When you’re thinking about growing your farm through potentially adding acres, those opportunities can often come up quickly or unexpectedly. Sometimes you have to be ready quickly with an answer as to whether you’re going to take that particular opportunity or not.
It can be tough trying to figure out what your farm can and can’t take on in terms of cash rent or land payments, especially if the decision must be made within a short time frame. You might not be sure how or if the new acres will fit into your operation from a financial standpoint – but that’s one of the most important things to consider.
Knowing where your operation is at financially is the first step to determining whether or not your farm can grow by taking on additional acres at this time. You’ll want to know where you stand in terms of key metrics and indicators, including your working capital, equity and other factors.
Look at the impact
Many of the farmers we work with find it helpful to have a feasibility study done on acres they might rent or buy. This is a critical step, so you can see how a decision to move forward with additional acres will impact your farm and its financial dashboard as a whole.
The study can also prepare you for questions or concerns your lender might have, if you are seeking additional financing for a purchase. It can be a way to show them that you’re also concerned about the same numbers and metrics they consider as they make lending decisions about your operation. It helps them see that you’ve done your homework on whether the new land is right for your overall operation.
There may be many land opportunities in the months ahead for those who are well-positioned. But you still need to know how much you can handle at this time. Think about how additional acres will impact your machinery and labor needs. How will this impact logistics? Is the land nearby other land you currently farm – or in a totally different area?
Maybe you find that your operation is already at a ‘sweet spot’ in terms of machinery and labor to cover the land you’re farming. In that case, more land might not necessarily equal more success if you end up having to purchase additional machinery or hire quite a bit more labor to farm the additional ground. It can be a balancing act as you determine the best size for your operation.
Crunch the numbers
Figuring out whether it would be best to purchase or rent new ground is another important area to evaluate carefully. Working with an ag finance advisor to analyze the ground itself, and the impact of renting or buying on your overall operation is an important step in the process as you consider growing your farm through adding acres.
An advisor can help bring additional perspective, insights and questions as you work through all the impacts of taking on new ground. They can help you press the ‘pause’ button to think through key areas, so you can make the best decisions for your operation.
If you’re thinking about adding acres through a purchase or rental this winter, be sure to get in touch with an ag finance advisor as you make these major decisions for your operation.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.