Where To Place Your Farm Bets

Nor' east Thinkin'

Avoid getting sucked in by non-farm investment opportunities. Ag is ‘hot’ in itself.

Published on: February 8, 2012

Agriculture is an exceptional industry with many exceptional businesses and an even greater number of exceptional people. Yes, that’s a double affirmation. That’s why America’s farmers are world leaders in food productivity and in return on farm investment.

Even before the current economic downswing (We’re not supposed to call it a recession anymore.), agriculture was one of the hottest places to reinvest farm revenues. And as you know, it has solidly withstood “tanking” like the rest of the U.S. economy.

Why bring this up? Some investment advisors and bankers might urge you to diversify to protect your assets. But if you’re a savvy farm businessman, you’ll have plenty of places to stash cash other than anemic bank accounts and stocks that reward top management far more than stockholders.

That’s one lesson I learned in recent weeks while interviewing the 2012 crop of Mid-Atlantic Master Farmers. Here are a few more pointers I picked up:

  • If you can’t beat a 10% annual return on your farm investment, you’re probably in the wrong business. Many farms, after nominal living expenses, generate 15% to 20% ROI. Those returns often are rolled back into the business to improve efficiencies. But they’re still there – as long as they aren’t swamped by interest charges.
  • Early-bird and volume discounts still are the easiest money-makers. They put before-tax dollars in your pocket.
  • Haven’t soil tested fields in a few years? That, and probably liming, are often money-in-the-bank investments.
  • Farmland is an excellent safe harbor for cash. You probably won’t liquidate it in days; but it’s unlikely that you’ll need to. And if it’s cropland, it’ll begin generating income the next season. Please note that I said “cash”.
  • If you have a growth plan for your business and you can get a matching grant, it can easily reduce your total costs by 25% to 50%. You make money by saving money. USDA’s specialty crop grants and Environmental Quality Incentive Program funds are good examples.
  • Use cash to expanding your business with compatible enterprises. That’s why many cash grain producers have semi-trucks. But the opportunities aren’t always big ticket items. Energy-saving technologies, for instance, can save money that makes money.

Have other ideas? Let us hear about them.

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