Only you can define the outcome of your business. Generations ago, farmers said, “I can’t control the markets and the weather.” Rolling the dice is not good enough today.
The first hurdle of success is a mental one: you cannot control things but you can manage them. This mentality is as important as the technology of your business. Success has wiped out the lessons and discipline of 20 years’ experience and education. You can anticipate patterns without having to accurately predict the correct time, price and place an event will occur.
That’s your job: to anticipate patterns.
Return on investment
What is the internal rate of return on any potential investment?
I can easily see a 10% internal rate of return on improving your productivity per acre. That is very attractive to any business and certainly a better price/earnings ratio than buying another 40 acres.
The 1980s taught us that you can always overpay for capacity. If you have a stock that pays you a $5 dividend annually, that’s not good if the stock cost you $500 (that would only be a 1% ROI). But if you paid $1 for a stock and it paid a 20¢ dividend, that’s a great investment. Run your own numbers. But in most cases the best investment is not buying more ground in this current market.
Scrutinize any potential investment’s price/earningsratio. A wise investment might be a retirement fund or an investment outside of farming. A P/E ratio is a common measure of value. Wells Fargo, for example, has a P/E ratio of about 10. Land’s current average P/E of 30 would need an incredible growth story to make sense. But there typically is limited growth potential there; it’s already been captured when you paid what you did for it in today’s overheated environment.