Grainswest - Spring 2019

grainswest.com degree in commerce, Kristjan Hebert is the managing partner in Hebert Grain Ventures. He runs the grain farm located near Fairlight, SK, with his wife and parents, growing malt barley, peas, canola, wheat and a bit of fall rye. The business has a junior partner and six additional full-time team members. The family also operates a consulting division within Global Ag Risk Solutions as well as a separate human resources business. Hebert suggested farmers have two businesses, one in real estate, the other in farming. He likened this to operating a hotel. A hotelier may own the land and the building while keeping the rooms full, or do the same while renting both. The relative value of one scenario over the other is in the math. The Hebert farm operation embodies the type of fiscal- strategizing that Gervais recommends and the profit-first flexibility Small advocates. Owned land plays an important part in underpinning the family’s operation, but so do rental acres maintained on flexible terms. Of the 15,500 acres they put in during the past crop year, the Heberts rented 35 per cent. They lease large parcels with several key landlords, having rented with some for up to 20 years. They have also rented smaller packages, some for seven to 10 years. Payment methods vary and range from monthly, quarterly or semi- annual cheques. “And we like longer-term deals with first right of refusal and lease transfer clauses so that they can always be part of our plan,” said Hebert. While he said his family is happy to rent in perpetuity under such terms, when they do buy, they prefer to do so in big blocks. “I prefer to own if we have spare cash,” he explained. Like many farmers, the Heberts like to control their own money. He likened land to RRSPs. “If we don’t have an opportunity to invest it in the farm co. itself, in operating—i.e., expansion—because that’s where our best rates of return are, the second-best place to invest it is in land, because it still benefits farm co and future generations.” In assessing transactions, Hebert compares how the prevailing interest rate will impact the financing of purchased land and subsequent cash flow, versus the rental rate of that land. “Where it takes three acres to make one acre of principal payments, that’s a real easy way to run out of cash if you don’t have reserves or you don’t have a plan. Because if you expand through a purchase, and suddenly you have to sell all your grain off the combine, or you can’t buy your inputs when you want to, that land just became really, really expensive.” As to the economics of rental, Hebert suggested a basic calculation. “I don’t like land rent to be over 25 per cent of gross margin. That is, yield times price minus seed, fertilizer and chemicals. Don’t get me wrong, our gut feel still influences the decisions heavily. There are times when we still do it because it makes sense from the strategic vision. But you need to know that ahead of time so you’re looking for efficiencies to make it work.” Aside from studying finance, which both Small and Hebert suggest is highly practical, Hebert offered a quick self- diagnosis for young farmers considering their options. “One, what’s your cost of production; two, how much money can you lose if you have the worst year ever; and, three, what are your working capital requirements? If you don’t know the answers, you’re not at the point where you should assess whether you should lease or buy land because you’re not even sure where you’re at.” Making a bad land purchase doesn’t typically force a farm into bankruptcy, he added, but rather, they become insolvent—they run out of cash. Unable to pre-buy inputs and sell the crop when one sees fit, as these means of generating profit vanish, the farmer’s predicament becomes a backward treadmill. Want eclipses need when it comes to owning farmland in Small’s experience. When a neighbouring farm comes up for sale, the fact they may only ever get one crack at owning induces some to think short-term. There’s nothing wrong with this, but it can encourage unrealistic assumptions about the cost of farming the new land, he said. “Then, before the end of the year, they’ve added a whole bunch of equipment and the economics of that decision aren’t the same, but they’re locked in now for the 20-year mortgage.” Small believes the current interest rate and market outlook is unlikely to dampen farmers’ enthusiasm for buying land. “And I can’t blame them,” he said. “It’s nice stuff to own.” Hi Tommy, this is my formal letterhead… The above sponsors would need to have their logos on the ad. The following sponsors would be in Text only. Viterra, EQUS, AB Pulse Growers, Farm Link, Cervus Equipment, Bayer Nominations are now open for the 2020 Outstanding Young Farmers of Alberta. Contact: 403-224-2077 Website: Alberta.oyfcanada.com Include a Photo of the Winners of the 2019 Outstanding Young Farmers award: I have supplied a couple photos ( attached) Dallas Vert & Natasha Pospisil from Kirriemuir, AB – Conquest Agro Services. Ignore the sponsors at the bottom of this page. Karilynn Hi Tommy, this is my formal letterhead… The above sponsors would need to have their logos on the ad. The following sponsors would be in Text only. Viterra, EQUS, AB Pulse Growers, Farm Link, Cervus Equipment, Bayer Viterra, EQUS, AB Pulse Growers, Farm Link, Cervus Equipment, Bayer Regional sponsors Nominations are now open for the 2020 Outstanding Young Farmers of Alberta. Call 403-224-2077 or visit alberta.oyfcanada.com for more information. Winners of the 2019 Outstanding Young Farmers award Dallas Vert & Natasha Pospisil from Kirriemuir, AB – Conquest Agro Services.