Starting Your Farm: Chapter 2
The Small Farmer’s Journal has decided to run editor and publisher Lynn R. Miller’s book Starting Your Farm as a serial series. Below is Chapter 2.
“We can lie to ourselves about many things; but if we lie about our relationship to the land, the land will suffer, and soon we and all other creatures that share the land with suffer. If we persist in our ignorance or dishonesty, we will die, as surely as those bighorns perish from not knowing where they are. We are smarter than sheep, in most respects. Seeing the danger in ignorance, we may be moved to invent or recover some of the lore that connects us to the land, and tells us how to live in our place.” – Scott Russell Sanders
Who are You? And How Much is That Farm Worth to You?
Last chapter we started a discussion on the self analyzing procedures that might go into considerations of the purchase of a farm. We discussed the important first questions including; why you want to farm, what kind of farm you want, and where you want to farm? This chapter we’ll look at how much you might, or should, pay for a farm.
Up until the late 1980’s conventional farm lenders used to be proud of the formulas and yardsticks they employed to determine the value of a given piece of farmland and thereby the lending value. Today they are not so quick and ready with the numbers. The devastating farm crisis of the 1980’s and the resultant general farm banking collapse have forced an inch-by-inch, case-by-case, re-evaluation. That’s probably the way it should have always been. Because beyond the obvious variables of proposed crop and/or livestock, prevalent weather, region, soil types, proximity to markets, and such, there are myriad other particulars which can have dramatic effect on the value of a given piece of farm property.
WHO ARE YOU
The most powerful OTHER variable is personal circumstance (and I’m not speaking of class or social position). For example; if you want to increase the size of your farm holding and the neighbor’s twenty acres comes up for sale, it is safe to “suggest” that it will be worth more to you than someone looking for an investment. How do you factor in those two variables when deciding if the parcel is worth 400$ an acre or 2,000$ an acre? Operating farms in Lancaster County Pennsylvania have sold for twice or three times their justified farmland values to Amish families who are culturally, and personally, bound to try to remain within the communities to which they belong. And at the same time suburbia spreads like a pestilence putting altogether different pressures on those Pennsylvania farmland values.
On the flip side, there are hundreds of thousands of lovely farms with attractive buildings and good soils for sale at a fraction of their real value in areas suffering from large-scale out-migration. Portions of up-state New York, the upper peninsula of Michigan, Kansas and even the Ozarks fit that bill. In every case, these cheaper farms are located in regions that are not close to large metropolitan areas. But these depressed farm regions do enjoy strong growing seasons, good soils, proximity to some markets and the well-established fabric of farm communities. YET these are the areas that, for the time being only, many folks don’t want to live in.
That’s the oh-too-simple truth of it. If lots of folks want to live in an area, the land values go up. If they want to leave an area, the land values go down. Lancaster County is a popular place for the Amish who’ve lived there for generations, for the farmers who value the proximity to the Amish communities and other excellent market realities, and to the commuters who just want an acre in the country on a good road to the city.
But let’s get to your situation. The question was something like “how much should I pay for that farm I want?”. We need to approach the same question differently for different folks because the suitable, and/or acceptable, price per acre will vary. So we need to figure out who you are. Let’s oversimplify and lump you into one of these categories:
A. Young adults, few assets, no tools (didn’t know you needed them), no cash on hand, ineligible for conventional financing, limited to no farm experience, college education or part of one, no cultural or community ties to determine location (i.e. Amish, Native America, 3rd Generation S. Carolina Tobacco), but an abundance of health, high moral fabric, enthusiasm, industry, creative intelligence and good humor.
B. Middle ages adults, some assets (including tools), money saved, access to capital, college education, limited or no farm experience, used to convenience and comfort and high rate of pay, BUT absolutely MUST get out of the rat race and onto the farm, not as strong as you once were BUT know how to work, think you have a clear fix on what’s important, long ago determination replaced enthusiasm, in search of good humor that was lost somewhere in the city environment, think “creative intelligence” is a fancy way of saying “nut case.”
