Set up for success
December 19, 2012
The South Dakota Department of Agriculture (SDDA) and South Dakota State University (SDSU) hosted the 2012 Beginning Farmer and Rancher Symposium in Brookings, SD on Nov. 27, 2012. The event included remarks from Barry Dunn, dean of the SDSU Department of Agriculture and Biological Sciences, as well as Walt Bones, SDDA secretary and a keynote address from Ron Hanson, Neal Harlan professor of agribusiness in the department of Agricultural Economics at the University of Nebraska-Lincoln. Additionally, two panels on the topics of finances and transitioning the farm or ranch were featured. Here's a roundup from the finance panel.
The finance panel featured the insights of Terrie LaBrie, SDDA loan programs administrator; Wes Chambers, Farm Credit Services of America; LaDonna Hupp, Farm Service Agency; and Mike Reecy, Great Western Bank.
The first question asked of the panel was:
Should young farmers looking to get started buy land or start with machinery?
"I think everyone is feeling the heat on land prices," said Chambers. "Where are prices going and how can people justify paying such high prices for land? What I can tell you is what is fueling high land prices is the cash that is in the market right now. This is because of successful years that the industry has had. As a young producer, I would look at it as the relationships you build now. Trying to work out arrangements or a benefit for both parties for your neighbors and yourself. If you go to the straight auction route, it is going to be a lot more difficult. Interest rates right now are as low as they are going to get. It seems to find a way to get lower and lower every year. But if you are going to lock in debt or interest right now, most young producers are going to have debt 15 years from now, but try to keep it below 5 percent. The key is to keep cash flow, and a good way to do that is through livestock."
"The biggest advice I can give you is to have a plan," added Reecy. "We need young producers in our industry and we are trying to set you up for success. A lot of people try to take the same path, when everyone is going one way, there is generally a reason why. A lot of landowners, although they may be older, are looking for someone who is going to take care of it. If you have respect from your peers and good relationships, you will have opportunities; you just need to seek them out."
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"I encourage you to consider different lease or rent options," said Dunn. "If you have good records and are transparent with them, you can have a healthy relationship with a landowner."
What can young people expect land prices to do?
"In the long term, you won't see the escalation you see in land prices right now; this doesn't mean you will see land prices at what they were ten years ago," said Chambers. "Obviously, as a producer looking at land, it won't have an immediate change on the sale prices. The less cash that is out there, the more land prices will be impacted. Land prices have doubled in three years, but I don't see them going that far back down. Long lengthy cash rents for $300-$400 per acre are scary."
Do you like to see a diversified operation with crops and livestock, or does that stretch producers too thin? What kind of farm or ranch plan do you like to see?
Chambers said, "I like to see producers with a back-up plan. You have to plan it with a conservative eye, but also have a contingency plan. A good example of a young producer I know has bought some land, but he also bought some broken-down cows, fattened them out, and sold for more money. He has made relationships to get more cows coming his way. He also contracts out building barns. Side jobs offset some of that risk."
"Stick to what you know," added Reecy. "A lot of producers understand what the risks are to the operation. Focus on the jobs that are paying you $1,000 an hour if you do them well. Hire people to do the $10 per hour jobs. Focus on the jobs that are making cash-flow. Do what you do and do it well."
What are some of the innovative ways you have seen young people get into production agriculture?
"Good entrepreneurs will find a way to bring in an extra income or a way that you can support your neighbors," said Reecy. "Silage cutting and custom baling are a few examples. Look through your check book and see where your money is going, and build those finances into your plan because it is important to live, too. It is important to find ways for extra income. You have to offset living costs, most producers will really underestimate what it costs to live."
These ideas were just a few of the bits of wisdom and advice offered at the symposium, and it's the hope of the SDDA to assist young producers by offering educational programs such as this one to help them get a solid start in agriculture.
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