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neighbor must not read about current crop prices!!!

J

JD Seller

Well-known Member
A good friend has a 24 year old son coming into the operation after college. The boy is a good young man but like most young men only sees rosy skies with no clouds. Anyway, my friend calls me to see if I would make him a bumper bar for the back of his latest purchase. It is a new JD 8600 self propelled forage harvester. They got a 20 foot folding Kemper header and a ten foot hay head. The cost is right at $600K. WOW Add in the six forage wagons they bought and your right at $750K.

Now the rest of the story. They do not have a single head of livestock. Neither one has even ran a forage harvester before. The son worked for a custom harvesting crew driving a truck while in college. They just took delivery this week. I asked him how many jobs they have lined up. Five, about 250 acres worth is all so far. He seems unconcerned about the amount of work they need to just cover the interest and deprecation.

We will be chopping in just a few weeks. I know of very few that would not already have someone committed to doing their harvesting. So I see real limited expansion room for this year.

With grain prices nearing the lower prices of 7-8 years ago and milk is hovering at the $15 range with limited production quotas. I do not see how they are going to make this all work. I really wonder if "new ironitis" hit the son and the Father is going along. A move like this could easily break the entire operation if we continue to have lower prices, which looks likely at the moment.

I know we have gone the other way. We have some things that w would have updated in better times but are just going to rebuild/repair for now. Nothing new or even "new" used for us right now unless it is to sell.
 
I've been out of high school a few years, but your story reminds me of a kid in a neighboring town. When I was in high school, this kid was the state FFA farmer of the year. Of course, a state FFA farmer of the year wouldn't be some kid with five acres of land and a couple of chickens, but somebody who would be a BTO, or least operated like one. (In this case, borrowed up to his eyeballs) A couple of years later, this kid was bankrupt. Like your example, this kid never penciled in how he was going to pay for all of his equipment.
 
JD this reminds me so much of a neighbor of mine. He spent big money on equipment thinking he could put his son to work doing custom work. His son sat in the bar nights and wasn't showing up early enough in the morning. The machinery is now sold and the son is working for someone else.
 
If neither has worked with a forage harvester before, maybe it is good they don't have a lot of acres lined up :).

It does seem in our neighborhood there are last minute changes in the forage harvesting world, so perhaps they will find more work. Or perhaps not.

I'm not sure a custom harvester's margin changes a whole lot with prices, but is probably easier to get paid when prices are good. It also seems like even the best of those guys make their payment to the bank, but really don't net a whole lot- or so I am told by the lending industry.

It also amazes me the amount of $$$ people will drop on forage equipment. I have a neighbor, milks 200 or so cows with two grown sons home on the farm. THey have a big selfpropelled chopper, new forage wagons to tow along side, pretty new tractors pulling them, and a BIG merger. I've got a pull type, and half a dozen forage boxes- mostly JD 716As, and a couple of H &S. 4020s etc as wagon tractors. And feed 350 milk cows. Guess who is done chopping first? Not the self propelled guy, although at least this year he was only one crop of hay behind. Quality of labor and priorities make a big difference, way more than the newness of paint.

So it will be interesting. Let us know how it works out!
 
It's the whole "Build it and they will come" mentality.How many small towns have industrial parks growing up to weeds where town officials had the same mentality? The land would generate more revenue if it was grazing cattle or growing pulp wood.
 
the r ust belt mentality was great before everyone copied USA /// In These Days and times WE MUST REALIZEthat we stand on ground that produces..,, great crops that can be marketed around the world , to those people that are in the spinner and widget businness ,. it will take a special act of providence for the forage harvesteres to make their money to pay for the equipment .... they aregonna have to chop 23-7 , every day of the yr ,.
 
A bunch of years ago I looked at doing custom work on a much smaller scale and could not line up the work to make it payoff so I gave up on the idea. I looked at a new NH 790 with the idea of putting a processor on it. The local NH dealer was anxious for business and quoted me 18,000 for chopper and 824 head. A far cry from 600,000 dollars. Two Miller Pro 5300 wagons for around 14-15 thousand each.
 
When most people think of someone 'living beyond their means' they think maxed out credit cards or a house that someone can't afford the payments.But many farmers are the worst buying
equipment they can't afford and really don't need,then they complain about farmers not getting a fair deal,or prices too low etc etc.Several farmers in my general area have maybe 3 or 4 times the number of cattle I have but easily have 20 times the money in their hay equipment than I do they're always crying the blues about not being able to make it.No kidding if I did like them I wouldn't make it either. Lots of things are nice to own and use but if the bottom line don't work I don't want it.
 
There is always one or two like this in every ones area,,we watch them come and go,,they start out hot and strong,all they see is the grain/milk check,,and pay no mind to all the work it takes to make it..One north of me 25 miles is building a 1200 cow milk operation right now,hired some young idiots to chop a bunch a silage,,they did not pack it near enough,,one mistake after another is happening right now,,no way it will survive..
 
A good friend of mine farms in a partnership with his brother. Between them, they farm enough acres to probably be called BTO's. But--my friend was a mechanic by trade before he went full time into farming. He buys quality used equipment and rebuilds it in the off season.

During an off year when other farmers are crying, he and his brother are still comfortable. During a bumper year, they sock enough away to carry themselves over a bad year instead of going ape over new equipment. Looks to me like the way to do it.
 
I don't know. 250 acres this year. 500 next year. 1000 the next. How many acres was your friend farming during the good times? He may have his land and equip. paid for and a million dollars in bank CD,s earning 1 percent interest. He might just be on to something with that chopper.
 
I was just reading on DTN that a BTO in Michigan, trying to farm close to 100,000 acres, is in deep financial trouble. Supposedly owes a bank something north of 125 million$. According to the article, he might also be facing fraud charges. It is difficult to feel much sympathy for either him or his lender, but I would expect that many small creditors and landlords will end up getting nothing!
 
Many don't go to college for the degree, they go for the college "experience". You know, the parties and drinking. Let the good times roll.
 
I'm one of those that went to college and then home to the farm. If you didn't do it, you won't get it. But it did help a lot, especially with business training. And, as below, there is the "experience" part... my wife, who I met there, was part of the "experience" part...

I like what I do, but I wouldn't trade those 4 years for anything!
 
Custom workers only need one or two good sized customers that forget to pay , or can't pay on time ,to really put a hurt on the custom operator. And guess which guys will be the first to sign on , the guys that still owe money for last years work done by some other poor sap. I don't go looking for work off of my own farm , I might help someone in a jam, but I keep equipment for my own farm. And I rarely hire work done. I just spent all afternoon chopping hay with my forage equipment , it might be old , and not have much value , but it is all paid for , and I am always the first customer inline when my crop is ready to harvest,lol.
 
I went to college and got a degree, had on heck of a good time while I was there. I got a job making 6 figures and still farm several acres.
 
(quoted from post at 16:23:12 09/02/17) I'll never understand why people feel the need to go get a college degree, then go back to the farm.
Click to expand...

I'll never understand why someone would trash talk the value of education. If the degree is in an area relevant to today's farming it's an incredible advantage. Farming = business.

My aunt is a CPA, she and my uncle took over her family's operation 30 years ago after she graduated. Being a CPA is a huge advantage in today's farming world.

There are a lot of college educated Europeans coming over to this area and buying farms. They have both farming experience AND agriculture education and they know how to run an operation that makes money.

There are no dumb operators left in farming and the problem that you're missing is the old school of hard knocks is a hell of an expensive way to learn. You cant afford that and stay in business in today's farming.

Grouse
 
coonie moonie : While I agree with the idea of higher education helping you in life in practice it does not work that way much of the time. I have seen too many educated idiots come back to a successful farm and quickly run it into the ground. For every one that makes it I can name 2-3 that do not. Farming is a very capitol intense business anymore. There is very little room for errors in tight times.