C. Middle aged adults, very few assets (unless you count this year’s vegetable garden and the cellar of canned goods plus the side of home-raised beef- Oh, and I almost forgot the old Chevy pickup is free and clear), nearly a thousand saved, bad or no credit, no education worth mentioning except lots of practical hands-on working experience including farming and ranching skills, lots of good tools (thought everyone knew they were important), used to working very hard for everything (except on Sundays), enjoy good health- humor- and outlook, value many friendships, already live in country on small rented place but always dreamed of a small farm of your own.
D. Nearing retirement or early retirement age, considerable assets (including equity in home and a stocks and bonds portfolio), $100,000 in nearly liquid form, pension and/or personal retirement income plan, no tools (or calluses), raised on a farm or ranch, adult life in city, concerned about health, education too long ago to matter, in desperate search for something long ago lost, suspect a return to farm-like setting will bring back quality of life. Concerned about protecting finances as they represent old age security.
E. Middle aged or older. Used to be a commercial scale farmer but lost everything during crisis of the eighties. Slowly building back up. Assets include full range of tools and the complete knowledge to use them plus a dangerously clear fix on how not to get into the same financial mess again. Some education, strong family, good health, moderately good rate of pay working in agri-business industry. A little saved. Not much sense of humor, bitterness overrides, straight ahead intelligence wary of “creativity.” Can’t get the NEED to own your own farmland out of your waking dreams.
I hope you’ve picked up on the fact that there could be an infinite number of different categories. I’m sure that you don’t fit any of these completely, maybe no one does. But this is an exercise in trying to show you how some seemingly insignificant things can have a huge effect on who you are and why you want a farm, and how much you might pay for it (not to mention how you might pay for it). The details of your personal circumstances and prejudices become very significant. A lot of these things bounce back to questions of “why” (or, ultimately, motivations) which we talked about last chapter. And things like tools and fears will have an effect on your success.
It needs to be said that every one of the “example” people painted above could reach their goal to own their own farm. And I’ll be borrowing from these examples in future discussions about how they can do just that. But here let’s get back to the discussion of how much to pay:
DOLLARS PER ACRE
If your goal is to own a farm which pays for itself, and from which you derive your income and you kind-of fit in category A, C, or E, you will most likely have to purchase a farm in an area where land is cheaper. That doesn’t limit you to just a few regions because almost every state of the union has within its boundaries areas of less population and low land prices.
The cheapest land I personally every tried to buy was $85 per acre (offered for sale in 1987 and located in eastern Oregon). It had a small house, a falling down barn and corral, scattered pine trees, good native grazing land, and a hundred acres of farm of hay ground. But there were two catches: you had to purchase the entire 1200 acres and it was twenty miles to the general store, post office, and 75 miles to a city of any size. I resolved to try to buy it and called to make my “offer of terms” only to find out that this ranch property which had been on the market for six months sold the day before I phoned. It was purchased by a group of doctors to function as a hunting retreat. They paid cash.
I know of remote farm and ranch property as low as $100 dollars per acre, as I write this, but the new owner must be prepared to travel 60 to 75 miles to go shopping. (Please don’t call or write me about this property because I’m sure it will no longer be available when you read this; which is an important point in and of itself- there is very little that is static about real estate availability and values.)
In the case of most all these cheaper properties, they are abandoned and can be purchased with little or no down payment (more on that later). If the above figures can be used as a bottom, up from that good farmland can be purchased for any price per acre from $100 to $10,000 per acre. The majority of farmland, sold in close proximity to markets and with a history of intensive farming, changes hands from between $500 to $2,500 per acre. Remember, true value, asking price and selling price may all be far apart from one another.
If your goal is to enjoy a part-time farming experience and you do not need or wish to gain all of your income from the setup- and if proximity to hospitals and town convenience is important to you- a higher price per acre will have to be paid because you’ll find yourself living where many others want to live. If you are in category A, C, or E this could pose a problem (but not insurmountable). If you are in category B or D, this will not be a problem.
Acceptable rates per acre (if there is such a thing) can be, and often are, determined by figuring the production value of the land. If the land produces 60 bushels of wheat per acre (at $3.50 per bushel) the annual gross potential receipt from that acre might be $210. Buying on contract and amortizing the purchase price of the land over twenty years (at today’s interest rates) you’ll end up paying off 10% of the purchase price (or mortgage principle) per acre per year. Add to that figure property taxes and calculate your cost of raising an acre of wheat (with or without a return to you on your investment and labor). It might look like this: