October 19, 2023
My son and I farm 350 owned and 200 rented acres and milk 140 cows in east-central Wisconsin. We also custom-harvest 200 acres of corn silage for two neighboring dairy farms. We do all our own fieldwork, planting and chopping, but we don’t own a combine. We hire another neighbor to custom-harvest our soybeans and high-moisture corn.
We own a pull-type chopper. I would like to buy a newer self-propelled chopper. The dealer will take my chopper on a trade, and I would owe an additional $190,000. I know we could put up haylage and corn silage a lot faster with a self-propelled chopper. I’m also worried about breakdowns with our current chopper. We owe $180,000 on our equipment and $270,000 for land. Please advise.
Tom Kestell: Your question reminds me of my neighbor, who was a very special man. He always wanted a big car, and so he bought a new car that was the longest production car ever built in the U.S. When he got home with the treasured purchase, it would not fit in his garage because it was 3 to 4 feet too long. My friend just shrugged his shoulders and said, “At times like this, you just don’t think of all the details!” For the next 20 years, he left the garage door open and smiled every time he drove his prized car.
In today’s farming, we have to think of all of the details, or it can be very expensive and the long-term effects can be dramatic. To begin with, the $190,000 to boot price seems to me quite low. New choppers can sell for close to $1 million. Will you need to invest in new cutting and merging equipment? Will you be using small wagons, or will you switch to chop-over-the-top wagons? How will this affect the neighbors hauling? Look at all the changes that will occur, and make sure “the car will fit into the garage.”
Sam Miller: This is the time to analyze all your options to accomplish harvest operations, including replacing your pull-type chopper, buying a new self-propelled chopper, buying a used self-propelled chopper or hiring custom chopping. Complete a partial budget analysis, taking into account the financial costs of each option paired with the pros and cons of each option — timeliness of harvest, availability of labor, peace of mind, etc. A new chopper comes with a big price tag. Be sure to calculate your equipment costs on a per-acre basis to understand whether buying new makes sense.
Your Extension ag agent or technical college farm instructor can provide you with partial budget templates to aid decision-making. My instinct is that you would be better to hire custom chopping from a financial standpoint, but replacing your pull-type chopper would provide better peace of mind.
Katie Wantoch: It sounds like you have thought through this decision. Upgrading your chopper does seem like a better decision to increase efficiency, improve quality of feed, and continue or expand your custom work for other farms. You don’t mention the number of soybean acres or corn harvested for high moisture, but I don’t believe these expenses would justify the purchase of a combine.
You farm with your son, so I wonder what his interests are in the future of your farm business? Does he prefer working with the livestock? Or would he prefer to take over the custom work business? You might consider a farm succession plan if he has interest and passion for a future in agriculture.
Land is good investment
My dad and I farm 800 acres — 600 owned and 200 rented — and milk 150 cows in south-central Wisconsin. My uncle sold his cows last year and rents his land to us. His farm is 5 miles from ours. In December, I bought 160 acres from him and paid $6,000 an acre. It is good land. That is the only debt I have. Last week, my uncle asked me if I plan to buy any more land from him. He wants to keep the buildings and 160 acres, but he would like to sell another 160 acres to me in a couple of years. I told him I would have to think about it. He said he would sell it to me on a land contract at 4% interest.
Tom Kestell: Congratulations on your successes so far in your career, and your interest in continuing your dad’s legacy. In my opinion, the two most important factors when buying land are price and interest rate. The $6,000 per acre is a reasonable price for good land in today’s marketplace. But the most important factor is the interest rate at 4%, which is about 50% of commercial loan rates at this time. It makes the question of buying this land a doable proposition.
I assume there will not be a huge down payment needed, if any, so this will not take operating capital on a short-term basis? The next big question is how long are the terms of the contract with your uncle? All the details of the financial commitment will go a long way in giving you the clarity and peace of mind to pursue this land purchase. Always remember that the long-term relationship with your uncle should be your top priority! Good luck as you pursue the rest of your career.
Sam Miller: Your financial position is in good shape with only a mortgage on the 160 acres purchased last year. You also have the start of a succession plan. After that it gets more complicated. This is the time to put some forecasts together for what the business will look like going forward, particularly if you sell the cows and only cash crop. What are the expected revenues and expenses? How much equipment and labor will you need? Do you plan to do any custom work for other farmers? Work with a dairy business consultant to assist in putting these forecasts together to aid your decision-making.
Katie Wantoch: Farmland is a solid investment. The value appreciates, although the value may grow slowly over the years. But you are also able to produce an income from that land. Even investors who don’t farm are interested in buying land because it is a safe option — the return on their investment is usually higher and safer than other investments like the stock market or bonds. This is increasing demand for land, thus resulting in higher prices when farmland is sold.
I suggest you, your dad and any other family members with a stake in the operation have discussions about the future of your farm business, review your historical financials, and develop plans for the future that would include additional land purchases from your uncle.
Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, retired managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, statewide Extension farm management outreach specialist/professor of practice. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].
Read more about:Land Purchase
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