Farmers traditionally expand their cropland acreage by finding more land to cash rent, but that strategy isn't nearly as easy to implement as it once was, says Kent Thiesse, vice president at MinnStar Bank in Lake Crystal, MN.
“There's lots of competition when land rentals come up now,” he says, “and price is the obvious selling point.”
Both cropland rentals and sales typically go to the highest bidder, confirms Rex Wilcox, president of Stalcup Ag Service, Storm Lake, IA, whose company manages about 300 farms, mostly in northwestern Iowa. “Generally, sellers want the most money they can receive for the land, and when farmers retire, many want to cash rent their farm to the highest bidder.”
So aside from bidding aggressively, what practical steps can an aspiring farm operator take to expand their acreage? Danny Klinefelter, Texas A&M University Extension economist, along with Thiesse and Wilcox, give the following five tips:
Establish an excellent track record. Farmers who have developed the skills necessary to make money on the acreage they already farm are well positioned to secure more cropland when it becomes available, says Wilcox. “The operators that do the best job with field operations, record keeping and marketing are usually making the most money,” he explains. “They have the ability to keep good records, know their production costs per acre and stay away from financial pitfalls.”
When choosing a farmer to operate farmland for landowners, Wilcox says he looks closely at the farm operator's financial ability. “We look at both their ability to farm well,” he says, “and their ability to withstand financial risk.”
Cultivate and maintain a good public image. Farmers who are good family members, good neighbors and active in their communities also stand a better chance to pick up extra acres, says Thiesse. “A lot of landlords in the Upper Midwest still have pretty close ties to the farm and take pride in ownership,” he points out. “These people want to feel good about the character of the person who is farming their land. They also want to feel that they're being treated fairly and that their farm is in good care.”
Farmers would therefore do well to establish and maintain good relationships with neighbors and landholding relatives, and when the timing is right, let them know about a desire to farm more land, says Thiesse. “The little things are sometimes important to landowners,” he adds. “They remember the times when you bring over some pork, if you raise hogs. Or if you blow out the snow from their drive, trim their trees or do other genuine acts of kindness that they wouldn't normally expect someone to do for them.”
Both a person's reputation and image are vital to farm management firms that seek operators for landowners who live outside the community. “The appearance of your farm makes a first impression that's hard to alter,” says Wilcox. “If your farm looks clean, neat and organized, you're creating an image that everything will be well operated and organized on any farm you operate.”
However, Wilcox says his company goes well beyond driving by the farm or checking references to ascertain a person's suitability to operate more land. “We have to trust the operator we pick,” he says, “and their community reputation is important.”
Create a strategy to market yourself. “It helps to have a well thought out strategy on how to let the right people know that you're looking to buy or lease land,” says Wilcox. “For me, having something on paper works best for initiating contact. A follow up call is also important, as is an offer to come meet with them.”
When contacting a farm business manager about wanting to farm more land, operators should state how many acres they currently farm, the type of equipment and labor available to them, the type of conservation practices they use and anything unusual about their farm, such as their experience growing seed corn or some other value-added crop, Wilcox advises.
“Because the chance to rent a farm may not come around often, you need to meet with farm managers who operate in your area and let them know you're interested if something comes up,” he says. “You don't get a chance if you don't ask, and it doesn't hurt to keep checking. But, it might take five years before the right piece of land opens up.”
In some instances, putting together a resumé and a cover letter has some merit, agrees Thiesse, but he cautions you to be selective about when to use those tools and to whom you send them.
“It's good to think about how to approach people and get to know who they are and what's important to them,” he says. “Sending a re-sumé in the mail without being asked for it might be a turnoff to some people. Sometimes it's almost overboard.”
Klinefelter agrees. He recommends farmers seek win-win working relationships with other farmers and landowners rather than “being viewed as the predator who is only concerned with renting more acres.”
Develop relationships and hone networking skills. Farmers who have good communication and people skills can sometimes establish important relationships that help them farm more ground, says Klinefelter. “The goal is to develop good working relationships so that people think of you first when farmland becomes available.”
For example, young farmers might start working with older producers by offering to do custom applications at lower than market rates. “That way, when older farmers do decide to retire,” says Klinefelter, “younger farmers will have built up some good will and proven that they're capable of farming the land.”
