Equity Needed by a New Farmer

[charliep]

Lots of conversation about the impact of outside investors by established farmers with equity to cover land payments and provide cushion for risk.

How much money/hard core equity does a new farm family need to establish a farm business?

Assumptions.

A young family and the expectation that the business will cover their income needs with limited to no off farm income. Family is important.

No help from outside sources/family help such as machinery use agreements, etc.

The family team has the business, agronomic and marketing skills to run a farm business.

How much equity does this farm family need to bring into this business and have a reasonable chance of success? What would the value of the business likely be? Equity versus assets? That is, could a farm family with $500,000 of equity and a business worth $1 million (i.e. $500,000 debt - you tell me how financed) make it?

[pgluca]

This is probably something I will regret but, to have a reasonable chance of comming up with a number you would have to know a lot of things about the young farmer.
-What level of life style would he expect(would he raise his own food, live in a dump and drive an old beater and have his wife sew his clothes, or does he NEED $65K a year to live??
-Is he mechanically inclined and can fix anything, and doesn't mind using obsolete equipment and spending long hours, or does he need the equipment dealer to change oil??
-Does he know how to handle money and it's time value, or is he going to need the banker to hold his hand.
-Does he have a basic knowledge of agronomy and marketing, does he realize the last few bushels and dollars are what makes the difference??

The best route for a talented person with no equity is to find a turnkey operation with a sick or aging owner who is a business man and make a deal!

[cottonpicken]

Tough call,people who run farm numbers would know
better but 500,000 doesn't go very far anymore.

Lots of "different" farming models out there to
explore,fruit,goats,sheep,fish,vegetable,organic.

LOTS of days i would prefer to be in something less
capital intense the stress of coming up with 5 or 6
figures a month sucks.

[ajl]

Simply can't be done today. Asset
inflation means that the price of
necessary assets goes up faster than
savings. Thanks Ben and ECB. Any land
that will cash flow is located far from
family and friends so they can't be
important.

[zeefarmer]

I am a young guy (28) that has always wanted to farm.
I have been driving tractor since I was 5. Farming is
all I have ever wanted to do.

Currently, I rent 2 quarters. My dad, brother and I
farm just under 3000 ac together. I custom haul grain
full-time. I have no equity other than my home,
vehicles and semi unit.

I have not gotten any financial help from my dad. He
refuses to help by co-signing, and I don't want any
either. Any time I use his equipment, I pay him full
rate for custom work. Any labour I provide helping
him I am compensated fully as well.

To start on my own is a daunting task. A million
dollars won't go far. 3 quarters of land and a line of
10-15 year old equipment is all you get. And why
would you buy machinery and rent land? I have had
one instance already (and a second coming by the
sound of it) of an older farmer promising to help me
get started and then selling out for big money. Not
worth it to me. Money always wins, doesn't matter
what they promise.

I am to the point where I don't even want to farm
anymore. I can make a good living trucking, or doing
anything else (oilfield), and if I want to "scratch my
itch", I can get a combine or other equipment and do
custom work. No risk. I am not willing to put my
family under the stress that would come by paying off
7 figures worth of debt, no matter how low the
interest rate is.

So, to answer your question, $500,000 to start is low
for equity.

[cottonpicken]

Holly Zee,don't get to discouraged,your bro and dad
and you need to work together as a unit and move
forward,if that doesn't work "cut line and fish".

Farm managers are in high demand,a few dozen
months from now they will be extinct/bought up.

How many men really "know" what the fk is going on
in the field?

[pgluca]

Zeefarmer, one of thoses old guys that you talk about will probably make you a deal you can live with. It may not be the first or second one, but if you are capable and a businessman, you will find they don't have any more options than you do if they don't want to sell. Be a manager with a base wage and a percentage of the profit. After you prove yourself, work into a share purchase agreement or if they don't want that maybe they will let you use their leverage to buy some adjacent land for your self.

[pgluca]

Continued..............Zeefarmer, you can get in and out of custom work or trucking any time. If you are motivated and qualified for the job your risk in trying is not that high!

[tstep]

500,000 equity? Can't do it!! Risk is to high and the money that these big guys?? and investors are paying, the young farmer cannot compete. That Broad Acres Farms that is buying and/or rent/lease is ONLY paying workers 16-18 per hour. What a joke. Anybody with farm background of running or fixing is worth 25/hr. So Zee stay trucking and maybe bro and dad will decide to turn things over and you get a start that way.

[Hopperbin]

Zee to top it off I just dropped some land I rented for over 20 years. The owner wanted 55 per acre said he could get 60 or more but was interested in the 55 guy. Rent was at 36, I paid the full rent the year before when no crop was planted. I would go up to 40. He said he would split it and give it to me for 52.5 guess we were not on good communication. Since we were out so far on price I said to go take the higher price I am not close. The land as far as I know is rented now at 47.5. Why was it not offered to me for 47,5? I was taking care of the land like it was my own. Told the guy if he can get that price he should go for it and we shook hands when he left. I may or may not have took the 47.5.

