Good prices spark farm, ranch expansion

Full-time farming was on Clayton Short’s mind as he attended Kansas State University back in the mid- 1980s, but bad news found him with one semester to go.

“My dad caught me over Christmas vacation, and said there wasn’t room for me on the farm, partly because the farm wasn’t big enough and interest rates were really high,” said Short. “I went back to school and changed my classes, trying to make myself more marketable.”

Later that next spring, plans changed back after tragedy created gaping sadness in the family’s farm and heart.

“Two months later, Dad (Robert Short) was killed in a plane crash,” Clayton said. “At that point, I knew I was coming home.”

Resuming his original curriculum, referred to in the 1980s as “crop protection” with minors in agronomy, weed science and soil fertility, he graduated in December 1984, and joined older brother Chris Short in southern Saline County, Kansas, on the family operation near Assaria. Chris also farmed some land separately. The family farmed 680 acres, 400 of them rented.

“Chris and I formed a partnership over the winter of 1985, starting Short Brothers Farm,” Clayton said, renting the family’s 280 acres from their mother, Doris Short. She died in 2017.

“We farmed together about four years until we split it up. Chris likes irrigation, so he took the three farms with that, and I took the dryland,” Clayton said.

Thus began the careers of two successful food producers in north central Kansas. Their farms blossomed and allowed the brothers to transition into making their livings solely in agriculture, with plans to welcome offspring on their respective spreads.

Stories abound in this nation’s mid-section on the evolution of folks who have bested all sorts of challenges through generations of raising food for the nation and world.

One common fact is that most have grown their businesses, and to a certain degree, the number of acres does matter.

“There’s a minimum size you need to be to own equipment and do your own thing,” said Clayton, who spent a few winters working off the farm. He and his wife, Louanne, were married in 1988, and she worked in town four years before devoting herself full time to their children and farming.

“No matter how many off-farm jobs you have, you can’t make land or machinery payments without money from the land,” he said. “A farm has to stand on its own.”

Another essential is “a survival instinct,” Clayton said. “That’s what it takes sometimes to keep going in any successful operation.”

Experts in more than one segment of agribusiness agree there are reasons aplenty to grow and reach those “economies of scale,” said Maxson Irsik, of Kansas City, a certified public accountant with K.Coe Isom.

Clayton figured he needed a minimum of 2,000 acres to farm full-time, and he reached that level.

“You could own pretty nice equipment and earn a good family living, and family could do all the work,” he said. “We had a little help at harvest, but overall, we did the work ourselves.”

Today, the Shorts are in their late 50s, and their oldest son Justin is 29. They have more than doubled the size of their operation in 33 years. Fewer than than one-fourth of their acres are owned.

“Justin’s a good match. He makes me a better farmer,” Clayton said.

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Expansion means farmers and ranchers are healthy, said Steve George, senior vice president of the Bank of Tescott in north central Kansas. George’s main focus is farm lending and Clayton is among his clients.

“For the most part, everybody is going to grow,” said the veteran of 36 years in banking.

“They feel like if you’re stagnant, you’re going backwards,” George said. “That’s part of the excitement of business. You’re growing and dealing with growing, but it has to be calculated and analyzed expansion.”

Traditionally, farmers and ranchers seek to add land and production to “make room for a growing family,” he said. “I would be shocked if most of my ag producers didn’t bring a younger family member into the operation; a child, nephew, or a grandchild, if the opportunity presented itself.”

The same would be true in most any business, George added.

The urge is still there to grow, Clayton said, or at least improve his farm.

“If somebody offered to rent us Class 1 bottom land, we would take it, meaning rent it. We would not take any more marginal Class 3 or 4 land. We would always upgrade and not just expand,” Clayton said. “We’ve identified about four pieces of ground that we would purchase, but it’s got to border us.”

Quite naturally, he added, “Justin is more in the growth mode.”

Being roughly the same age as banker Steve, farmer Clayton said they seldom differ.

“He has been a good friend beyond just my banker, and we discuss our future, too, as well as our finances at the bank,” Clayton said. “If I thought it was a good fit, Steve would likely agree.”

That’s true, George said, but to make sure, he will also have pertinent questions for any client with an ambition to expand.

