Ends must justify means when looking at farm growth

Expansion can be a sign of a strong, healthy business, and the same can often be true in farming.

More acres means more potential yield, which often means more income and profit. However, Brad Zwilling said this isn’t always the direction farmers need to go.

“I do think many farms are getting larger,” said Zwilling, vice president of data analysis at Illinois Farm Business Farm Management. “We still have a good base in that middle area, but it’s hard to define that when you look at the data. A lot of times people will look at a single operator, but it could be a multi-generational or multi-family operation, so how do you define that?”

Farming more acres and increased total yield does mean higher input costs, however. Additional input costs such as seed, fertilizer and herbicide are needed to get the most out of those fields.

When purchasing these materials for the next season, buying in bulk can often come with discounts which make it easier on the budget.

However, Sabanto ag CEO Craig Rupp said the most critical cost comes from equipment and labor. If farmers add acres, they may need another combine or tractor or to hire extra hands to get through the season without running out of time.

These costs, especially at a time when affordable parts and equipment are harder to find, may make some even consider dropping some acres as an alternative.

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“At some point if you increase, you might need to add a second combine, or if you decrease you might be able to not have a combine and just have custom work done,” Zwilling said. “Having the right size of equipment or factoring the time you have available is a big key.”

Figuring out the additional costs on a growing operation has to start with finding available land, another costly expense for those looking to grow. Whether renting or buying, prices continue to rise. Zwilling noted in a recent report that the average Illinois farm real estate value increased nearly $1,000 per acre from 2021 to 2022, sitting at $8,900. This marked the biggest percentage increase since 2012 to 2013.

Farmers who see these buying costs as a deterrent or are finding a lack of available land may look at leasing land, said Zwilling, a farm manager with Hertz Farm Management. However, higher land values mean higher cash rents in many cases, and farmers have to be sure they are adding enough extra income to make it worth their while.

“It’s harder to get (land) now,” Zwilling said. “How are you going to justify that cost? You are going to have to spread that over some of the other acres you farm.”

Zwilling noted farm incomes have been on the rise in recent years, making land acquisition less of a deterrent. With high crop prices, however, input costs rose as well, which is going to cut into profits. The main difference is Zwilling said he doesn’t expect to see corn fall back to $3, but stay around $4.

“There will be down times, but if people are in a good situation and grow their operation as they are able and not just growing it to grow, they can justify those things,” Zwilling said.

Ultimately, the economic trend in farming is historically cyclical, which may show some possibilities for the future.

“It’s a cloudy crystal ball to know what’s going to happen,” Zwilling said. “We thought 2012 was a really high year. We had good prices, we just didn’t have the yield. When you look at earnings for 2014 up through 2019, they were some of the lowest years we’ve had since the 1980s. I think we are seeing a lot of volatility in what our farm income will do year to year. We can see a lot of changes pretty quick.”

Originally Appeared Here