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What’s the Cost of Grain Farming in Iowa vs. Nebraska Dairy or Kansas Wheat?
If you're like most farmers, you’ve built up your cropland, ag buildings, machinery, and equipment over the course of many years. You know it adds up to a lot of money, but you may not know just how much or what it would take to start over today.
Recently, we ran a story exploring the cost for a young person to assemble a farm that would provide a decent living. For that story, we focused on the typical capital requirement for becoming a grain farmer in Illinois or Iowa. This sparked some interest in the cost to get started in various other places and in other kinds of farming operations. So, today we want to compare the capital requirements for a corn and bean operation in Iowa to a dairy farm in Nebraska and a wheat farm in Kansas.
First of all, let’s look at the grain operation in Iowa. A degree in agriculture is not required, but it might come in handy for convincing banks to loan money or landlords to lease land. The minimum cost for a four-year agriculture degree today is about $20,000, and it can certainly exceed $120,000. The average of those two numbers is $70,000, which is an amount that will have most young people already borrowing money before they buy the first tractor.
The equipment requirement could be an extensive discussion; however, I’ll try to keep it as short as possible. One could buy all new machines, but let’s assume the acquisition of decent used equipment – about five to 10 years old. The basic list for a corn/bean farmer would include: a combine with a corn head and grain-platform for $175,000, a large tractor for plowing and planting at $125K, a grain truck for $60K, a planter around $75K, a grain drill for $40K, a disk at $30K, a chisel-plow for $30K, a field cultivator is $25K, a pull-type sprayer for $35K, a grain dryer at $30K, a utility tractor for brush-hogging / ditching / grading is about $35K, a grain cart for $15K, a trailer for $15K, an ATV at $10K, and a full complement of tools for $15,000. We may be missing something, but that’s already $715,000 in equipment.
The building requirement probably includes a couple of 5,000-square-foot metal buildings ($200,000) and at least a few grain storage bins for 75,000 bushels – about $75,000. There is no hard and fast land requirement. However, the farmers I spoke with said that someone would need at least 500 owned acres and 1,000 leased acres to make a living. The quality of the land certainly affects those numbers. For this article, let’s assume 150-plus corn bushels-per-acre land for about $7,500 an acre. If you bought 500 acres as a base of operations, the total land cost would be $3,750,000.
We still need operating capital to plant the first crop and survive for the first growing season. To plant, fertilize, and spray 750 acres of corn and 750 acres of beans right now will cost you about $140 an acre for beans and $290 for corn, which is $322,500 in total. To survive for six months will cost at least $25,000. Add it all up, and we arrive at $5,157,500!
Dairy operations have some different requirements, and the way they operate crosses a wide spectrum in the United States. Some dairy farmers milk less than 50 cows, and some milk over 500. I asked several dairy farmers how many cows it would take to make a decent living, and the consensus seemed to be 100 to 150 cows. Let’s call it 125.
First of all, they have to be housed and fed. You’ll need about a 20,000-square-foot barn, which will cost about $400,000. That doesn’t get you the milking equipment, which will cost approximately another $500,000 for a double-10 parallel milking parlor and all of the tanks, filters, hoses, refrigeration, and other equipment. (A double-10 parlor is a nonrobotic set-up, which allows for milking 20 cows at a time.)
A small percentage of dairy farmers pasture their cows, but most grow corn silage and hay and buy supplements and additional feed as needed. In Nebraska, you’ll need about .5 acre per cow of corn silage, plus about 1 acre per cow of hay production. Some additional acres are required for barns, holding pens, and manure management. This is about another .5 acre per cow. So, at 125 cows and 2 acres per cow, we’re looking for at least 250 acres. In Nebraska at the moment, it costs about $3,000 an acre for decent tillable ground. This means at least $750,000 in land investment. You also have to grow 62.5 acres of corn and 125 acres of hay for a cost of about $25,000.
If you start from zero, you’ll have to purchase the herd. The cost is going to be somewhere around $2,000 per cow – another $250,000 in total. As a dairy farmer, your harvesting equipment requirements are similar to a grain farmer. You may get away with lighter duty tractors, due to planting and harvesting fewer acres, but a hay bailer has to be added to the mix. Take the previously mentioned equipment cost down from $715,000 to about $700,000. If we add up the total cost to be a dairy farmer, including an education, we get $2,695,000.
The last farm scenario is a winter wheat operation in western Kansas. This kind of operation requires the most acres. To make a living as a Kansas wheat farmer today, you’ll need to be farming at least 3,000 acres. Land values vary from as low as $1,000 per acre for marginal dryland (nonirrigated) acres to over $4,000 an acre for good irrigated land. For the purposes of this analysis, let’s assume decent nonirrigated land at $2,000 an acre, and we will assume you’ll own half of the acres you farm. That’s $3,000,000 out of the gate.
Most western Kansas farmers are going to grow a crop two out of three years on a given acre. That is one year of wheat, one year of corn or grain sorghum, and one year fallow. This necessitates all the same sort of equipment as an Iowa grain farmer, but more of it. You will likely have two grain trucks, instead of one, and two big tractors. So, our equipment total has risen to $950,000. You still need equipment storage buildings for $200,000, but I’m told that most western Kansas farmers do not have grain storage bins.
Unfortunately, the waiting period from first planting to first harvest is much longer, like nine months instead of five, so the living expenses rack up for longer. Call those expenses $37,500. Planting and spraying wheat will cost you about $75 an acre now. Since you’ll only plant two out of three acres, that’s 2,000 acres of wheat, requiring $150,000 in working capital. Add up all of those wheat farmer costs, and you’ll get $4,477,500. Another big number!
Because of the cost of land and equipment today, some farmers are concerned about who will be able to follow them into the industry. How will they fund the enterprise, even with family land and equipment? The problem is not just start-up capital but also surviving drought years and low commodity prices until they turn around. Unfortunately, most farmers have to (prudently) borrow big bucks today or inherit a few million dollars from a rich uncle.
Written by Shawn Williamson, Certified Public Accountant (CPA) MBA in Missouri and Illinois.