Rent or buy more land? Tough choice
Whether the decision is about buying new equipment, adding technology to existing equipment or expanding the farming operation by renting or buying more land, the basic question is the same: Will this investment generate more revenue?
At the annual Kansas Ag Research and Technology Association meeting in Salina, Kevin Dhuyvetter, a Kansas State University ag economist, and Terry Kastens, a K-State professor emeritus, tackled one portion of the dilemma that plagues many farm operations looking to grow. That is, the question of how far away from farm headquarters is it practical, or profitable, to add land.
Dhuyvetter said one advantage to farming land in a wider region is the spreading out of weather risk. In a region where rainfall is generally spotty during the growing season, you have a better chance of farming the field that gets rain if your fields are spread out a bit. And you have less chance of having an entire crop wiped out by hail, which tends to also be very localized.
• The decision to add land requires looking at many factors.
• Size, shape, distance of new land from current land can be key.
• In general, growth strategy makes sense, but it needs analysis.
On the minus side, you have to figure out whether or not your travel costs to farm those far-flung parcels are eating up the additional profits generated by expanding the operation.
Dhuyvetter and Kastens offered formulas for determining the impact of fuel costs, the time in travel, the impact of varying management practices and the advantages of hiring custom sprayers or harvesters to handle far-flung acres.
Dhuyvetter urged farmers to remember that there is a difference between machinery investment cost and the cost per acre of operating machinery.
“The money you spend on new machinery or technology is not cost, it is investment,” he said. “Your total crop machinery cost, divided by the number of acres farmed, is your cost per acre.”
Any number of factors, including field size, shape and proximity to other fields in the farm operation, can influence whether or not adding land is going to pay off.
In general, Kastens and Dhuyvetter agree that a growth strategy makes sense in the long term. Farmers should keep in mind, however, that adding acres in small or irregularly shaped fields, or located far from any other fields, can increase costs by more than is gained from economy of scale. You should factor in any technologies you can apply that help reduce those costs, such as section controllers, autosteer machinery, etc.
The really important thing, they say, is to do the best you can to keep economics in mind when you are making the decision. Tools to help with farm decisions, risk management and more are available from K-State on the Web at www.agmanager.info.
This article published in the March, 2012 edition of KANSAS FARMER.