Another method for developing working relationships is to start an off-season business, such as tiling. “This business will help to generate more income for buying land,” points out Klinefelter. “It will also help to establish relationships with current landowners that might prove valuable in the future.”
Having family members who are lawyers, realtors or auctioneers can also prove beneficial for farmers who want to operate more acres, says Klinefelter. “It helps to have a spouse or another family member who is informed on what's happening with estate settlements and knowing who the landowners are and what they're like.”
Another way to establish a beneficial working relationship is to work jointly with other farmers who agree to share labor and machinery or to cut expenses by pooling seed and chemical purchases, says Klinefelter. Some have even pooled their talents and resources to form a new, larger operating entity with specialized tasks, he adds.
“One farmer might take responsibility for marketing while another would specialize in agronomy and another would manage the machinery,” he says. “This creates a merged operating entity, made up of several smaller operations to achieve economies of scale similar to a very large farm. The farmers then become landlords of the operating entity for which they work and share the profits.”
Be tech savvy and conservation minded. Farmers who have a yield monitor and global positioning systems also have an advantage over less tech-savvy operators, says Wilcox. “A yield map tells you more than what you can typically see from the combine cab,” he explains. “It helps to identify areas with yield problems and gives you a pretty good idea of how to fix those problems. With fertilizer prices as high as they are now, the economic advantage of variable-rate technology is also becoming more valuable.”
To be selected by a farm manager to operate a new piece of land, a farm operator needs to have machinery that's “functional, modern and able to do the job,” says Wilcox. “I'm also interested in people who have experience with good conservation practices. It will become even more important in the future, both from a standpoint of good stewardship and potential income, including government payments.”
Farm operators often do everything right and yet still get passed over when land becomes available to rent. “There are typically a lot of good farmers who deserve more acres to utilize their talents, but there are just not enough acres to go around,” explains Wilcox. “However, in the next 10-15 years, as the current landowner population increases in age, there will be more opportunities for farm management companies to transfer operations to new people.”
Consider Profit Potential When Land Bidding
Farmers need to do their financial homework prior to submitting an offer to either rent or buy more land, says Kent Thiesse, vice president at MinnStar Bank, Lake Crystal, MN.
“Sometimes in the rush to farm more acreage, growers don't take a close look at their potential for profit,” explains Thiesse. “Farm operators need to do a good job of analyzing their potential returns before making an offer.”
Finding the farm's prior yield history is a good start, but likely not enough information on which to base a bid. “You need to look at the fertility history as well as the yield history,” he says. “You can pay an extra premium on rent if you don't have to put as much into the soil to build nutrients.”
Thiesse also recommends checking on the availability of livestock manure. “If you have access to manure,” he points out, “it can lower your fertility costs by $30-40/acre.”
In fact, potential bidders should find out as much as possible about a farm's crop production potential before making an offer, he advises. “You'll need to know the soil type, soil quality and the crop equivalency rating, which is a standard measurement of a soil's crop producing capability,” he says. “A rating of 100 is best; anything above 80 is very good; and anything above 90 is exceptional land.”
A crop equivalency rating might range anywhere between 60 to above 90 within the same township, says Thiesse, who cautions potential bidders to avoid making assumptions about productivity based purely on what other farms in the area have yielded. “Another big factor in southern Minnesota and other parts of the country is the drainage situation on the land,” he adds. “The so-called 100-year rainfalls have been happening more frequently, and farms with good tile drainage will yield better and carry less risk.”
Potential bidders should also check the payment levels that are available from government programs and whether any Sodbuster and Swampbuster regulations apply. “If the farm is in an area that's eligible for the Conservation Security Program and you're geared up to use those management practices, it could be more beneficial for you,” he adds. “Also check what percent of the acreage is in a corn base, which has a higher value than other crop bases.”
Farmers should know their cost of production per acre and how that will change with the new acreage. “There have been some pretty sharp increases in both cash rental rates and land values in the last couple years,” warns Thiesse. “So, there's less room to make a mistake. It's worth taking a little time and thoroughly thinking it through.”