and poor prices the past several years have somewhat depleted our working capital. I’m seeing land prices discounted around 15% from levels of three years ago. How should we decide if it is time to grow, and is buying land the best way to do it?

Stout: There are many ways to grow your farm operation, and it doesn’t always have to be by increasing acres. Look at the efficiency of your farm before adding acres. For example, does your labor and machinery match up well with the acres you are now farming? If you have enough land and machinery to farm 2,500 acres, then you could gain some efficiency by moving toward that number. If you have a hard time getting planting and harvest done on a timely basis, then you may need to spend money on larger equipment or farm fewer acres. If you are in an excellent equity position, then it would appear to be a better time than the past three or four years to purchase farmland. I wouldn’t buy land with the expectation of $7 corn and $15 soybeans, though, so be careful not to jeopardize your entire family operation just to get larger.

Miller:  Buying land may help you grow, or it may take away from the profitability of your existing operation. It all depends on the purchase price. When you say your working capital is depleted, it makes me think you could be struggling right now, and thus any new land payments or debt that you have to subsidize from your current operation could make things worse. Keep in mind that over the last few years, working capital has been depleted in three different ways — some more concerning than others. Some people lost working capital because corn went from $7.50 per bushel to $3.50 per bushel. Some lost working capital because they were not making enough money to cover all their principal payments and wound up increasing their current borrowing to make ends meet. The third cause, and the most troubling, is those operations that lost working capital because they were losing money.

If your current operation is losing ground because there is not enough to support two families, then you may need to expand. However, a less risky alternative might be for your son to pursue some off-farm income so he is not as dependent on the farm operation for his living.

Duffy: What do you mean by growing and why do you want to? Buying land is one way, but not the only way. Careful personal and business analysis is the only way to decide. What are you and your son’s goals and resources? What do your spouses want? There are several programs to help you. Iowa State University Extension has the Farm Financial Planning Program and the Beginning Farmer Center. Both of these programs can help you identify and evaluate alternatives. Land has one of the lowest returns to farm assets. Simply buying more land is not a very good approach to growing a business. Buying land might be part of a strategy, but it should not be the only one.