In lieu of land

TORONTO, S.D. -- Four years ago, Greg and Sherry Lunden showed up to bid on a half-section of farmland that came up for sale in their neighborhood.

All three of their children then were approaching their high school years -- all with strong interest in agriculture and farming. So the Lundens figured that with $2.50- to $3-per-bushel corn at the time, the land might be worth $1,500 to $1,700 an acre.

To their surprise, the half-section brought about $2,000 an acre, purchased by an absentee investor from outside the area.

Since then, the absentee landowner has cash-rented the quarter to a neighbor, and the land probably is worth roughly $4,000 an acre today -- at least on paper.

"I think the high-producing land in our area would still bring $3,500 today, I think it would," says Greg Lunden, 44.

"I suppose that guy was a genius," he says.

But he was not strong enough at the time to come up with $700,000 as an investment.

"He was using it as an investment -- not just purchasing land to try to make a living off of it. I don't begrudge him. It's a free country," Lunden says.

History and patience

Greg was the middle child of three on a farm a mile west of Toronto, S.D., in Deuel County. His father, Lester, lost a leg in a farm accident and had farmed as a grain-only farmer with no livestock.

In 1982, at the start of the farm credit crisis, Greg graduated from high school in White, S.D., home of Deubrook High School (named for Deuel and

Brookings counties). In fall 1985, he married Sherry Kruse, his high school sweetheart. She was a so-called "city girl" from the big town of White.

Soon, the young couple were farming.

"I had it in my blood to farm," Lunden says.

Young Greg approached his great-uncle, Arnold Lunden, who was living a mile away on the farmstead where Greg's great-grandfather had homesteaded in the 1890s.

"I'll never forget it," Lunden says. "I told him I was going to get married and wondered if there was any chance if we could pull a trailer home down on his place, or something. He says, yeah, he'd been thinking about moving off of here anyway, looking for an opportunity for some young farmer to continue living on his place. So he sold me the quarter at market value, but a 20-year contract-for-deed with a dollar down payment. That way we could have a house, a barn -- a place to live. So we really did get a very good opportunity, and I feel like I owe somebody else the same thing."

The great-uncle rented them another three quarters, so they were farming a full section.

Soon, they were thinking about children. Sherry was determined to quit her town job and work on the farm, so they decided to go milking.

"I went to a Hutterite auction at Estelline, S.D., and bought 12 milking heifers," Greg says. "I'd never milked a cow in my life before."

Lunden had a local friend who had milked. He'd watched his friend milk, but never had helped him. "I just kept reading, asking a lot of questions."

In March 1987, the Lundens started milking. In June, they had their first child, Levi. A second son, Chauncy, came along in September 1989. Their daughter, Shelby, followed in August 1991.

In the mid-1990s, the Lundens bought another quarter, just to the west of their farm, to expand a feedlot that Greg had operated on a small scale since high school.

Milk checks and concrete

The dairy expanded slowly.

"We bought very few cows over the years, just kept raising our own heifers," Lunden says. In the past three years, the milking herd has reached its current 120-cow maximum.

They limited capital investments.

They began milking in existing stanchions in the barn, carrying bucket-loads of milk to the bulk tank they installed. About 10 years ago, they built a parlor -- a double-six herringbone setup.

"It's all homemade, just like about everything else," Lunden says with a chuckle. "It's kind of a 'baling wire' parlor, I suppose. We took a pattern into a buddy in town, and he bent a bunch of muffler pipes and we welded them together to make the brisket rails. A parlor saves a lot on your hips and knees, from crawling between those cows."

The Lundens keep the dairy cows in loose housing with a bedding pack.

"It isn't real common nowadays," Lunden acknowledges. "Most of them have free-stall type barns. But we decided if these boys aren't going to milk, or stay around, we'd have a huge shed we can use for something else. We can stack hay, or park machinery or feed cattle in. It's basically a big hay shed."

A bigger expansion has come on the beef side of the farm.

Greg Lunden had started feeding 15 to 20 head of cattle when he was still in high school.

"I said, as long as I was going to milk, I was going to pour one milk check a year into concrete for the beef feedlot," Lunden says. "So every year I've put two weeks worth of milk into concrete, or other improvements."

The feedlot project grew to about 2,000 head three years ago. All of the concrete and bunks were built by the Lundens. They hired a crew to pour a 160,000-bushel bunker silo for high-moisture corn or "earlage." The feedlot has separate pens, ranging from 150 to 400 head. About seven years ago, they planted the first batch in what now is 11 acres of trees around the place. This year's Dec. 14 blizzard was an excellent test for the trees.