[SASKFARMER3]

problem with renting always some one
looking over the fence. The guy should
have offered it to you for the 47.5.

[SASKFARMER3]

We were offered a section on Saturday
touching some of ours. So will have 9 in
block with possibility of another 5. If
that happens 15 in Block. No my maths not
wrong it would touch another one of ours.
Were looking at this but problem he lost
lots of acres last two years due to
flooding. I asked how much to purchase he
turned me down. Saying he believes land
will go up.

[JDGreen]

Not trying to be critical or disresepectful, but I understand the area that zee speaks of. Tough area for sure. What I dont understand is why we fall in love with certain areas of the province. Example wanted my father and I to sell out in 2004 and move to the SE. Could have sold 20 1/4s and bought 60 of higher assesed ground for same money. Would have owned as many as 80 outright by this time. The particular farm had 17 wells on it at time it was for sale. I can only imagine how many are on it now. There is always lost opportunity and the old adage of hindsight being 20/20, but without taking a chance and going for it you will never know what could have been. There is no such thing as success without failure first. This will cycle again for sure and those left with the skill set to farm and manage will do well, Patience is key but its tough when you feel your best years are being wasted. Im not sure about other areas of the province. but in this area it seems that 75 is the new 40 and no one retires, sell or rents unless it is 10% above the top of the highest market at any point and time. Could probably still sell today and double land base in other areas, but am now to the age that it doesn't matter anymore. So instead keep driving the market higher picking at them 1 quarter at a time. I am in certain ways as much part of the problem as the old fellas refusing to give anyone a break. At the end of my day if my children aren't interested someone will get a break. I am done at 60 and will rent it out and cruise. I have yet to figure out why anyone 65-70-75-80-85 years old would want to do this. I envision renting it out to a good neighbor and helping during seeding and harvesting. Rest of the year hello Hawaii, Arizona and anywhere else my travels take me. Life is to short, live today like it may be your last.

[wd9]

Farming is like royalty, you are born into
it, or marry into it.

Hopperbin, curious q, why wouldn't you
throw in the cost of 1 bushel of canola
difference and just farm it at the higher
price?

[freewheat]

I'll buck the trend here.

Sure it can be done. I have been doing
it myself. You just need to close your
eyes when you are in the field next to
your punk neighbor kid, with his 84 foot
independent shank drill and tractor
unit, (bought by daddy), which is worth
more than your entire machinery lineup.

I mean, the young punks these days have
such a ridiculous expectation of
farming. That everything needs to be
shiny and new. That they must keep
getting more, more, more. More land,
more machinery. Guess what? I have a
combine worth 30 000 bucks. My seeder is
worth 25 000 bucks. My tractor 50 000. I
grow good crops. I have small machinery
debt payments. I have trouble watching
the way this farming is going, but I
will stick it out. I want to simply make
a living. I am not competing against
anyone. I am not freakishly infatuated
with more, more more. If a guy HAS to
have 5 000 acres to survive, I am gone.
I can survive on a third of that. Why?
Because it is not necessary to farm that
much to make a living, contrary to
popularly held belief, and the false
ideas promoted by most farmers, and
almost every farm magazine editor out
there. Yes, you need to be a certain
size to farm how they make you think you
must, with flashy machinery, and
lifestyles. Because these things need to
be paid for. Our grandparents would
think we are all nuts, living like we
do, with the expectations we now have.

So yes, a half million bucks could get
you a dam nice line of decent machinery.
Heck, half of it would. You just need
some land to rent to get your foot in
the door, and then buy land slowly over
time.

The trouble is, no one hardly wants
anything more than 5 years old anymore.
I grow as good of crops as my neighbors
with their drills worth ten times what
mine is. They wouldn't even be caught
dead in my main tractor doing sc****r
work, grain cart work, etc.

Guys, it is also about attitude. And I
think it can be done. I am living proof
it can be done, providing I grow a crop
this year. IE(no flooding problems
again)!!!

So yes, Charlie p, half a million could
do it, and do it well, unless you have
the attitude that you HAVE to farm 5 000
acres just to be viable, have a love
affair with new iron, or such a negative
attitude that anything over 5 years old
is a travesty to run.

I will leave it at this, but I will
leave you with a small example of how
ridiculous I think this racket has
become. We are getting so pampered, so
lazy these days. Guys are putting lifts
on their fricking air carts to load
canola. Because they don't have the dam
time to back up the truck and clamber up
a ladder. Because it will save them a
few minutes, and a bit of sweat. So that
they can farm that quarter across the
road, I suppose. We would do well to
give our collectives heads a shake here
and there.

I, for one, will continue to buck the
trend.