“I would encourage Clayton to analyze the opportunity to assure that our assumptions are realistic with the information we have available today,” George said.

Aging is one factor in land changing hands, said Ernie Goss, a farm economist in the Heider College of Business at Creighton University, Omaha, Nebraska.

Perhaps a neighbor, who has no one in a succession plan, decides to get out of the farming-ranching business, he said, presenting a producer with an opportunity.

“Then you buy that business,” Goss said.

These times are ripe with just the right conditions to expand, he said, which coincides, in many cases, with the “natural aging of farmers. Because of pretty good farm conditions, that motivates the remaining farmers to purchase those farms, buy them up.”

Farm commodity prices “are at pretty good levels in Kansas and the region,” Goss said. “Also, there are record low interest rates, and banks are willing to make those loans at very competitive rates.”

Those hankerings to expand may remain high.

On the heels of a fairly successful wheat harvest, commodity prices have remained higher than a year ago.

Cash prices at Scoular grain terminal in Salina, Kansas, ranged from $1.44 a bushel higher for wheat; $2.22 for sorghum; $2.84 for corn and an even $5 a bushel higher for soybeans, comparing market closings from July 7, 2020, to the same day this year, according to Chris Bielefeld, a Scoular merchandiser.

“We’re off the high from what we saw earlier, but (prices are) definitely higher than last year,” he said, and most yields in Saline County—“50 to 55 (bushels to the acre) will catch the majority of it,” are well above the longtime county average for wheat.

There are common reasons to expand, Irsik said.

“They want to continue profitability, continue to provide for family members to be able to come back,” he said. “Also part of it is they love doing it. There are less farmers being made, and they want to continue.”

Among the issues dictating expansion is finding farm workers, said Daniel O’Brien, Kansas State University agricultural economist at the Northwest Research Extension Center in Colby, Kansas.

“The same labor issues that are affecting all businesses are impacting ag,” he said. “That doesn’t mean that skilled workers can’t be found, but you will have to pay competitive wages to hire them. That’s a barrier to getting larger. To deal with that, people tend to substitute larger capacity machinery that can handle more to make the best of the skilled farm labor they do have. Higher equipment costs are driving them to get larger acreages—to spread equipment costs out over a larger area and reduce costs per acre.”

Expansion usually requires more money and human capital during a time when it’s difficult to find labor, Irsik said.

“Expanding doesn’t guarantee you’re gonna have increased profits,” he said. “If you expand outside of the ability of your existing fleet of equipment, you’ve got to buy more.”

The competitive environment in farming tends to become mired in “cost competition,” O’Brien said, factoring in “land, labor, capital and family living, while bulk commodity producers are basically raising fairly uniform crops” such as, corn, soybeans, grain sorghum (milo) and wheat in these parts.

All are fetching extraordinarily high returns at this time, a situation that may or may not persist.

“Prices tend to rise and we don’t sustain full economic profits,” he said. “It tends to drive us toward covering our costs, but just barely. Higher prices don’t stay around.

“The old economic adage that ‘the best cure for high prices is high prices,’ follows the idea that people’s economic responses to times of high profits tends to eventually bring back times of lower profits as production expands. Usage contracts and prices come back down eventually.”

O’Brien is more worried about “covering costs during normal times, when our commodities are breaking even.”

Farms and ranches are not unique, Goss said, with their typical response to conditions, like most business.

“You will keep expanding until marginal costs equal marginal benefits,” he said.

Old farmers will advise to keep your land and buy more because there is less of it all the time, thanks in part of urban sprawl.

The U.S. Department of Agriculture reported last year that total land in farms was just under 897 million acres, down 800,000 from 2019. There were 4,400 fewer farms in 2020 compared to the prior year, estimated then at just over 2 million.

“Since 1950, the average farm size has probably doubled and the number of farmers has halved,” Goss said. “The price of equipment is not going down. To justify a huge $200,000 piece of equipment, you have to have a huge piece of land.” 

Politics could play a huge role.

“As long as they have good prices and low interest rates, you’re going to see growth,” Irsik said. “But tax reform could put a halt on some of it. (President) Biden is wanting to double capital gains tax. If that happens, people will be less incentivized to actually sell their land.”

Tim Unruh can be reached at [email protected].