Starting a Farm Business

Acquiring Farmland

The most difficult aspect of starting a farm business is acquiring vacant farmland on which to plant crops or raise farm animals. Vacant farmland with enough contiguous acres to run a farm business is getting more difficult to find as suburbs spread out to the countryside. Farmland is extremely expensive, especially when you look at the return on investment (ROI) that you can expect per acre when planting crops. Here is a realistic example for understanding ROI with a farm business. If you plant soybeans, and you make $400 per acre each year after deducting planting and harvesting expenses on the sale of your crop, and you paid $5,000 per acre for the land, it will take you over 12 years just to make enough profit to pay for the land. Land is not a depreciable asset for income tax purposes, so the cost does not reduce your taxes. However, interest paid on farmland is fully deductible, as are the property taxes. Most banks require buyers of vacant farmland to have at least 30 percent of the purchase price as a down payment. Therefore, to purchase 100 acres at $5,000 an acre, you would need $150,000 down just to buy the land, without any machinery to run it. On top of that, the interest rates are higher on vacant land than home mortgage rates (see Resources below).

Machinery

Running a farm business requires a large capital investment, first for the land, then for the machinery. First, you need a big tractor and wagons. Then if you are crop farming, you need a planter, sprayer, combine and wagons. If you are raising hay, you need a mower, conditioner, rake and a baler. If you are raising animals, you need fencing, automatic waterers, barns, skid steer and a manure spreader. You may also need other equipment specific to the types of farm animals you intend to raise or specific to the type of crops you intend to plant. Chances are you will need to approach a farm credit service organization to obtain financing for startup farm equipment, as most financial institutions require regular monthly payments, as well as down payments on each item. A farm specific financial institution will allow you to make a large payment, once a year, after you harvest your crops.

Learning About Farming

Once you decide on specific crops to raise, you need to take specific pesticide applicator exams to become certified so you can spray your crops for pests. Talk to local farmers and agricultural businesses to find out the most common pests, fungi and weeds in the area that you need to battle against for successful crops. This information will also help you choose between types of genetically modified or non-genetically modified seeds to plant (see Resources below). If you are raising farm animals, talk to a local large animal veterinarian to learn about insect protection, local diseases and what inoculations are available to protect your herds. Learn what type of feed to give your farm animals for optimal growth, study breeding programs as well as genetics to improve your herd quality.

Resources

• Agricultural Real Estate Loans
• Information on Genetically Modified Seeds