Answers are from the 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, Extension economist, University of Minnesota Center for Farm Financial Management. 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].

Our neighbor is 74 and has decided to retire this fall after he harvests his crops. He has 250 tillable acres. He asked me if I would like to rent his land for $175 an acre. That’s the average rental rate here, but I’m wondering if we should offer $150 an acre? Crop prices aren’t going up, and I’m not sure how profitable growing corn and soybeans is going to be in 2025. My son and I farm 360 acres and milk 100 cows. Our machinery can handle the extra acres. What are your thoughts?

Kestell: Successful enterprises are built on profit, both in the short term and long term. Operating a new venture must also be looked at from a dollar-and-cents perspective. It is easy to jump into a new venture without evaluating the probability of making a profit. We tend to evaluate the situation on the basis of “Will this opportunity present itself again?” — regardless of whether it pencils out to be profitable, but instead on an emotional rationalization that we shouldn’t pass up an opportunity because it might not come our way again.

Related:Planning a dairy expansion? Take your time and ask for help

Let’s take a step back and evaluate the situation from a dollar-and-cents viewpoint. I assume the owner is a good operator and practices good crop rotation, soil testing and conservation practices to maintain and improve the soil. Ask if he will share with you the soil test and yield results. Convey to him that you also share the long-term goal to both maintain and improve his greatest asset — the land.

There must be an extra return on the enterprise for it to work out long term. Take the time to sit down and work out a detailed budget. Be realistic on costs and returns you can expect. Then present this budget to the farmer and show him the bottom-line reality and decide together if renting it short term or long term is the most viable option.

Maybe you can set up a variable rent where, if returns per acre go up, some of this could be shared by the owner. I prefer multiple-year contracts so you can spread your risk over multiple years and maybe capture profits if prices improve or input costs go down.

Miller: This is a question many farmers are considering given tight crop margins. It is a bit difficult to answer your question since you did not indicate the productivity of the land. You can afford a higher rent if the yield is also higher.

Complete a crop budget starting with expected yield times local elevator prices and subtract the growing costs, including machinery and equipment charges for planting, tillage and harvest. The residual is what you have left for land rent and your return on growing crops. Your Extension ag agent, banker or agronomist can help complete a crop budget to guide your decision.

Wantoch: A cash farmland rental rate may be determined by supply and demand as compared to other factors like a decrease in commodity prices. Supply refers to the amount of land available to rent in your area, while demand speaks to the number of farmers who may be interested in renting the land. You need to consider what the supply of available farmland to rent is in your area and who might be willing to pay your neighbor his asking price. However, that doesn’t mean you should agree to rent his land yet.

Unfortunately, as commodity prices have fallen in past downturn cycles, farmland rent values tend to remain steady. The costs of farm inputs react like rent values, but these costs eventually trend downward, though at a significantly slower pace. You should complete a budget to determine your cost of production on this rented land and ensure that you are offering a rental rate that will help your farm make a profit.

The University of Minnesota Center for Financial Management has a new, free, online tool, cropcost.org, to help you evaluate your crop cost of production and assist in marketing and pricing decisions.

Sharing equipment, labor

My wife and I milk 200 cows and farm 350 acres in central Wisconsin. We are 53 years old and have $120,000 in debt. Our neighbor a mile down the road milks the same number of cows and farms 310 acres. He is 55 years old and owes $145,000 on his farm. We both have our haylage and corn silage harvested by a custom harvester. He does a pretty good job, but he doesn’t always get to us in a timely manner, and that affects our forage quality. My neighbor and I think we could buy the equipment together and do it ourselves for less than what we pay the custom harvester. We think we can hire friends and family members to help. Please advise.

Kestell: I’m glad you have given thought and had discussion with your neighbor about your forage harvesting needs now and into the future. Many times, we only look at the shortcomings of a situation and not how to improve the present way we are doing things. Today’s modern harvesting equipment is a vast improvement over the equipment available in the recent past. But to operate and maintain this equipment requires skills and special talent that many people do not have.

Start by analyzing each operation in the harvest process. Do they have the time and experience to do a good job? Do you have tractors that can operate these new tools? Are these tractors equipped with GPS? Could your current or a different custom operator cut and merge your haylage? If so, you and your neighbor could just buy a forage chopper and hauling equipment.

Talk to your custom operator and see if there is a reason for lack of timeliness: Is it weather? Lack of employees? Are you low on his priority list for some reason? Maybe early payment or a bonus for quality feed could be used to move up the priority list.

Remember, it always costs more, requires more help and is more complicated than you first imagined. Being realistic and maybe switching to doing your own harvest in stages can set you up for success.

Miller: This is the perfect scenario for a partial budget analysis. Compare the costs of owning and operating the forage harvesting equipment with the custom rate to get an equal comparison.

Estimate the cost of the forage harvester, wagons or trucks to transport to storage, and potentially the packing tractor or forage bagging equipment. Assign an amortization to this equipment (I suggest five to seven years) and interest expense since you likely will need to borrow for the purchase. Next, add the operating costs such as fuel, repairs, maintenance, labor, insurance, etc. Add all these costs and compare with the custom harvesting bill for the two operations.

You will need to assign a cost to peace of mind by controlling your harvest window and potentially higher-quality feed due to timely harvest. Equipment is expensive, so be certain to get an idea of these costs at the front end of your analysis. Lastly, if you decide to buy, figure out ownership — maybe form a limited liability company and charge each operation on an hourly basis.

Wantoch: The economics of farming today requires that dairy farms invest only in capital assets that produce a high rate of return on investment. Large, expensive pieces of farm machinery that are used only a few days out of the year are, in many cases, unprofitable for one farm to own. This economic reality has given rise to professional custom operation businesses that own the large equipment necessary to harvest high-quality alfalfa, corn silage and feed grains in a timely manner.

Using the services of a custom operator eliminates your need to hire seasonal labor, as most custom operators have trained work crews. I wouldn’t rely on friends and family members to help. They may not be available when you need them, thus putting you in the same spot and impacting your forage quality.

Set up a meeting this winter with your custom operator. Talk about how he can meet your needs in a timelier manner. Custom operators have a business just like your dairy farm. They need to have firm commitments for work to be performed well in advance. This allows them to schedule their operations, arrange for work crews to be on-site, etc. Have a conversation so both you and the custom operator are on the same page.