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Midsize Farms Measure Up
Doug Nichols gets a rush when he checks the cows grazing on his Marshall, Missouri, pastures. “I started with 64 head of mama cows and 57 calves, and I sold my first steers in August,” he says. “In five years, my business plan is to grow my breeding stock to 250 cows.”
Over the past two decades, Nichols, 40, has witnessed small and midsize row-crop farms lose land and revenue to larger operations. Midsize farms (annual gross cash farm income between $350,000 and $1 million) declined by about 5% between 1992 and 2012.
“We talk about how we’re missing the middle,” says Chad Hart, Iowa State University ag economist. “We have large, commercially viable row-crop farms and fairly vibrant small, local food farms. We’ll see the move to these two extremes continue.”
However, a 2018 USDA report reveals slowing consolidation (with the exception of dairy) between 2007 and 2011. Nichols also has staked his claim to an outlier for these growth trends: a cow-calf herd.
“It’s not a size issue,” says Bob Craven, director of the Center for Farm Financial Management, University of Minnesota. “Bigger doesn’t mean more efficient. Better management means more efficient. Sometimes growth outstrips management abilities. Once farms gross over $500,000 in our Minnesota study, they’re about as efficient as they’ll get. Rate of return on investment, a broad barometer of profit, is about the same as larger operations.”
Hart believes that technology is ratcheting up that sweet spot to 800 to 1,000 acres. “The current ag downturn tends to squeeze midsize farmers trying to play the large-farm game,” he says. “If you stay in the middle, you have to find another source of income.”
Many midsize farmers get their start as small commercial farmers. “If the focus is on efficiency, marketing, and cost control, they can be competitive,” Craven says. Identifying market niches and differentiating products also keep farmers in the game.
Cow-calf resists trend
Between 1987 and 2012, pasture and rangeland shifted from the largest operations to smaller farms. In 1987, the midpoint-size beef herd was 89 cows, increasing modestly to 110 cows by 2012.
“Cow-calf is more cost-effective on pasture, and it’s an easy entry, requiring little land,” Hart says. “You can combine it with an off-farm job.”
Value-added beef also offers a growing alternative market.
Nichols returned to the farm with a decade of experience in wealth management in St. Louis. Margins aren’t a new challenge for him. “I want to capture as many higher margin markets as possible in the near term,” he says.
His family owns 470 acres. The row crops are leased out, and Nichols rents the pasture for his grass-fed beef business, Cloverleaf Farms. “I’ve loved marketing my entire life,” he says. “I always knew I wanted to vertically integrate. It requires a different skill set and thinking outside the box. I’ve done my research. The demand for grass-fed isn’t being met.”
Based 45 miles from Columbia, Missouri (population 117,165), Nichols envisions a day when Cloverleaf Farms could grow into Cloverleaf Farms Co-op.
A farmer selling high-value organic crops doesn’t need as many acres. Organic food sales have increased by double digits annually.
Growing demand from restaurants, caterers, and food service expands the need for co-ops like Organic Valley in LaFarge, Wisconsin (2,000 farmers nationwide), and operations like Grain Place Foods, a 280-acre farm near Marquette, Nebraska, that partners with 128 growers. Social media and the internet help farmer networks pursue value chain markets.
“Organic crops is a growing niche,” Hart says. “You can stay in row crops but change your production practices. You have to treat it like a direct-market crop and aggressively figure out your marketing chain. If you grow organic corn, you have to find an organic livestock producer.”
Chuck Wirtz, 57, his two sons, and two brothers farm 4,000 certified organic acres of corn, soybeans, oats, and wheat near West Bend, Iowa. Another 2,000 acres will be certified by 2019. Their corn and soybeans are feed grade as well as food grade. They also raise hogs.
“We entered into organic to meet growing demand,” Wirtz says. “It enables us and other farmers in the community to generate added revenue per acre. It’s a lot more work, but we’re not afraid to do the labor and management necessary to participate in this system. We’re keeping some young people in farming, working with them for five years to get them certified.”
Wirtz doesn’t fit the traditional mold, Hart says.
“He’s a unique hybrid – a large farmer playing a small-farm game. He’s had to take some risks to figure out how to make it work. Not everyone can,” says Hart.
New Crops, Niches
Specialization is a large-farm strategy. “Ag goes in cycles, and we may be seeing a modest shift back to diversification,” Hart says.
Today, new crops and new uses for small grains are being added to the mix. Midsize farms may have a leg up to move quickly into these markets.
In New York’s Hudson Valley, small grains are making a comeback. New York has more than 200 breweries, up from 38 in 2003. Legislation requires brewers and distillers to source 20% of grains and hops from New York farmers, rising to 90% by 2024.
“Barley fits the row-crop mentality,” Hart says. Barley that doesn’t make the cut can be fed to animals.
For this reason, malting barley production may appeal more to livestock farmers, says Ashley McFarland, Michigan State Extension educator. Michigan is fifth in the nation for its more than 300 craft breweries, microbreweries, and brewpubs.
Although experience growing small grains is helpful, McFarland says barley grown for malt is managed differently. “It’s critical to build a relationship with a malthouse before planting,” she says. “It’s a change for many producers.”
Technology enables farmers to manage more acres or livestock, accelerating the momentum to size. “Over the past 10 years, new efficiencies in dairy have surpassed the rate in crop operations,” Craven says.
Not all technology favors larger producers. Robotic milkers reduce per-unit costs more on smaller than on larger farms. One robot milks 60 to 70 cows.
“About 5% to 7% of Iowa dairy farms use robotic milkers,” says Larry Tranel, Iowa State University Extension and Outreach dairy field specialist. “That’s about 55 farms.”
Darlene and Gary Kregel added robotic milkers to their multigenerational farm near Guttenberg, Iowa, in 2014. Working with their son, two daughters, and two employees, they manage a 400-head herd.
“Robotics dramatically help manage information and reduce labor on a per-cow basis,” Gary says. “We can focus on herd management and crops.”
Other conventional multigeneration farms are becoming hybrids.
“We see the younger generation coming in and operating agritourism or direct market enterprises,” Craven says.
Back at his Missouri farm, Nichols is mastering pasture rotation and is enjoying the challenge of building a business, as well as a slower pace of life. “It’s an exciting opportunity to get back in ag,” he says.
“There’ll always be opportunities for midsize farmers,” Hart says. “It’s up to them to fine-tune their production and marketing to survive – whether they’re in the system or outside.”