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Land: List it, lease it or let it go?

Pauly Paul for Progressive Dairy Published on 30 September 2019

Whether it’s a piece of ground you’ve rented for years, one that’s been passed down in the family for generations or an acreage up for sale a few miles from the home farm, there seems to be a “more is better” mentality when it comes to land ownership and control.

But these days, taking on more debt in order to maintain a land base does not guarantee you will come out a winner.

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Buying, selling and renting land should not be a knee-jerk reaction; it should be a well-calculated decision. This requires figuring out how much that piece of property is worth to your overall operational goals.

The key: Know the cost of production on each piece of property you run or are considering running. While many owners know their rental cost or the payment for purchased land, few dig deeper to determine just how productive the individual fields are and to look at both profit potential and the cost to prepare the field, grow and harvest a crop. Here are seven key areas to consider when making land purchasing, renting and selling decisions; they will help you to determine what a piece of land is worth to your operation:

1. Look at the three-year average of what the land has produced: The precision agriculture technology sitting in most of our modern equipment can tell a story beyond yield per acre. It may also show wet spots in a field that require replanting and thus incur additional production costs or sandy areas that tend to burn up when the weather gets dry.

2. Evaluate soil samples: Determine what the soil is lacking and include estimates for fertilizer and other inputs that will be required to meet production goals. Agronomists may have this information handy or can assist in getting it. Consider as well if the land will require tiling or other investments to get it where it needs to be in order to reach production standards.

3. Location: Land within a 5-mile radius of the main operation is often a wise choice to continue to rent or own. For example, if hosing manure, there are benefits to having ground close to the dairy. Also, the farther a property is away, the higher harvesting costs will be. The cost of production might be the same on two pieces of ground, but if one is located near the main operation site and the other is 20 miles down the road, the closer land is less costly to run.

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4. Setbacks can be a setback: Look at the topography. Does a chunk of productive land have a nice little stream running through it? If so, how much ground is not eligible for nutrient application due to setback requirements? Any land a dairy can’t apply manure on is not very efficient. Look at each piece of land and how it fits into the overall nutrient management plan.

5. Efficiency: Whether doing your own crop work, or hiring a custom operator, evaluate the ability for feed to be put up efficiently. As harvesting equipment gets larger, small fields can be a drain on efficiency. It may not be cost-effective for a harvest crew with multiple choppers and semi trucks to enter a 5-acre field with tight turns. In addition, ask yourself if adding more property will stretch the harvest window to the point that forage quality suffers. This leads to lost money on the dairy side.

6. Does it fit into the budget? After determining the cost of production for a piece of land and estimating the potential profit, take a good, honest look at how that investment really pencils out. In some highly competitive areas, the payment or rental price may be so steep that money can’t be made. Don’t buy land you can’t afford just because you are afraid of letting it pass by.

7. Don’t be afraid to let it go: Look at all the property you currently rent and own. Determine which fields offer the lowest value and ask yourself: Is it making me money? If not, it may be time to decide if keeping it is beneficial. Whether it’s legacy land, marginal acreage or fields far from home, now is not the time to hold onto non-productive assets.

In today’s dairy economy, we’ve got to separate emotions from business decisions. Giving up ownership or rental control of farmland may be difficult, but letting go today could be what saves your dairy tomorrow.  end mark

Pauly Paul is a consultant with Complete Management Consulting. Email Pauly Paul

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