Profitability vs. Feasibility and the Paradox of Purchasing Farmland
"A student came to my office a while back excited about the opportunity to purchase 80 acres of farmland close to his family’s farm. His father offered to let him use the family machinery and equipment in exchange for labor. The student had properly worked his cost-and-return estimates for field corn and was excited that the undertaking looked like a profitable venture. So, we took a look at the annual principal and interest payments that would be due over a 20-year and 30-year loan life given the price of the land and his available 25% down payment. Sadly, the deal did not even come close to cash flowing at the $4.25 per bushel corn price and cost of production he had assumed. Corn prices would need to be nearly $8.00 per bushel, at the same cost of production, for the deal to cash flow, even with the machinery-for-labor trade."
In this article, Center for Agricultural Profitability Director Larry Van Tassell explains how profitability and feasibility factor into purchasing farmland in today’s economic environment.