I am afraid this deal could very easily take my friend out of farming. He is successful but not on a scale to handle this type of purchase without it generating income/profit right away. The custom chopping market already has several large operators in this area. It is not like they can not get the crop harvested.

I think this kid just seen the numbers of the crew he was working with and thinks he can duplicate that here. Finding the dairies that utilize these large choppers is few and far between here. Another friend has one of the largest dairy's in this area, 1200 cows. He is an excellent manager/numbers guy. He told me he can hire chopping done for the same amount he was paying 25 years ago. This is a cost per ton of feed chopped. The custom guys here are going to so much an hour for everything. My friend has his farm organized to were they can move massive amounts of corn silage short distances involving HUGH tonnages. This young man is trying to get into a market that has excess capacity in it locally.

Then add in to this is the fact that the Dairies that buy the milk put everyone on a production quota in the last few months. This will make expanding tough to do. They will only buy the same amount of milk that you sold two years ago. So adding large numbers of cows is not going to work now.
 
The Famous Grouse: The reason you see college educations trashed on here at times it that fact that in too many cases the education is worthless in the operation the kids come back too. Either the kids did not learn much at college or they took the wrong courses. I truthfully think a farm kid taking Ag degree classes is not the best thing to do. If the kid has been raised on a successful farm he/she already knows most of the skills needed to actually produce a crop/animal. So taking classes on production agriculture really does not expand their knowledge that much. Most modern farms already have adapted most of the technology that is out there. The stuff that is not in the fields usually is not profitable.

Now a business degree, accounting degree, a mechanical engineering degree, and etc. Does expand the knowledge base of the young person coming back to the farm. I would say expands the base of the skills the farm has too.

My Daughter-in-law has her accounting degree and is a full CPA. Her knowledge of how to create and record the numbers on the farm has paid large dividends. She can tell you to the penny where/what is making money or not.

My second oldest son has an MBA. This helps him in two ways: 1) He was able to have a very high paying job outside of farming. This income stream allowed him to get into farming with a much more solid financial base. 2) He utilizes the available resources better. Mostly people. He can get more out of people while keeping them happy about it. Even with those being mainly family members. This is a weak area for me. I really do not like dealing with people. As I have gotten older that has gotten worse. I can lapse into the my way or the highway attitude real easy.

My other two sons have not gone to college but learned trade skills. The older of them took auto tech classes. He has added this skill to repairing farm equipment. He makes a good side income during slow times with this knowledge. The youngest is a very skilled welder. He started out at home and then took serious welding classes. This skill means he can keep busy doing certified welding in the slow times. He is welding bridges right now. He is making $35 an hour just as a fill in welder. He will be off during October and November. Then back at it until April.

So the right education is valuable. Getting an associate degree in Agriculture is not really of much value on/in most farming operations. Most would have been better off with an off farm job to "learn" how things are done over going to some college where they basically see the same stuff that their home farm does.
 
His sure didnt do him any favors to take on a debt like that better have had a big bunch of cash for start for down payment. That is a huge purchase in anyones figures or do you know something about what he bought and how long it will take just to get his money back.
 
Grouse You have one hell of a lot to learn also. The bigger they get, the harder they fall in todays down ag economy. Only difference is that today they are doing business using bankers money and when they fail, they walk away with only a bad credit rating. The father in this scenario most likely will loose everything he has spent his life working for if he is cosigned on his son's debt.
Loren
 
I've seen uneducated idiots come back to the farm and torpedo things, too.

I'm curious as to what dairies are using "quotas". They might be in your neighborhood, but it is not widespread. Nationwide production was up 1.8% last month, so somebody's picking up more milk... Texas and NM were up a lot, I think 14%- a really big number.
 