The Lundens feed mostly heifers and a lot of finishing calves.

"We haven't fed a lot of yearlings. We mostly buy light calves and finish them -- 400- to 500-pound heifers -- and take them to finish."

Lunden admits he bought 900-pound yearlings this year and is losing $150 to $200 each because of the change in the market.

"I use the Chicago Board of Trade to hedge about half of the cattle, so I'm hoping to offset some of that" loss, he says. "The last pen, I paid $1.05 per pound for 1,000-pounders, and then sold them for 87 cents. The price of finished cattle has dropped so fast, and we just have too much in them. But the calves we're replacing them with have dropped, too, and we feel like we have to replace them."

The Lundens farm their five quarters and rent two more -- about 1,000 tillable acres in all. They raise alfalfa or corn on all of it, and it's all marketed through the dairy or feedlot.

"In the past three years, we've bought additional high-moisture corn from neighbors, out of the field, because we haven't been able to raise enough," Greg says.

They'd like more land, but it's been 10 to 12 years since they've felt they could afford any.

Looking to livestock

"The last quarter we bought, we paid $650 an acre for it," Lunden says. "The seller wanted the appraised value, so we had an appraiser come out. The sellers were fine with that. I was happy with that, too."

Four years ago, when the local quarter came up for auction, the Lundens wanted it. It was really good land, very close to their home.

"I went to that auction with my banker," Lunden says. "She wanted us to try for it, and then it brought $2,000. Well, I figured that, at $2.50 a bushel for corn, if you put a pencil to that, it would be way cheaper to buy the corn than make the land payments."

The purchaser bought it as an investment and cash-rents it to a neighbor.

"He made it work because he had the money to pay for the land, and the land has appreciated so rapidly. So it definitely was a good deal for him to buy it."

Because they can't afford land, the Lundens have stuck to their livestock program.

Greg told Levi and Chauncy that they should go to school and find some other way of making a living than farming. "I said, 'If you farm, you're going to be broke your whole life,' " he says half joking.

But his words apparently didn't scare them off.

"Both of the boys said, no, they wanted to farm. That's how they want to make a living," Greg Lunden says.

He can understand that.

Levi bought a 10-acre farmstead about eight miles to the east. It was a former dairy and he's now raising Holstein calves off of his parents' farm, plus some cattle of his own.

"It's his dream -- some way, to build up equity to purchase some farmland of his own," Greg says.

Chauncy lives at home with his parents. He started driving truck when he was in the seventh grade. A year ago, he bought a semi-tractor and two trailers for silage and modified distiller's grain, and another to haul cattle.

"We're actually hiring him to haul our feed and our livestock," Greg Lunden says. He needs to wait until he's 21 to start hauling cattle out of state.

"And then, hopefully, he can find a quarter of land or something to start on," Lunden says.

Shelby, a senior at Deubrook High School, intends to go to nearby South Dakota State University in Brookings to major in animal science. She's already involved in livestock, working with vaccinations and giving shots.

"When she gets done with feeding baby calves here, she's been going up to help with baby calves at one of those 1,000-cow dairies four miles north," Greg says.

Not all pencils the same

If land remains in the $4,000-an-acre neighborhood, the Lundens think it will be "hopeless" for a young farmer to try and raise enough from cropping to pay for it.

"You sit down and do the math -- it's not viable," Greg Lunden says, shaking his head.

Land values have gotten way out of whack and have a long way to fall before it makes sense from a production standpoint.

"I think a lot of investor-type people have bought land as an investment -- instead of buying stocks or CDs," Lunden says. "I'm not making fun of them; land has appreciated so much faster than any of us thought it could."

He thinks land investment may come down some as investors lose confidence in the economy, generally, but the economy could have the opposite effect on investor interest.

"If you're a young farmer and buying land, you need to have a large portion of it in cash and save up before you go and make that purchase," Lunden says. "If you go and borrow the money and make interest payments for 20 years and either sell the crop or run it through the livestock -- it doesn't add up. Even with 200-bushel corn yields it doesn't add up."

Lunden says that at this point in his life, and with his children wanting to farm, "high-priced land doesn't appear it will ever help me." He says he likely would sell his land to his children at some point, but it would have to be at a price they could afford.

For now, the key for the Lundens is to keep plugging away and not stick their neck out too far.

"If you don't get in trouble and you get something saved up to make a big down payment, there'll still be an opportunity to buy land someday," Greg Lunden says.

"Probably.

"Someday."