Your neighbor could be buying more land every year to farm, but bigger doesn’t always mean better.
Greg Ibendahl is an associate professor of ag economics at Kansas State University. He and another researcher reviewed 10-years of data from the Kansas Farm Management Association to develop a ranking of several hundred farms based on their economic performance and how much they grew over those ten years. He says instead of just looking at the overall farm income, they looked at net farm income per-acre. They also considered investment in machinery, machinery operation and maintenance costs, and the allocation of acres to given crops. A key in this study – the higher your debt level was, the lower you tended to rank.
“So, our overall conclusion from this was that if you’re a farmer, it’s probably better to concentrate on keeping your debt level down as opposed to making sure you get real big and then just expand for the sake of expansion because you can make a go of it as a smaller size farm,” advises Ibendahl.
He says bigger farms may be more efficient because they have the ability to buy inputs at lower prices and may have better marketing opportunities. But there are strategies for smaller operations too.
“You can do that through maybe buying inputs with your neighbors as one possibility, or maybe using futures markets possibly to help with the marketing side, and certainly renting equipment or custom harvesting operations is a way to kind of get around some of the economies you would see from buying bigger equipment. So, there are a lot of strategies. If you’re a 500-acre farm you can make a go of it with that size,” he says. “Again, I think to me, the debt level is probably more important than anything than what the farm size actually is.”
