A Case Study in Agriculture – A history of why we fight growth on the farm.

My name is Evan, and I never listened to AM radio. There, feels good to get that out there to start a new year fresh. Now that I have alienated the older demographic of readers, and the younger demographic are just now realizing that there is an AM button in their pickup, we can move forward.

 

My dad honestly had every vehicle on the farm programmed back to AM. I could never get in any vehicle without hearing the “oldies,” or even better “Gormley.” The only times I can remember ever not automatically changing the channel was if Paul Harvey was doing his rendition of “the rest of the story” (oops, lost the younger generation again as they are googling what this was). Being that Mr. Harvey passed away in 2009 this is going back a few years. I can still remember trying to guess who he was talking about before he told the rest of the story, and then will never forget the God Made a Farmer superbowl commercial, may god bless him in heaven.

 

Now, what does this have to do with anything? Well, as the 2023-year ends, I happened to read another article on how investors and the “mega-farms” are killing the industry. I can even feel myself sounding like a broke record again as most of my time is trying to defend farms these days instead of trying to improve them. So, we are going to try another method. For those that know Paul Harvey they will follow along, for the rest of you just keep reading.

 

The Case Study – Jill’s Story

 

Jill has created the mega-farm. The operation plants 40,000 acres in Western Canada across two provinces and has 25 full-time employees. They grow canola, wheat, and barley for the most part and continue to grow using land equity and profitability to drive the operation forward. They also have invested in multiple other business along the way on both the vertical and horizontal integration chain. They moved into pedigreed seed a decade ago and only recently purchased the local repair shop in town as they wanted the lead mechanics for themselves, saw the ability to make money off other producers in the town on third party jobs, and felt it was a service the community still needed.

 

The farm became self-managing three years ago. Through a full-time COO and CFO, they have been able to work with the banks and professional advisors to set the operation up for continued growth. Jill spends a couple months in a hotter climate over the winter as the farm has managers in place that can continue to move even without the boss in her chair. Moving into the coming year they have made an offer on another 2,000 acres as they had all their debt set up at low rates back during the pandemic which allows them to negotiate with much lower cost of capital. In fact, it has allowed them to bid higher than most of the neighbours as they have the equity and acres to back it up. Overall, the enterprise has strong metrics, and the vision is to continue to grow to create a legacy for Jill’s kids that are all becoming teenagers. Soon enough the farm will have to feed multiple families.

 

Even though Jill has continued to give back to the community by funding numerous projects and donations, they are seen as a “corporate farm”. Most of her employees live in town, they shop at the local grocery store, and their kids participate in the school system and local sports teams. Jill tries to hold onto all relationships in her hometown even though she also continues to grow the farm and create a business she can be proud of for generations to come. As an estimate, one-third of the community likes what she does, one-third honestly don’t care and go about their own goals, and the remaining one-third hate the fact that she continues to move forward (even though they have never had a conversation with her in the past). As with many operations in the prairies, she must put up with those that don’t believe she is good for the industry.

 

The Case Study – Jack’s Story

 

Jack is the definition of the “family farm dynamic”. The farm put in 4,000 acres in the prior year between himself and both his parents who still work on the farm. They grow good crops on good land and live the lifestyle to its fullest. The grow canola, wheat, barley, oats, and have tried pulses in the past with limited success. Every dollar above their personal living has been reinvested back into the farm and they have created a strong nest-egg which has minimal debt and a large working capital and cash balance. The farm continues to insure to make sure that the cash remains high, and they can live the life moving forward with minimal risk. They are happy.

 

Jack’s dad turns 65 this year. He is one of those farmers that will never leave the farm and for that the family is proud. He has put in his 45th crop this year and the farm through multi-generations has the “farm century award” in the yard. Jack’s grandfather started the first acres where the “donkey died” as many put it. They have one hired man that gets off work at the mine and comes out for a few weeks during the peak seasons. Both Jack and his dad have agriculture degrees and can grow some of the best yielding crops in the area through sound agronomic practices. They have an accountant that they meet to file their taxes once a year and if there is money in the bank that is success.

 

A few years ago, Jack looked at expanding the farm by another 1,000 acres but at the time did not want to spend their “treasure chest” of cash and go back into debt game. He also did not want to have to bring in outside labour as managing people is not a skill that he has or wants to learn. He is comfortable where the farm is and has no intention of being the mega-farm. In fact, that type of structure, stress, and work is not something that interests him at all. In the coming year one of their neighbours has 2,000 acres up for sale and he had discussed possibly making an offer and seeing if the neighbour wanted some part time work moving forward to avoid having to hire. The additional equipment would require some debt and land would also be expensive as he knows the larger enterprises around him were also going to make a bid. He would have to go to the bank and ask them to see if he could even get the funds in place to take a run at it. He was still on the fence if this was what he wanted.

 

The last topic of choice on the farm these days has been transition. They have always run the farm as whoever was around would conquer the tasks at hand that day. Nobody was the boss, and nobody always ended up with the bad jobs. As Jack’s father gets older Jack himself has started taking more of the manual labour jobs as his father is having trouble keeping up. However, in terms of management Jack only started dealing with the banks and accountants in the last couple years as his dad was always the man in charge. In fact, up until last year Jack and never actually been involved in crop rotation planning or longer-term strategy, but at the advice of their accountant and banker he was pulled into this decision making. Jack himself just turned 44 last year.

 

Jack is avid in the community as he plays rec hockey, and his three kids all attend school and play sports. His parents are on the church board, and he sits on the rural municipality council that meets every so often. He loves coffee row as he gets to hear the local gossip and find out what all the farms around are doing these days. It is a breath of fresh air to sit and talk with other farms that get it.