I looked at it when I got out of high school couldn't see how a loss of 4 yrs plus 4 yrs of debt- plus 4 yrs experience-loss some one could ever catch me and out of our class I think only 3 have passed me --all 3 non college educated
 
Self propelled forage harvesters have one of the highest payback incomes of any piece of farm equipment. You charge by the ton and probably can cut in excess of 400 tons per hour. But I don't understand him trying it with wagons. You can't keep up with wagons as too many tons to handle. Most hire semi dump trailers.

Try that income compared to a tractor or combine!
 
My buddy ships to Land Of Lakes and he is on a quota. I read a article a month ago about a dairy shutting off 11 dairy farmers. I think it was in wisconsin or Michigan.
 
There was a deal here in WI that cut off 75 farms this spring. Almost all found new homes. The milk market is tight right now, but there has been little "quota" talk here.
 
(quoted from post at 19:15:22 09/02/17) Self propelled forage harvesters have one of the highest payback incomes of any piece of farm equipment. You charge by the ton and probably can cut in excess of 400 tons per hour. But I don't understand him trying it with wagons. You can't keep up with wagons as too many tons to handle. Most hire semi dump trailers.

Try that income compared to a tractor or combine!
Click to expand...

Sure he can, but he only has 250 acres lined up.
What's that, couple of days and he's done for the year.
 
(quoted from post at 19:15:22 09/02/17) Self propelled forage harvesters have one of the highest payback incomes of any piece of farm equipment. You charge by the ton and probably can cut in excess of 400 tons per hour. But I don't understand him trying it with wagons. You can't keep up with wagons as too many tons to handle. Most hire semi dump trailers.

Try that income compared to a tractor or combine!
Click to expand...

Sure he can, but he only has 250 acres lined up.
What's that, couple of days and he's done for the year.
 
I would never trash talk post secondary education . Fellas going off to school means less guys trying to farm. Seriously though , all four of
my siblings went to post secondary , three have BA degrees , one of those three has a MA and a PHd , the other took a trade . All are older
than I , the closes in age to me is 5 years older.I am the dud in the family, with only a high school diploma. I was however , the first in
the family to have a million dollars in assets, and I now have more than double the asset value of the most well off of them all, and they
all now collect pensions too. Having an education will not make you shrewd or creative , or even lead you into running your own business ,
but often traps people into taking "safe jobs" were they don't have to take any risk, but still be afforded a respectable position , or
title .Not everyone can thrive in the academic world , and those that cannot can often be the most creative thinkers , and problem solvers.
Those that can , do . And those that can't , teach. I much prefer to be around those that can , and do.
 
One thing we all should keep in mind is the percentage of family businesses that survive the second generation leadership is in the 30% range, and the number that survive the third generation is in the single digits. That is ALL businesses, not just farms. Lots of reasons for that, not merely the education level of the following generations. Whether you own furniture stores, car washes or milk cows, it's rare to last 50 years in business. Farms might actually do better than the average length, since most first-gen farmers work so much longer on average. Our local BTO is being run by there third gen now, younger than I am. I think they are doing well, but don't see the books, either. Different than Grampa did, for sure.

As for Boerson Farms here in Michigan, they are being sued for $150M in loans per DTN and others. They snapped up the whole Stamp Farms acreage at auction when the Stamp family got caught cooking the books, etc. Looks like some of their assets may shake loose again, not enough AMWAY money to keep going after all.
 
I believe in education no matter the field. Having said that I got out ag college in 84 with big dreams. By the early 90's I realized that many things I had failed at were things I wouldn't have tried before college. My oldest son is the only one to get post secondary education (HVAC) and he found he hated it. I still think it was a good idea. Another feeds at a huge dairy farm and the youngest works on the line for a poultry proccesser.
 
I agree 100%.

My family business was/is construction. I took 1 semester of "construction management" classes at community college. Quickly decided that I was learning more about business from my father, who started from nothing and grew very sucessful, than I was my classes. My brother and I took over operations 9 years ago now and things are booming. One of the wealthiest men I've known quit school in the 4th grade. But he had business sense. I'm certainly am not saying education is worthless. I do agree though that college isn't required for everyone to succeed.
 
