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To build or not to build?

Jeff Caldwell 03/02/2011 @ 8:51am Multimedia Editor for Agriculture.com and Successful Farming magazine.

The farmland market is hot. It's even getting the attention of financial giants like Berkshire Hathaway Inc. CEO Warren Buffett, who said in a CNBC interview Tuesday that he'd rather have all the farmland in the world than all the gold in the world.

Agriculture.com Farm Business Talk member farmandfire knows that. It's where he can build his farm's value now, and other farmers have told him so. But, he needs a new farm shop to accommodate his growing number of "sideline businesses," which represent a growing part of his farm's income. He's got doubts, though, fueled mainly by other farmers' comments.

"Here are the comments I have received so far: 'The shop will never pay for itself. Why dump money into a shop when at your age, you could be putting that aside for land? You can bankroll it, but do you really want to?'" farmandfire, 34, says in Farm Business Talk.

He's currently working in a heated 3-stall garage since his farm's larger shop isn't heated and has very little lighting. But, his list of sideline businesses -- which now includes commercial snow removal and prescribed fire operations -- is getting longer, and he knows he's well on his way to outgrowing his current space.

"I am in need of a larger area to work. The larger the side jobs get, the more equipment," he says. "We typically get our fire equipment ready at this time of year, but with the last 2 years, we have had all the fire equipment and snow equipment packed into that 3-stall garage because winter doesn't seem to want to leave early. My father has no desire to have a shop, and in turn has no desire to help put one up, which I can see being at the age where retirement is coming."

So, he wants to know: Does it make sense to build a bigger, better farm shop right now?

"For the amount of machinery you must have, you will pay for that shop quicker than you think by saving shop rates on your repairs, besides any other doors it might open for you," says Farm Business Talk member infire, who adds his situation is very similar to farmandfire's. "Get some trusses ordered and put floor heat in!"

Jim Meade / Iowa City agrees, adding that having a better workspace would likely have benefits he may not be considering. "Build the shop.  Build it as soon as you can. Build it as big as you can afford and deliberately build so you can expand it. Build in floor heat and good lighting," he says. "Your work will be more efficient. Your dad will very soon want to use the shop for his repairs, too."

But, what about the cost? It could be tough to shoulder, especially if the sideline businesses dry up or if grain prices tighten. But, there may be alternatives, says Farm Business Talk member Kay/NC.

"I'd bet you could trick out a good tool truck with portable generator, air compressor, and welding equipment, and spare set of tools, for far less than an empty shop building...You've got to equip either way," she says. "You have a lot of freedom as it is now, and you never know where your diversifications may turn in the future.  A tool truck is an easier asset to relocate or liquidate than is a building on your family's land, if things went south or you got a much better opportunity further from home, for example. I have seen way more people regret taking on new debt than I have ones who were glad they waited. I think that there is another, more reasonable way to skin the repair cat."

 

But, back to Buffett's point on the farmland market right now. It's hot enough right now that maybe he could leverage his existing land base to fund a new shop, says Farm Business Talk member BA Deere.

"With land the price it is, 10 acres would probably put up a nice shop. If farming goes the direction it has been and you decide to quit, you'll maybe expand your other businesses and building shops won't get any cheaper," he says. "Unless the current commodity and land bubble is different, the cost of production will at some point grain will level off at the cost of production."

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