I think a lot of people don't realize how capital intensive farming is. Its big numbers, with wild swings in profitability based on weather and supply and demand.
Lets say you have a 350 acre farm and its all corn. That is not a real large farm.
land value = 4000/acre x 350 acres = $1,400,000 ******* in a loan you service with interest.
cost to seed/plant fertilize the corn = $300 * 350 = $105,000
Lets say you have a good year and prices are good.
yield of 200 bushels/acre and $4.50/bushel = $315,000 revenue
$200k income, but don't worry you still probably have ~$1 million in debt on your land, $300k in equipment you are paying off still, and don't forget income taxes. This is a real good year though, you probably can buy yourself a nice shiny new truck or a deposit on some new equipment.
Lets say the weather was crappy and the markets are down:
yield of 135 bushels/acre and $3.50/bushel = $165,375 revenue
$60k income. But don't worry you still probably have ~$1 million in debt on your land, $300k in equipment you are paying off still, and don't forget income taxes. Looks like you are eating ramen for the next year, putting off all expenses possible, and are going to have to take out more debt to be able to put in crop next spring.
I'm not a farmer so these numbers are probably not terribly accurate, but I think they paint a realistic picture. When farming is good, it can be real good. When its bad, its bad, but city folk don't hear about it so much as the boom years.
Farming is capital intensive. Owning/operating a business is capital intensive. The spreader, tractor and skid steer if all purchased new today would run around $250,000 or so. We've got around $200,000 actual dollars invested in those three pieces alone.
If a business is reinvesting in itself like I am in mine there isn't a lot of income taxes to pay. If you spend all your income on business related things (tractor, spreader, skiddy) it lowers your income and therefore lowers your income tax amount.
The last brand new item with a motor that was purchased around here was Dads Bobcat S185 in 2010. Not a lot of brand new stuff around here because a fair bit depreciates soooooo quickly and it often makes sense to watch for a decent used piece instead.
Mike, I thought you knew someone with a drone....
Your wife may even offer your service to assess the stock and maybe sell some to bargain hunters or places that can use less perfect granite.
I don't know how to run a business but 80 acres of stock just sitting is like a savings account that costs them money. Oh wait, I think I have one of those.
Bob, that is a fantastic idea. I'll have to take the drone out there sometime !! There is nothing "wrong" with the granite out there. Most of it is scraps and leftovers from huge jobs that had no use but was too good to toss on the pile meant to get crushed. The boneyard is an active area and they pull from it all the time so it's not totally wasted stock, just not often sold stuff I guess. It's often easier to price a new piece cut to the perfect size than to go find one out there that fits I guess.
Most of your numbers are pretty close except for your land cost. I think most places in the Midwest US good land is selling for $10,000/ac or more. Up here in Ontario land prices are absolutely insane. Most recent sales are $25,000-$30,000/ac.
And the crazy part is, any land for sale is gobbled up within a few days.
And we haven't even touched on equipment. In your example $300,000 of equipment for a 350 acre farm would be a good lineup of 10-20 year old equipment. But if you were a bigger farm buying brand new equipment? $300,000 won't buy you a brand new 300hp tractor. A new sprayer is north of $600,000. Even a new combine with heads I think is over $1 million now. Again, these are Canadian prices but the US prices I don't think are far behind.
When you start to add all the numbers up the amount of capital needed to run a modern farm is mind boggling. As you said, when times are good they are good, but when they are bad they are very bad. It used to be if a farm came down on hard times the farmer could take some off farm work and pay off the debt that way. But with the huge $$ involved now, you would never pay it off.
Most land around here sells for $6,000-$8,000/acre. It doesn't really to seem like it matters around here about the productivity of the ground in regards to the price. If you want to farm the land and not deal with landlords you do what you can to buy land.
$300,000 worth of equipment is more like 30-50yr old stuff than 10-20. It doesn't take long to gather up $100,000 in machinery .....
The largest combine Deere makes is the X9 1100 and it lists at $814,815 on Deere's website. Add a little more than $200,000 for a corn head and around $130,000 for a 50' grain header. So .... $1,130,000 to get a the largest Deere combine that can combine corn and soybeans/wheat/small grains. If you are good at sweet talking I'm certain you could go one with all of it for under $1M
A new 8R 410 lists at $476,558 for the wheeled version, add $100,000 for an 8RX 410 to gain tracks on all four corners.
On the other hand ..... We paid $42,000 for our 2004 Case IH 2388 combine and have $15,000 in the 8r30 head we bought for it. We paid $125,000 for the STX325 4wd we have back in 2004. Things have gotten a fair bit more expensive !!!
Look up Cole the Cornstar for some recent numbers...Eye watering to say the least. His family is working around 2500 acres.
Cole has some awesome videos and isn't afraid to make light of a lot of the day to day stuff that makes farming both fun and stressful.
Budget of $10 to $12 per pound for new green or red painted equipment will generally have you in the ballpark. Without a head the larger combines from Deere and Case will be 40k to 45k lbs. Of course the more bells and whistles the more money...and they're worthless without a header...and they **** 100+ gal of fuel a day once you get it all!
Land cost is generally a function of productivity/income potential so as the land generates higher yield, it normally costs more.
Where we farm in Kansas, average dryland(non-irrigated) ground will be around 100 to 120 bushels corn yield in an avg year and sell around 3k/acre...some more some less depending on other factors. As you go east and get more rain, the price goes up. If it's irrigated or high quality dirt, that price jumps as the yields and income potential go up as well. Right now corn and soybeans are at record high prices for the past several years so the price being asked for land will probably go up as well...if they get it is another matter
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The big boys will easily **** 25gal/hr when running flat out. The Deere X9 1100 is advertised to be "able to run for 13hrs on a tank of fuel". The tank holds 330gal. Yikes. A Case IH STX620 with **** down 35gal/hr and a Deere 9900i Chopper will drink a crazy 40gal/hr while chopping silage !!!