 

And Now – The Rest of the Story

 

Jack and Jill grew up down the road from one another. Their families had coffee together every Sunday and they would go dirt biking and fishing down at the local pond together on weekends. They attended the same school and played on the same sports teams up until high school with Jill was forced to play on the girl’s hockey team and Jack on the boys. They kept in touch, but as they got older, they kind of went their separate ways and the friendship was more of a long-distance acquaintance even though the farms yards were two kilometers apart.

 

Jill went to university for a business degree as her father did not want her to have the same agronomy degree that he had. Jack got a hockey scholarship but also wanted to get his agriculture degree as his dad was always so proud of being a part of the agriculture network. They both ended up getting their diplomas on the same year and that fall both went back to the family farm as who doesn’t love the lifestyle on the farm growing up and why wouldn’t you want that for your future families. There is no better life than growing up on the farm.

 

At this point both farms were only 2,000 acres in size. To support the new members coming home they both took on rented land and grew to the 4,000-acre mark to feed all the families. This was early in 2002 and only recently had farming begun to start being profitable and recover from the disaster than was the 80’s. Land had increased up to $50,000 per quarter and at these prices the farms were not sure if they could afford to keep expanding as family came back. Most of the farm kids had begun to exit the industry as up until that point there was no money in farming. Only a select few decided to stick it out and see if they could survive long enough to thrive.

 

One year later one of the neighbours turned 85 and decided it was time to sell the farm. He had no kids coming back to the farm and his health was starting to diminish. He put his entire 2,000 acre farm up for sale knowing that there were only a few farms that would want to expand as times were not great up to that year. Jill sat down with her family and decided to leverage her father’s land as a down payment and she would take on the new loan for the entire new acres. This was a high risk move as margins were tight and this would make the farm a very risky proposition, but Jill wanted to take it on, so they made a bid.

 

In that same year Jack saw the land add in the local newspaper. He had just gotten settled into the farm and they were a good size for their machinery and for himself and his family to manage. Plus, land was now up to almost $300 per acre which was higher than it had been since before the drop in the 80’s. There was too much risk for him to take the chance and him and his new girlfriend were saving for a ring that he wanted to buy her. It was not the right time, so he decided not to put an offer in.

 

Over the next decade this type of transaction continued to occur time and time again. Every time land would come up, Jill would have her advisors reappraise the latest land sales and use any new equity in her older land to purchase the new parcels. In addition, her reputation of growth, hiring, and being able to take care of land had retiring farms and other investors wanted her to take on their rented parcels. It came to the point where Jill had to start turning away some opportunities as the farm could put itself in trouble if it took every quarter that came available. With the real estate appreciation and the professional advisors and team that Jill had put together, she was making high profits and reinvesting almost all of it back into land purchases and running the operation. Other than a few toys here and there she really had not started to live any more extravagantly than in the past.

 

Jack watched as numerous parcels came available. He would put in bids here and there on a few quarters that were touching his land but overall, the land trading was starting to get ridiculous as prices moved closer to $750 per acre and then $1000 per acre. In fact, the offers he did put in were often outbid by what he felt were outrageous amounts by many of the neighbours. In fact, Jill from down the road was one of those farms that continually was driving his land prices around him up. If this continued, he would have to start worrying about his current renter of his 2,000 acres that he originally came back to farm. This was not right, why would Jill pay such outrageous prices for land that was already overpriced. And this was not fair, as Jill had many more acres to average these high prices over and still make the payments. Why was she able to do this while I cannot make the numbers work?

 

Conclusion

 

Being in my position I get asked numerous times in meetings how do they do it? How do these large farms keep expanding at today’s land prices and why this is so bad for not only the industry, but the family farm and the lifestyle that we want to continue? My answer is always the same, they did something a decade or two ago and the rest of us did not (me included), they took risk.

 

I am not saying that every farm could have made the jump at that time and done this. In fact, I look back at my own situation and am not sure that I would have made it through some of the years in my area if I had taken on a lot more risk. But truth be told, I remember turning down multiple quarters of land because it was overpriced at that time. In fact, my first purchases were $60K a quarter and at that time I could not believe I was paying that. The truth is though, I don’t hate those that did, I respect that amount of stress, thought, and luck it took to take those chances. This is why I work with many of these farms today, I look up to them.

 

As I continue to read articles nonstop about how the “family farm” is dying and how outside investment and mega-farms will be the demise of agriculture I get tired. As I have heard my business partner answer in speaking engagements, “are you mad at the farm that is doing it, or are you made that you didn’t do it ten years earlier?”. This is the truth, if we all had a time machine, we would have taken way more risks on buying land a decade ago when prices were much lower than today. But instead, we diminish those that did and have succeeded and even worse the media calls them out as hurting the industry. I am sorry, this is not something I can get on board with as this is truly a false narrative. Many of these farms give back more money to their local communities than any other farms, many employs numerous individuals that feed the rural communities, schools, and economy, and many continue to push the price of land which to be honest makes all other landowners more equity and therefore more money for retirement.

 

Will this be hard for the next generation to start farming, yes. Quick stat, 20% of all start up businesses in any industry fail in year one, and only 50% make it past year five. Why in agriculture do we continually blame those that succeed for the future failure of others? This is where I am unclear on why I must keep writing these same blogs. When this one case study honestly explains 90% of the farms I work with and the differences I see, why does an industry continue to blame the success of some for the complacency of others?