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Agriculture’s Economic Challenges
Let’s take a quick look at some economic data involving a western Montana ag operation. If we look at a yield of 80 bushel Hard Red spring wheat at $7/bushel, we have a gross return of $560/acre. Then factor into the equation the direct cash cost of real estate with fertilizer, herbicides and fungicides, seed, crop insurance and taxes. The rough cash cost estimate becomes $260/acre. This leaves ...
By Dave Heine // Jul 9, 2013 // Real Estate
Photo courtesy of Premier Real estate Professionals, inc.
Let’s take a quick look at some economic data involving a western Montana ag operationIf we look at a yield of 80 bushel Hard Red spring wheat at $7/bushel, we have a gross return of $560/acreThen factor into the equation the direct cash cost of real estate with fertilizer, herbicides and fungicides, seed, crop insurance and taxesThe rough cash cost estimate becomes $260/acreThis leaves a return of $300/acre to cover equipment costs, fuel, labor, return to the land and return on the farmer’s managementThis seems like a hefty return, but it is inconsistent.
I called Triple W Tractor for prices on new equipment found on a typical western Montana farmThis includes a 250hp tractor, 28-foot disc, 28-foot cultivator, 25-foot set of double disc drills and 60-foot pull type sprayerAll this vital equipment costs approximately $450,000 when purchased newA new combine would be $400,000-$500,000This does not include an extra tractor to run a grain auger or trucks for hauling grainThe bare-bone minimum equipment required would total $600,000-$700,000Hence, financing for a six-year term would set the farmer’s payments in excess of $100,000 per year
Does $600,000-$700,000 appear extreme? If you look at a hay producer set-up using an all-wheel-drive tractor with a loader, a disc mower, round baler and hay rake, this equipment adds up to a $200,000 investment, which does not include tillage or hauling equipmentThis is why the salesman I asked indicated that his sales in dollar volume are above two to one for used equipment over newSo how does the farmer make this work? They spread the risk as much as they canSuccessful farmers in our state typically have a blend of leases and owned groundCrop insurance is critically important so that income levels can be maintained despite poor yields due to harsh weather conditions, insect infestations, etc.
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