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Panel weighs pros and cons of buying a satellite farm

ariel view of farmland TRUSJOM/istock/thinkstock
HOW FAR IS TOO FAR? In the Northeast, road-running between farms is rarely this straight, fast or easy.
Profit Planner Q & A: Dairy farmer’s sons want to buy a farm 20 miles away. Here’s why not all satellite farms fly.

Q: Our sons want to bid on a good grain farm almost 20 miles away in a more rural county. Their thought is to develop a heifer facility for later expansion. I’m reluctant to spread out that far. Your thoughts?

A: Mike Evanish: Got the management skills needed?
The benefits are mostly in economies of scale for equipment and reduced overhead. Bigger equipment that can do more work per hour is easier to justify.

Satellite farms can be great or disastrous depending on the situation. My biggest concern is availability of management skill. Operating at one location presents enough challenges for 99% of operators. Being one operator and running two farms 20 miles apart presents another layer of complication. Duties more than double. Much more time must be spent on communication, supervision and problem-solving. So think on a few of many considerations:

• What’s the present operation’s management team size and make up? Is one of your sons ready to step up and begin day-to-day managing?

• What are the new operation’s long-term goals?

• Has a budget been developed for it, and does it work? In your case, is this new farm the best/least-cost option for heifer raising. Or would it replace for your present dairy?

• How ready are you for the command/communication structure needed to make this work? Will bill paying be at one location? How about recordkeeping?

• Who will have authority to bind the business to expenditures, hiring and firing? Will each location have separate checkbooks, loans, monthly statements, etc.?

• Will it be one LLC or two?

Many more questions must be answered. But these will get you started.

A: Dale Johnson: Usually born out of need
As your sons look to the future, they may realize the current situation is insufficient to support additional families. That’s what’s implied in the phrase “more rural county.”

If your farm is in a less rural county where development encroaches and land is fractured and expensive, with a diminishing agricultural infrastructure, you probably don’t have any choice but to consider distant farms. It’s good that you’re considering a value-added enterprise for that grain farm.

Hauling feed and manure to and from a farm 20 miles away is inefficient and uneconomical. But establishing your heifer operation there is a good use, especially if there’s a house for one of your sons to move to and manage crops and heifers. Then expansion can start sooner rather than later, and your sons can feel more confident about their futures.

Buying another farm now with your sons is a way to start putting assets and associated liabilities into their hands. As always, look at your balance sheet, income statement and cash flow. Determine how much you can pay for the farm without overextending yourself. It’s particularly important with the current low milk prices.

A: George Mueller: Be careful!
Last year, Willow Bend purchased an operating dairy farm to operate as a separate unit with its own field and milking crews. We also know that 20-mile route well.

When a chopper goes down, we send one over. We only have one drag hose system, and transporting all the hoses and pumps is a real hassle. Our one bale chopper also goes back and forth.

Presently, a truckload of haylage goes to the satellite farm and a load of corn silage comes back each day. My son usually manages a daily visit. These are all unproductive hours and miles that wouldn’t be needed if the farm were next door. It’s still early in the game, though.

In my youth, the Monopoly board game taught me much about business. One lesson was to buy next-door property so you can grow and build profit-producing facilities. Unless there are solid reasons like no debt, great land and a great possibility for a future dairy enterprise, I’d go slow and wait for property closer to home.

Interest rates are due to rise considerably in the near future, especially if inflation gets going too fast. Higher interest rates could mean lower land prices.

My big fear is that President Donald Trump and Republicans — who should know better — will screw up world trade with import tariffs and throw us into a worldwide depression. So far, they haven’t.   

I believe diesel fuel and other energy sources eventually will become very expensive. Traveling between the two farms will eat up hours, fuel and expensive tires.

Be sure it’s a sensible risk. It’s a huge blessing to have ambitious sons. But they do sometimes get farms into financial trouble.

A: Glenn Rogers: A too-far-out satellite?
Be sure to fully weigh the impact of time spent on the road. While we have examples of farms 20 or even more miles away, these farms are operated by a family member and have nearly a complete line of equipment, excellent experience and significant control.

I recommend working with local consultant(s) to do several financial analyses. Look at all angles. Check all soils, deeds, maps and appraisals and have an independent review of that property. Talk with neighbors, and especially professionals, about the farm.

Finally, share all that material and talk with your family so everyone can come to the same decision. I’d also suggest getting input from your employees since they’re a valuable, essential part of the team.  

Take some time and make sure of your numbers and proceed accordingly. (See “20 miles isn’t ‘down the road apiece.’” below)

Got a question? Our experts await!

Our Profit Planner panel would like to hear your question. The panel consists of Michael Evanish, farm business consultant and business services manager of Pennsylvania Farm Bureau’s Members’ Service Corp.; Dale Johnson, Extension farm management specialist at University of Maryland; George Mueller, dairy farmer from Clifton Springs, N.Y.; and Glenn Rogers, University of Vermont Extension professor emeritus and ag consultant.

Send your questions to Profit Planners, American Agriculturist, 5227B Baltimore Pike, Littlestown, PA 17340. Or email them to john.vogel@penton.com. All are submitted to our panel without identification.

20 miles isn’t ‘down the road a piece’

While many commuters travel 20 miles, a farm 20 miles away will have to be pretty much a stand-alone operation. So there are lots of questions to answer before pursuing the purchase. Here are a few more:
• Is it financially viable as a stand-alone?
• What machinery would be shared?
• Will the sons live near the new facility, on the present farm or elsewhere?
• Is one of them interested in living at and operating the facility? Would it be better (or poorer) family dynamics if one did operate the new facility?
• What are the pros and cons of owning the facility vs. expanding at the present spot?  
• Are there financially viable alternatives closer by?
• What are the travel conditions for that 20 miles? Is it an easy ride or does it involve going over lots of rough back roads or in city traffic? Think in terms of tractor travel.
• How are the weather patterns and facilities? Is it a really great deal?

— Glenn Rogers, a University of Vermont Extension professor emeritus and ag consultant

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