I think a lot of this is the result of the short-term focus of too much of American businesses today. The machinery manufacturers, the dealers and lenders are all focused on the next quarter of earnings in order to keep their stock prices going up, not on what the effects of this action will be on the customer and company five or more years down the road. Many of these loans made for are in the best interests of the lender or captive financial subsidiary that finances what they make and sell. Why did Wells Fargo generate all the excess revenue from unsuspecting customers? It was to keep the next quarterly earnings per share going up as this is how the executives were rewarded with bonuses and pay raises.

I have been in the financial services business helping others manage their money for 48 years and I have seen the steady progression from what is best for the company in the long run evolve into short-term earnings forecasts which is the major emphasis of many corporations today. In my opinion, this is why many loans and leases are made to borrowers who really do not qualify for the loan but it keeps their loan numbers going up for the next quarter.

Many of the most successful companies I know are privately owned and do not manage for next quarter earnings. They look at longer-term effects of what they are doing today. There are still many companies that do it the "old fashioned way," but are getting harder to find.
 
A lot of wisdom in this thread.

In the early nineties I was working for Sunoco in the Tulsa Refinery. An upper level guy comes down in the fall and tells us (thirty managers in the room) margins are down, we won't be taking our maintenance shutdown (turnaround). I raised my hand and asked whether the time to shut down was when you weren't making a lot of money. He said you just don't understand. I understood, he was manipulating the quarterly income figure. So we had to cancel contracts and pay cancellation charges for contractors who had mobilized to begin work. A shutdown was about 30 million.

Same guy comes back in March and says "we're making money, you can shut down in April". I raised my hand and asked whether the time to shut down was when you weren't making a lot of money. He said you just don't understand. We scrambled and spent extra money trying to get contractors lined up and couldn't get the best contractors, settling for lesser ones which cost us time and money during the shutdown.

Sunoco no longer owns any refineries.

It is such a big game. Wall Street uses indexes to measure how they think a company is doing. So every company spends money manipulating those indexes. Like leasing instead of buying so their asset base looks smaller for the same profit, or contract labor so their fixed labor looks smaller, even though they will need that labor every year.

Rant over.
 
HOW do low "current crop prices" correlate to it being tough to make it custom corn chopping???
 
Amen to that. Mostly a big data manipulation game -
the previous owner of our company was one of
those guys.

Really great thread here - real interesting.

Hope it works out for them - I do tiny amounts of
harvesting for local beef guys, and even I have to
screen customers - it is amazing how many people
will try stiff somone on a payment.

Businesses are like marriages in one respect - you
never really know what is going on in that house.
Hopefully they alot of assests/other revenue that
can offset that kind of spending.

On the otherhand, I have worked with guys that lost
a house over having a new truck - some people
gotta have the shiny thing.
 
Hey, I'm not opposed to anyone bettering themselves. More power to you. But pay for four years of college and go back to the family farm full time? My Dad and neighbors taught me more about farming than i could've ever learned in a classroom.
 
I've farmed and struggled for 40 some years. Started out in college a couple of years, got the draft incentive to enlist. Came back and started farming with Dad, through the ups and downs of the 70, 80s . Always had a second job to support the habit. Still farming and working on the side at 66. If I had it to do over again I should have gone back to college it could have been invaluable. I had wanted to go into ag econ or engineering. College expands your horizons. My sons haven't furthered there education either one because he can't finish anything and the other because he is special needs. I still would help my oldest get an education if he would. Today if you don't have a degree you can't even get in the door. And if you are going to farm Daddy better have a lot of equity.
 
Milk is down right now as well. So I think that many dairies will be feeling pinched. I should have stated commodity prices are down.
 
It's a shame your son hates HVAC there is money by to be made in that field ( pun intended). I have made a very good living at it and made the most in down economy years.
 
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